'They're Back' in Full-Force: Tesco's Fresh & Easy Adds New $6-Off Online Coupon to Just-Recently Direct-Mailed $6-Off Coupon; Tough to 'Terminate'

News & Analysis: Fresh & Easy's Deep-Discount Store Coupons

On May 1, 2009 Fresh & Easy Buzz reported that after taking a break from regularly distributing its $5-off (purchases of $20 or more) and $6-off (purchases of $30 or more) deep-discount store coupons for most of February, March and part of April (2009), Tesco's Fresh & Easy Neighborhood Market direct-mailed a $6-off store coupon good for nearly one month to consumers in neighborhoods surrounding its 120 Fresh & Easy grocery and fresh foods stores in California (Southern and Bakersfield), southern Nevada and Metropolitan Phoenix Arizona.

[Read our May 1, 2009 story here: Fresh & Easy Brings Back $6-Off Deep-Discount Store Coupon; Latest Version Good For Nearly One Month; New Promo Strategy Didn't Last Long.]

Tesco's Fresh & Easy has now followed-up on that household direct-mailed store coupon drop by offering one of the $6-off purchases of $30 or more store coupons on its freshandeasy.com Web site. The online coupon is here. The store coupon was posted yesterday on the Web site.

The $6-off online deep-discount coupon is good until May 10. As mentioned, the $6-off store coupon in the flier distributed on April 28 is good until May 25, 2009.

Tesco's Fresh & Easy also is promoting the online coupon's availability using its Twitter.com feed. For example, below are two promotional "Tweets" informing its fresh_and_easy Twitter followers of the coupon's posting on the Web site:

>This promotional "Tweet" is from yesterday, Wednesday, May 6:
Dont forget your coupons this week! http://tinyurl.com/dhb3snabout 23 hours ago from Netvibes.

>And this one is from earlier today:
@DollhouseCSMTCS did you get the latest coupon in the email? http://tinyurl.com/dhb3snabout 7 hours ago from Netvibes in reply to DollhouseCSMTCS.

Based on the fact Tesco's Fresh & Easy distributed a paper version $6-off store coupon on April 28 via direct-mail, which is good for nearly a month until May 25, along with it's now promoting of the online $6-off purchases of $30 or more store coupon good until May 10, it appears the grocer is back in the store coupon game in full force.

Store coupons and everyday merchandising

As we previously reported, Fresh & Easy was trying to wean itself off of the regular use of the deep-discount store coupons, the use of which for many shoppers has become a regular part of their Fresh & Easy grocery shopping behavior.

For all or most of February, March and April the grocer didn't distribute any of the deep-discount store coupons via direct snail mail, which is a practice Tesco's Fresh & Easy has done regularly since the first stores opened in November, 2007.

Instead, the grocery chain issued just a few online coupons good for no more than three days -to- one week in duration. We are aware of no more than three online store coupons being distributed from February -to- early April 2009.

Fresh & Easy's marketing people also told consumers requesting the discount store coupons on its company Blog and Twitter feed that it was no longer regularly distributing the coupons as it had been in the past, saying on more than one occasion that it was now something the grocer would do infrequently, if at all.

Tesco's Fresh & Easy also changed its advertising flier, which it posts as an online version on its Web site and direct-mails (paper version) to residential households, from a once-every-three-week promotional vehicle to a weekly flier on March 4. As part of that change the grocer has offered hotter promotional prices in its now weekly advertising flier since March 4, compared to the promotional offerings prior to that.

This strategy -- going to a weekly advertising flier (which is something Fresh & Easy Buzz suggested over a year ago, by the way) and offering deeper-discount promotional price-points on the advertised items in the flier, clearly was an attempt by Tesco's Fresh & Easy to change its strategy from the chronic use of the deep-discount store coupons and instead put the focus on the weekly advertising flier and hotter-priced promoted items in the flier. [March 11, 2009: Fresh & Easy Buzz Redux: Tesco's Fresh & Easy Changes its Promotional Advertising Flyer to 'Weekly;' Something We've Been Suggesting For About A Year.]

The overall promotional merchandising strategy in doing this being to go from offering an across the board discount (a certain percent off whatever is purchased) -- the store coupons -- to a more item-based promotional scheme, similar to what nearly all of its competitors do.

But with the distribution of the $6-off paper store coupon good for nearly one month, along with the now online $6-off coupon, it appears that strategy isn't producing sufficient sales for Fresh & Easy. Why else go back to the discount coupons, including issuing one good for nearly a month, which is seldom if ever done in the retail grocery business.

On the rare occasions when grocers do issue such coupons, they almost always are good for three or four days only. (Duration is a key element in "promotion.") This is the case because the purpose of such coupons is to (1) stimulate sales over a short period of time and (2) to serve as a promotional vehicle to bring new customers into grocers' stores.

Whenever a food retailer issues such a coupon for such a long period of time -- three weeks, four weeks -- it generally means that grocer has a strong need to create sales and therefore decided to do so using the short-term device of a deep-discount store coupon. The use of deep-discount store coupons are considered a "quick fix" promotion (read need sales) in the retail food and grocery industry.

It's important to note that such coupons aren't really marketing vehicles, as their complete focus is on price.

Consumer perception and pricing realities

Additionally, when such coupons are used regularly by a grocer, and have long expiration dates on them, that grocer creates a perception among shoppers that the coupons are a part of the retailer's overall merchandising practice; that without the coupons perhaps that grocer's everyday prices are just too high. Consumers' perceptions are reality, even if incorrect.

It's our analysis, as we written about before in Fresh & Easy Buzz, that Tesco's Fresh & Easy has done just that with its regular use of the deep-discount store coupons: It's created a perception among a significant segment of its shoppers that the coupons are needed in order to gain value in the form of good prices at the stores.

The reality is that when there are no Fresh & Easy deep-discount store coupons, sales go down and shoppers complain to the retailer about the lack of coupons.

This is a self-inflicted problem for Fresh & Easy. The grocer created the perception and thus problem by its chronic distribution of the store coupons.

Evidence of this shopper perception is that from February -to- early April numerous customers complained to Fresh & Easy via its company Blog and on Twitter.com about the lack of the coupons. The record is there.

Shoppers also complained about it on other Blogs such as the one written by Orange County Register reporter Nancy Luna. Her popular Blog is called the "Fast Food Maven." In fact, even Ms. Luna complained to Fresh & Easy about the lack of the store coupons during that period, perhaps offering a voice for her readership in Southern California's Orange County. [Have a read here, for example.]

Tesco's Fresh & Easy responded to these numerous shopper complaints by offering online coupons good for a few days at a time a few times in February and March. It's clear by following the Blog and Twitter trail that doing so was a response to the coupon-less shoppers' complaints.

It's our analysis that with its latest round of $6-off store coupons, Tesco's Fresh & Easy will find itself in a bind -- well an even tighter bind than it already is in regarding the store coupon issue. The previously unhappy store coupon-hungry shoppers are now being satisfied with a new round of $6-off coupons. But that will only make the customers hungry for more when these expire.

Seeing that Fresh & Easy has issued this new coupon round, including the $6-off store coupon good for nearly one month, shoppers are likely to think that once again the deep-discount store coupons are back as a regular feature at Fresh & Easy. And perhaps they are?

But if they aren't back as a regular feature at the grocery and fresh foods chain, it isn't going to take long, perhaps a month without any of the coupons, for that shopper-base to once again voice its complaints via the Blogs and on Twitter. One Fresh & Easy Buzz reader e-mailed us about the lack of the store coupons in February, calling them "Coupon Crack," for example. He wanted them now.

No-frills, low price model: Why deep-discount coupons?

If a shopper buys the $30 minimum purchase using the $6-off store coupon, that's a 20 percent discount off the regular price of the items that comprise grocery order. That 20% comes out of Tesco Fresh & Easy's margins.

In the penny-profit food retailing business a grocer can only do a couple things if it's regularly giving shoppers 10% -to- 20% off of their store purchases: It can raise the everyday prices in its stores to make up the difference, it can figure out a way to cut costs to achieve that percent difference, or it can do some combination of the two. In reality doing so is impossible.

{We did notice in Fresh & Easy's weekly ad flier that ended yesterday that the grocer was promoting a number of items at higher prices than it has recently, prior to issuing the store coupons. An example is the Buxted store brand Boneless, Skinless Chicken Breasts, which in the just-ended ad flier were priced 20-cents per pound higher (still a decent promotional price at $1.97 pound though) than they were in two or three previous fliers, when they ran the chicken breasts at $1.77 pound. Perhaps this is because of the discounts represented by the deep-discount store coupons? The April 28 $6-off coupon was distributed that same week.}

The entire deep-discount store coupon fixation situation is particularly odd for Tesco's Fresh & Easy because its positioning with the small-format grocery and fresh foods markets is as a convenient, no frills, everyday low-price-focused neighborhood grocery market. That's the model.

Tesco has touted that Fresh & Easy's prices are about 15% lower everyday than those at supermarkets operated by its competitors in California, Nevada and Arizona. Does that mean with the $6-off coupon the prices are now 35% cheaper than the competitions, assuming a shopper buys the $30 coupon purchase minimum?

You see the problem. Why does a food and grocery retailing model or format (Tesco's Fresh & Easy) that is no frills, low price need (or want to) to regularly distribute deep-discount store coupons to get sales? Hint: It's not because of the recession.

Fresh & Easy does have good everyday prices in its stores. It's competitive on price with its retail competitors across the board. But it has gotten itself into a position where it must regularly distribute deep-discount store coupons worth up to 20%-off a total grocery order purchase in order to get sales.

That's a problem. And the root of the problem has to do with the Fresh & Easy format itself, the retailer's operations practices, and its merchandising and marketing, more so than it does with the current economic recession, in our analysis. [March 7, 2009: Analysis & Commentary: The Seven Retail Operations Changes Tesco's Fresh & Easy Neighborhood Market Needs to Make to Help it Get On the Success Track. March 2, 2009: Fresh & Easy Buzz Redux: Much of the Value Proposition-Based Analysis and Suggestions We've Been Offering Now Being Adopted By Tesco's Fresh & Easy.]

Bringing back the $6-off store coupons with such a long expiration date -- from April 28 -to- May 25 -- plus adding an online version good until May 10 -- suggests to us that the deep-discount store coupon isn't going away anytime soon at Tesco's Fresh & Easy.

Fresh & Easy shoppers are delighted, and they should be, it's their job to get the best deals they can on groceries in these difficult economic times. They need not and should not concern themselves with retailer margins, sales and the like. That's not in the grocery shoppers' manifesto.

But we find it hard to believe that the senior management at Tesco isn't aware of the bind it has gotten itself into with the chronic use of the deep-discount store coupons.

No other grocery chain uses them anywhere near as frequently as Fresh & Easy has and does. In fact, most grocers don't use the coupons at all, for the reasons described above. They are margin killers and should only be used as short term promotional tools. And of course they create dangerous consumer price perceptions when used chronically like Tesco's Fresh & Easy has.

Perhaps Tesco hopes that once it gets its Fresh & Easy stores closer their sales targets (about $200,000 per store per week in average sales), if it does, that it can then just stop distributing the deep-discount store coupons completely.

That could happen. But only if the retailer comes up with a solid, comprehensive merchandising, marketing and promotional plan that positions the stores in a way that shoppers want to shop at them even without the regular availability of the $5-off and $6-off store coupons.

Since average sales per store are nowhere near that $200,000 per store per week target at present with the regular deep-discount store coupon distribution, Tesco's Fresh & Easy has a long road to travel in order to eliminate the use of the coupons, something it said in February of this year it was essentially doing.

But the store coupons are back -- and in full force -- online and via direct mail.

And it's our analysis that although the retailer will likely try to hold back on distributing the $5-off and $6-off deep-discount store coupons for as long as it can after the current $6-off coupon expires on May 25, it won't do so for very long.

And the funny thing is that by issuing a store coupon like that for so long of a shelf life, nearly a month, it's actual power as a promotional vehicle is greatly reduced. As we said earlier, duration (or time) is a key element in any promotion, including store coupons.

The idea behind using such coupons is to give shoppers a limited amount of time -- three days, four days, a week tops -- to use the coupons so that they will rush to a grocer's stores and save money. If you snooze... you lose.

In contrast, a nearly four week expiration date, like is the case with the $6-off Fresh & Easy store coupon that runs until May 25, allows for plenty of shopper snoozing before using. And the coupon's long duration builds an expectation on the part of shoppers that the coupons are a normal part of a retailer's merchandising practice. Why issue a coupon for almost a month if its is something special?

Coupons going to be tough for Tesco to 'Terminate'

Since Tesco's Fresh & Easy wants to eliminate the store coupons, and attempted to earlier this year, it's clear its desire isn't to have them as a part of the its normal course of doing business, despite distributing them in a way that says the opposite. Maybe the coupons are "Fresh & Easy senior management crack," as well as shopper "coupon crack," as our e-mailer referred to the $6-off store coupons?

It will be interesting to observe what happens after the latest deep-discount store coupon expires on May 25.

We're rather certain of this though: To paraphrase current Governor of California and former Hollywood movie star Arnold Schwarzenegger's famous catch phrase -- "I'll Be Back" -- from the movie "The Terminator" -- after May 25 the Fresh & Easy deep-discount store coupons "Will Be Back."

[Follow Fresh & Easy Buzz around on Twitter.com at www.twitter.com/freshneasybuzz.]