Yesterday (December 7) the Financial Times reported here that Tesco is planning to bring its successful loyalty card program from the United Kingdom (UK) to its Fresh & Easy Neighborhood Market chain in the Western U.S., siting as its source "A recent advertisement for a new marketing position at Fresh & Easy’s US headquarters in the Los Angeles area [which] lists '2010 planning for loyalty programme' amid the job responsibilities."
The position in question however has to do with Fresh & Easy's existing "Friends of Fresh & Easy" e-mail-based marketing program rather than the grocer having any immediate plans to import the successful loyalty club card scheme from the UK to Tesco's fledgling Fresh & Easy chain.
Fresh & Easy Buzz was surprised to read the Financial Times' report yesterday for two major reasons: First, according to our (good) sources, Tesco's Fresh & Easy has no such near-term plans to begin a loyalty card program like the very successful 'Tesco Clubcard' in the UK and, second, the intellectual and operational "brains" behind Tesco's UK loyalty card program, the firm Dunnhumby, is unable to administer such a program for Tesco Fresh & Easy USA because the firm is prohibited from doing so due to a contract it has in the U.S. with the Kroger Co. supermarket chain, even though Dunnhumby is majority-owned by Tesco.
This Financial Times' report apparently struck the editors and reporters at the supermarket industry trade publication Supermarket News as a surprise like it did us here at Fresh & Easy Buzz.
Today, Supermarket News' reporter Julie Gallagher reported in this story that, according to Fresh & Easy Neighborhood Market spokesman Roberto Munoz, Tesco has no current plans to start-up a loyalty card program at its Western USA-based chain of 130 Fresh & Easy small-format grocery and fresh foods markets located in California, Nevada and Arizona.
In the report, spokesman Munoz told Ms. Gallagher the job advertisement in question is for Fresh & Easy's e-mail-based "Friends of Fresh & Easy" marketing program, which it started earlier this year, and which Fresh & Easy Buzz suggested in concept the grocer create 11 months before that.
What Fresh & Easy Buzz does know is that the topic of importing the loyalty club card program from Tesco UK to the Fresh & Easy USA outpost has been a topic of discussion for a considerable amount of time between Tesco corporate brass in the UK and Tesco Fresh & Easy senior management at its Southern California headquarters.
For example, we were told as far back as 2007 and again in 2008 by a former Tesco Fresh & Easy headquarters employee who was in a position to know that discussions on importing the loyalty card program (or not) were held more than once by the grocery and fresh foods chain's senior management, as well as being discussed with members of Fresh & Easy's buying and merchandising team at the El Segundo, California headquarters.
The decision then, and now, has been to not institute a loyalty card program for Fresh & Easy. The two key reasons for not doing so being (1) the Dunnhumby-Kroger Co. dilemma and (2) the simple fact that it's been believed by the chain's senior management that it's far too soon in Fresh & Easy's development to consider a club card program because of not wanting to create any type of program that might perceptually or actually serve to restrict business, particularly the encouragement of much needed new shoppers to the stores. A grocer has to create loyalty before it rewards it after all.
Analysis
Our analysis here at Fresh & Easy Buzz is that it makes no sense at this point in time for Tesco's Fresh & Easy Neighborhood Market to get into the loyalty club card business for three key reasons:
1. Loyalty card programs tend to work best for large chains with significant market share such as Tesco in the UK and Safeway Stores, Inc. in the U.S. Fresh & Easy has little or no share of the market in its three key market regions: Southern California, Metropolitan Las Vegas, Nevada and Metro Phoenix, Arizona. A grocery chain needs a significant and strong customer base in order to make a loyalty card program work. Fresh & Easy has neither at this point in time. Therefore, adopting a loyalty card program makes little sense.
2. Fresh & Easy Neighborhood Market already has too many self-imposed retail operations' policies that serve to restrict potential shoppers. These include: not accepting manufacturers' cents-off coupons, paper personal checks and WIC Vouchers in any of its 130 stores. Having a 100% self-service checkout system also is a restriction to customers who prefer full-serve checkout or at least being offered the option of having it.
There's no reason at this point in its development for Fresh & Easy to self-impose an additional potential barrier to customer entry policy such as a club card, which would mean that only holders of such a card would get certain promotional offerings and price reductions.
3. Fresh & Easy has far more concerns at this point in time in terms of its operations, marketing and merchandising than the implementation of a loyalty card program. These concerns include: the need to draw more shoppers to its stores, increasing gross margins considerably and still having numerous underperforming stores, among others. Instituting a loyalty card program would in our analysis do nothing to help solve these serious problems. In fact we think instituting a loyalty card program would just distract the grocer from focusing on these and other big issues. It's our analysis that the biggest issue remains the viability of the Fresh & Easy format itself. The jury is still out on that question -- as is the answer.
Conclusion
Therefore, to those at Tesco and its Fresh & Easy chain, we suggest that not implementing any sort of a loyalty club card program at this point in time is the wise decision for the three key reasons we mention above, along with a few others.
The time is not right for such a program, and we don't see any benefits of doing so for Tesco's Fresh & Easy. There are many higher and more important priorities to be addressed, changes to be made, and programs to create and implement in order to achieve success for the chain.
The position in question however has to do with Fresh & Easy's existing "Friends of Fresh & Easy" e-mail-based marketing program rather than the grocer having any immediate plans to import the successful loyalty club card scheme from the UK to Tesco's fledgling Fresh & Easy chain.
Fresh & Easy Buzz was surprised to read the Financial Times' report yesterday for two major reasons: First, according to our (good) sources, Tesco's Fresh & Easy has no such near-term plans to begin a loyalty card program like the very successful 'Tesco Clubcard' in the UK and, second, the intellectual and operational "brains" behind Tesco's UK loyalty card program, the firm Dunnhumby, is unable to administer such a program for Tesco Fresh & Easy USA because the firm is prohibited from doing so due to a contract it has in the U.S. with the Kroger Co. supermarket chain, even though Dunnhumby is majority-owned by Tesco.
This Financial Times' report apparently struck the editors and reporters at the supermarket industry trade publication Supermarket News as a surprise like it did us here at Fresh & Easy Buzz.
Today, Supermarket News' reporter Julie Gallagher reported in this story that, according to Fresh & Easy Neighborhood Market spokesman Roberto Munoz, Tesco has no current plans to start-up a loyalty card program at its Western USA-based chain of 130 Fresh & Easy small-format grocery and fresh foods markets located in California, Nevada and Arizona.
In the report, spokesman Munoz told Ms. Gallagher the job advertisement in question is for Fresh & Easy's e-mail-based "Friends of Fresh & Easy" marketing program, which it started earlier this year, and which Fresh & Easy Buzz suggested in concept the grocer create 11 months before that.
What Fresh & Easy Buzz does know is that the topic of importing the loyalty club card program from Tesco UK to the Fresh & Easy USA outpost has been a topic of discussion for a considerable amount of time between Tesco corporate brass in the UK and Tesco Fresh & Easy senior management at its Southern California headquarters.
For example, we were told as far back as 2007 and again in 2008 by a former Tesco Fresh & Easy headquarters employee who was in a position to know that discussions on importing the loyalty card program (or not) were held more than once by the grocery and fresh foods chain's senior management, as well as being discussed with members of Fresh & Easy's buying and merchandising team at the El Segundo, California headquarters.
The decision then, and now, has been to not institute a loyalty card program for Fresh & Easy. The two key reasons for not doing so being (1) the Dunnhumby-Kroger Co. dilemma and (2) the simple fact that it's been believed by the chain's senior management that it's far too soon in Fresh & Easy's development to consider a club card program because of not wanting to create any type of program that might perceptually or actually serve to restrict business, particularly the encouragement of much needed new shoppers to the stores. A grocer has to create loyalty before it rewards it after all.
Analysis
Our analysis here at Fresh & Easy Buzz is that it makes no sense at this point in time for Tesco's Fresh & Easy Neighborhood Market to get into the loyalty club card business for three key reasons:
1. Loyalty card programs tend to work best for large chains with significant market share such as Tesco in the UK and Safeway Stores, Inc. in the U.S. Fresh & Easy has little or no share of the market in its three key market regions: Southern California, Metropolitan Las Vegas, Nevada and Metro Phoenix, Arizona. A grocery chain needs a significant and strong customer base in order to make a loyalty card program work. Fresh & Easy has neither at this point in time. Therefore, adopting a loyalty card program makes little sense.
2. Fresh & Easy Neighborhood Market already has too many self-imposed retail operations' policies that serve to restrict potential shoppers. These include: not accepting manufacturers' cents-off coupons, paper personal checks and WIC Vouchers in any of its 130 stores. Having a 100% self-service checkout system also is a restriction to customers who prefer full-serve checkout or at least being offered the option of having it.
There's no reason at this point in its development for Fresh & Easy to self-impose an additional potential barrier to customer entry policy such as a club card, which would mean that only holders of such a card would get certain promotional offerings and price reductions.
3. Fresh & Easy has far more concerns at this point in time in terms of its operations, marketing and merchandising than the implementation of a loyalty card program. These concerns include: the need to draw more shoppers to its stores, increasing gross margins considerably and still having numerous underperforming stores, among others. Instituting a loyalty card program would in our analysis do nothing to help solve these serious problems. In fact we think instituting a loyalty card program would just distract the grocer from focusing on these and other big issues. It's our analysis that the biggest issue remains the viability of the Fresh & Easy format itself. The jury is still out on that question -- as is the answer.
Conclusion
Therefore, to those at Tesco and its Fresh & Easy chain, we suggest that not implementing any sort of a loyalty club card program at this point in time is the wise decision for the three key reasons we mention above, along with a few others.
The time is not right for such a program, and we don't see any benefits of doing so for Tesco's Fresh & Easy. There are many higher and more important priorities to be addressed, changes to be made, and programs to create and implement in order to achieve success for the chain.
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9 comments:
Great to see you back with your excellent comments. You have been missed.Love to hear your thoughts on Fand E entry into Northern California in 2010.
Welcome Back
I agree, Fresh & Easy has way to small of a customner base currently to generate the amount of data needed to make such a scheme work. Those who say they should do the Clubcard because it is a success for Tesco in Britain are missing the point: Fresh & Easy may be owned by Tesco but it isn't Tesco. In other words unlike Tesco, which has a 31% market share in the UK, Fresh & Easy isn't even a market share player in its markets.
Glad to see you're back!
I AM SO GLAD THAT YOU ARE BACK. I AM A FORMER EMPLOYEE OF FRESH AND EASY, AND I SERIOUSLY BELIEVE THAT THE FORMAT WILL NEVER WORK. PARTICULARLY IN PHOENIX AND VEGAS. I DON'T BELIEVE THAT LOYALTY WILL EVER HAPPEN FOR F&E, IT IS NOT A ONE STOP SHOP. THE LACK OF NATIONAL BRANDS WILL ALSO CONTINUE TO HURT, AS WILL THE SELF CHECKOUT SITUATION. LASTLY, CUSTOMERS FOR THE MOST PART ARE CHERRY PICKING FRESH AND EASY FOR MARKDOWN ITEMS AND HOT AD ITEMS THAT ARE MUCH OF THE TIME OUT OF STOCK. BASKET SIZE AND IT'S CUSTOMER BASE WILL CONTINUE TO SUFFER BECAUSE OF THIS.
Good analysis of a complex situation. I think the biggest reason that F&E can't really profit from a loyalty card is that "loyalty cards" in the United States aren't really "loyalty" cards... they're "discount cards" funded by trade promotion dollars from CPG and food manufacturers. Since F&E (like Trader Joes) is heavily reliant on its own private label brands, the "discounts" it could offer through a loyalty card would be either a) disproportionally promoting national brands at the expense of its own store brand b) eroding the margin on promoted store brand items too much to make them profitable.
Where F&E, like most US retailers, misses a trick is in not creating a TRUE "loyalty card" that actually rewards shoppers progressively for loyal behavior. Think of frequent flier cards where, once a certain level of loyalty is achieved and "elite status" granted, more perks and privileges open up (upgrades, better seats, more baggage allowance) and it gets "stickier" to move to another airline (you get more mileage on the elite airline... leading to more status... leading to more mileage...)
Jim Crawford
Exec Dir
Global Retail Executive Council
For Roger: Roger, which region in Northern California is of most interest to you in terms F&E's entry, competitive aspects, ect?
FandE are buying sites around the Bay area ,are they doing this in other areas?Also the Distribution centre in Stockton what size is it. l have heard that they want to expand their Riverside centre,for what reason.How will Raleys the local firm be with the added competition,i am thnking of what has happened Arizona with Bashas.Seasons greetings Roger
Roger:
Yes, Tesco's Fresh & Easy has numerous sites in Northern California: in the Bay Area, the Sacramento region market and a couple in Modesto. The chain has confirmed 37 Northern CA sites to date. Our research has found about 50 total so far.
The Stockton DC location is not finished at present. Therefore it's hard to determine what the actual size may be -- or for that matter may not be.
Regarding expansion of Fresh & Easy's DC in Riverside, the grocer says it needs to add about 700-k sq-ft to the existing 850-k sq-ft in order to serve a total of 500 stores it plans to have in Southern CA, Arizona and southern Nevada. We're surprised Tesco thinks it needs this expansion - but time will tell how much and how fast any expansion comes.
In terms of Raleys, I assume you mean how might it fair in its home Sacramento region market when Fresh & Easy comes to town. That's hard to say of course but Fresh & Easy with 70 stores in Southern California has yet to gain in numbers in the market share game. However, because Fresh & Easy offers fairly low prices and has been trying to "buy" business with the regular use of its deep disount coupons, it has of course taken some business from existing grocers in the region as well as in Arizona and Southern Nevada.
Bashas' real difficulty, as is the case with safeway and Fry's in Arizona, is Wal-Mart, which is now the number one market share leader in the state/market. Fresh & Easy has exerted some competition with its about 30 stores in the market -- but Wal-Mart is the retailer changing the food & grocery retailing landscape in Arizona for Bashas' primarily and the others significantly.
We plan to have a piece coming up in the near future on Fresh & Easy and Northern California. Stay tuned!
Feel free of course to comment on this return post to you.
Hope this helps. Regards.
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