Thursday, April 16, 2009

A 'Newsworthy' News Release - But Not For the Reasons They Might Think: Tesco's Fresh & Easy Reinvents Multiple-Item Pricing in America; Good Luck!

Tesco's Fresh & Easy Neighborhood Market distributed the news release reprinted below (in italics) yesterday.

Buy More and Save at Fresh & Easy

Multi-buy discount introduced today

EL SEGUNDO, Calif., April 15 /PRNewswire/ -- With customers looking for ways to stretch their budgets, Fresh & Easy Neighborhood Market today launched a new multi-buy discount on a variety of products that will rotate every few weeks. The more customers buy, the more they can save, allowing customers to buy larger quantities for less.

"Customers are telling us they are increasingly looking for ways to stretch their budgets because times are tight," said Simon Uwins, chief marketing officer at Fresh & Easy. "Fresh & Easy's new multi-buy promotion will help customers save when they buy more, so they can feed their families for less money."

A few of the products that launched Fresh & Easy's new multi-buy promotion(1) include:

>fresh&easy Tea Bags, all varieties (20 Count) - Any 2 for $3
>fresh&easy Marinades, all flavors (12.25 fl oz) - Buy 2 Save 50-cents
>fresh&easy Sliced Bacon (12 - 16 oz) - Any 2 for $6
>fresh&easy Sliced Bread (24 oz) - 2 for $5
>fresh&easy 4 Count Apples (Fuji, Red Delicious, Granny Smith and Gala) - Buy 2 for $3
>fresh&easy non-fat and low-fat yogurt, all flavors (8 oz) - Any 6 for $3
>Pampers Dry Big Packs (Sizes 3 - 5) - Any 2 for $40
>Cesar Dog Food - Buy 5 Save 50-cents

Customers now can also save 20% when they buy three or more fresh&easy prepared meals labeled with a "Buy More and Save" sticker. Fresh & Easy's prepared meals are made fresh daily in the company's kitchen, and are developed by a team headed by Fresh & Easy's Chef Mike Ainslie. Like all Fresh & Easy brand products, these meals contain no artificial colors or flavors, no added trans fats and only use preservatives when absolutely necessary.

Earlier this year, following increased customer interest, Fresh & Easy added bigger packs to stores including diapers, laundry detergent, produce, and cereals. The company also introduced larger-sized freshly prepared meals that feed four people for only $8.

More information regarding Fresh & Easy Neighborhood Market can be found at Photos available upon request.

(1) Customers must purchase multiples as indicated to receive the discount. Single items purchased at the everyday low price.Website:

As you can see by reading the news release, basically what Tesco's Fresh & Easy is announcing is that it is doing some multiple-item ("two-fer", "three-fer") pricing on a selected number of food, grocery and packaged goods items that will rotate every few weeks.

This -- multiple pricing -- is something grocers in the U.S. have been doing for ages.

We asked an 88-year old retired grocer we know (he retired at age 77), who spent his entire (very successful) career -- beginning as a box boy at age 10 -- in the food and grocery retailing business in the U.S., including four decades in the Western U.S., about how long he thought multiple-item pricing has been around. He says he remembers multiple-item pricing being around when he first started in the business. Or to quote him: "I first remember multiple pricing existing at about the time when I needed two milk crates to get high enough at the checkout counter in order to box groceries." (Notice he said box, not bag.)

In other words, the news release isn't all that newsworthy; at least not from the news angle Tesco's Fresh & Easy thinks it is.

But we happen to think the news release is extremely newsworthy... for what its news angle or peg isn't however.

Read the sentence here in italics, (its the very last one in the news release in bold above): (1) Customers must purchase multiples as indicated to receive the discount. Single items purchased at the everyday low price.

What this means is that if a shopper buys only one of any or all of the multiple priced items -- say the fresh & easy tea bags priced at 2 for $3, for example -- then instead of getting her one box of tea bags for $1.50, like she gets the item for at every other store in the United States that uses multiple pricing, instead she will pay the regular price for the tea bags. Let's say that price is $1.99. In other words, she only gets the deal if she buys the quantity of the item(s) Fresh & Easy wants her to. It's a forced choice. In fact, that's a good name for the pricing scheme: "Forced-choice multiple pricing."

In other words, Tesco's Fresh & Easy is reinventing the food and grocery industry retail pricing in the United States.

It appears the retailer is attempting to get shoppers to buy more than one item on a variety of SKUS, which is fine so far since that's the primary goal of multiple item pricing strategies. But (and it's a Big But) Tesco has decided to attempt to achieve this objective by forcing the shopper to buy the multiples (two boxes of tea bags, two bags of dog food; 6 yogurt cartons, ect.) in order for the customer to get the item(s) for the price-point it has set for the SKU's. 'Want your fresh & easy sliced bread for $2.50 (2 for $5), buy two then. Only want one, it will cost you $2.99 or $3.19 -- the regular price.'

When American shoppers see "two-fer pricing" -- two 12-packs of Coke for $6.99, two loaves of sliced bread for $5 -- they know based on learned shopping behavior that they can buy one instead of two (or three or four if that's the multiple) and still get the promotional price. In the Coke example that would be one 12-pack for $3.50. The sliced bread: one for $2.50.

This is a shopper expectation. The expectation has been created by decades of U.S. supermarket industry convention. It's how pricing is done in U.S. supermarkets and discount stores: Wal-Mart, Target, Safeway, Kroger...on and on. See a 16oz package of sliced bread at $2 for $5 at any of these chain's stores but only want one loaf? No problem. It will cost you $2.50 -- not the "regular price."

American retailers know shoppers don't like to be forced to buy more quantities of a particular item (SKU) than they want to. That's why the retailers who use multiple-item pricing as part of their everyday and promotional retail pricing strategies offer the everyday or promotional price multiple to customers (whatever fraction one unit equals) even if they buy one item instead of two...or three or four. Buy one can of 8oz tomato sauce priced at 4 for $ get it for 25-cents, not its regular price, which could be say 39-cents.

We think Fresh & Easy is in for trouble trying to reinvent how multiple-item pricing is done in American food retailing. Even retail giants like Wal-Mart have a hard time going against such accepted convention. And it's not just accepted convention because it's convention. It is because it's a fair deal to most shoppers. 'Don't tell me I can have it for $6 but that I have to buy three in order to get that price,' they just might say. 'Just price the item at $3 and I will buy as many as I need or want; thank you Mr. grocer.'

And we feel sorry for the Fresh & Easy store-level employees who will be explaining to customers over and over why if they buy just one box of the fresh & easy tea bags that are priced 2 for $3 it is going to cost them whatever the regular price is rather than half of $3 ($1.50) like it costs them at Ralphs, Vons, Safeway, Bashas, Wal-Mart, Albertsons, Fry's, Smiths, Stater Bros., Trader Joe's, Whole Foods, Gelsons...and all the other food stores in California (Southern and Bakersfield), southern Nevada and Metropolitan Phoenix, Arizona, the three states where Tesco has its 118 Fresh & Easy markets in. We might add, that's how it is throughout the United States as well, in total.

A store-level scenario we see playing out:

65 year old retired female shopper (could also be 21 year old single male, female, for that matter): (Speaking to the Fresh & Easy store clerk)...Sir, when I scanned the fresh & easy tea (self-checkout only at Fresh & Easy but clerks assist if asked) that's on special at 2 for $3.00 it charged me $1.99 (hypothetical regular price) instead of the $1.50 (half of $3.00). There is a mistake!

Fresh & Easy store clerk: Let me take a look and help you Ms. How are you today, by the way? Ms., you only have one box of tea, that's why you were charged the $1.99 instead of the 2 for $3.00.

Shopper: Yes, I know I have just one box. That's all I need. I live alone and one box will last me for a month or two. If I buy more than one box at one time it gets stale. But half of $3.00 is $1.50, so I think the machine made a mistake?

Store clerk: Well...Ms. you have to buy two boxes of tea in order to get the price of 2 for $3.00.

Shopper: (who happens to have a Masters Degree in math): Yes, I know if I buy two it's $3.00. But I bought one, so it's $1.50. I just bought one each of three different items priced at Ralphs at 2 for $5.00. They cost me $2.50. Then I went down the street to Vons and bought some items (one only of each) that were priced 2 for $4.00. They cost me $2.00. Then yesterday I bought a different type of tea over at Albertsons. It was priced 2 for $3.00 just like this one. It cost me $1.50. So, I don't get it (wondering if it was worth getting the advanced math degree).

Store clerk: Ms. -- Between you and me...I don't get it either. But...let me try explaining it this way...

You get the point.

When many of the shoppers find that they have to buy the full multiple quantity (a forced choice) of the item in order to get the price, they are going to be unhappy.

So you see...the news release is newsworthy, in our analysis, which is based on a bit of experience in the pricing world. It's just not newsworthy from the perspective Tesco's Fresh &Easy thought it was when it issued the release yesterday.

In our analysis and opinion this "promotion" is another example of Tesco's failure to understand its Fresh & Easy stores are in the Western U.S. and not in Britain. You just can't force-feed a foreign food and grocery retailing model into another country and its food retailing culture and practices, no matter how big of a retailer you are.

As the wise Cultural Anthropologist says, when you play in another culture, it's best to observe that culture's practices, particularly the successful members of that given culture.

Safeway, Wal-Mart, Kroger....they do what they do vis-a-vis multiple pricing -- give the customer the price regardless of how many packages they buy -- for a reason: it works better than trying to force shoppers to buy the number of units of an item the retailer wants them to.

Of course we could be wrong. But experience tells us we aren't.

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Jim said...

Actually, it appears to be getting more and more common for regular grocers in California to do this as well. Grocery stores have been giving discounts on 2 gallons of milk for ages, by saying "first gallon will scan at regular price; second gallon will reflect savings". Recently I have seen Vons/Safeway do it on yogurt and a few other things.

Fresh & Easy Buzz said...

Good point on the milk Jim. Pretty much every chain in California offers an everyday buy-two- gallons-of-milk-and-get-a-special-price-but-only-buy-one-get pay-the-regular-price-deal.

But they do it on just their store brand, lowest priced milk. As such the cost for 2 gallons is close to the same as the cost of one gallon of manufacturer (Knudsen, ect.)dairy-brand (or the retailer's higher-end store brand) fresh milk. Think that's a significant distinction.

Think the main distinction is it's no problem to do so on a commodity like the lowest priced store brand milk in gallons. But when start doing it on multiple items, like tea, ect., then becomes a problem. And the more items, the more problems, as shoppers will think they are being ripped off, even though they aren't, technically.

We think an offering like: Buy-3 boxes-of-tea-bags-get-$1.00-off-on the-three-is-fine-though (or what Fresh & Easy is doing with the one item, the dog food, 50-cents off multiples. The difference is when you offer say two items for $1.00. A customer buys one and gets charged the regular price, say 99-cents. That will pose problems we believe, based on experience.

Interesting on the yogurt; haven't seen that yet.

We haven't found any chain doing the "forced multiple buy" on anything other than the low-end milk.

What are some examples of items other than the yogurt that you;ve seen at Vons? Was recently in a Vons and didn't see any?

Thanks for your comment!

Fresh & Easy Buzz said...

By the way, we hope it's a success for Fresh & Easy, and that we are wrong. But have serious doubts.

F&E Gal said...

Thanks for feeling sorry for us store level employees, it's already proving to be quite the hassle. I am fine with the buy 6, save .50, like for the pet food, and I'm fine with the buy 3 save 20% on the meals, but the 2 for $5 bread, the 2 for $3 tea, and a few others are causing major customer service issues, and the customers are not happy.

re: Vons, I have seen them doing the same thing lately though. The yogurt was one of them, the Lunchables was another. I don't believe it's going this week, but it was advertised as such in their flyer. I think there was also a cereal promo like this, but it was worded as buy 10, save $5, but you HAD to buy the 10 boxes.

F&E Guy said...

My experience at our store is about the same as F&E Gal's. No real complaints about the % off stuff like the dog food and the meals. But numerous customers complaining about having to buy a certain number of the items to get the price. And a few have been saying just what you said. That they don't have to buy that many at Ralphs or ALbertsons or wherever to get the special price.

linda said...

I was in a gas station convenience store and saw a coke product priced 2 for $2.50. I only bought one and was charged $1.75. I complained and was told I had to buy both to get the lower price. Guess where I'm NOT stopping next time!