Wednesday, June 30, 2010

Tom & Jane Plus Two Discuss Unionization at Fresh & Easy Neighborhood Market

Fresh & Easy Buzz has been covering, reporting on and writing about the unionization issue at Tesco's Fresh & Easy Neighborhood Market more regularly and comprehensively than any other publication we're aware of has to date.

The issue is that the United Food & Commercial Workers (UFCW) union, which represents about 1.3 million unionized retail grocery store workers and employees in allied industries in the U.S., Canada and Puerto Rico - including those at major U.S. grocery chains Kroger Co., Safeway Stores and Supervalu, along with many others, including smaller chains and independent grocery stores - has been organizing store-level employees at Tesco's Fresh & Easy Neighborhood Market, which currently has 159 fresh food and grocery stores in California, Nevada and Arizona, since 2008. Tesco's Fresh & Easy is a non-union grocery chain. Tesco in the United Kingdom is union-affiliated. Tesco is headquartered in the UK.

You can read a history of our coverage of the topic and issue here. Click the "older posts" link at the bottom of the first linked page to see additional pages.

Most recently we reported and published a series of stories about Tesco, Tesco's Fresh & Easy Neighborhood Market, the UFCW union, and labor-related issues and legal cases involving two of the chain's stores and one of its two suppliers - 2 Sisters Food Group - which Tesco recently bought and has taken over. See the stories below:

>June 20, 2010: NLRB Judge Rules Against Fresh & Easy Neighborhood Market in Spring Valley CA Store Labor Law Violation Case

>March 4, 2010 - Aministrative Law Judge Finds Tesco's Fresh & Easy Violated Labor Relations Act in Ex-Store Employee, UFCW Union Complaint]

>June 20, 2010: NLRB Judge Rules Against Key Fresh & Easy Neighborhood Market Supplier '2 Sisters Food Group' in Labor Relations Violations Case

>June 21, 2010: The Missing Link in Tesco's Purchase of Fresh & Easy Neighborhood Market Meat Supplier '2 Sisters Food Group'

Additionally, Fresh & Easy Buzz recently reported on Tesco plc director and Fresh & Easy Neighborhood Market CEO Tim Mason's 2009 comphensation package. See the stories below:

>June 4, 2010: Every Little (Bit) Helps: Tesco Fresh & Easy Neighborhood Market CEO Mason Paid $6.188 Million For 2009

>June 23, 2010: Tesco Fresh & Easy Neighborhood Market CEO Tim Mason Gets Big Stock Award Featuring a Singular Twist

>June 8, 2010: Tesco CEO Terry Leahy Retiring; Philip Clarke New CEO; Tim Mason Named Deputy CEO But Will Remain Fresh & Easy Neighborhood Market Chief in U.S.

>April 23, 2009: Tesco PLC Director and Fresh & Easy USA CEO Tim Mason Sells Over 631,381 Tesco Shares Yesterday For $3.2 Million Payday

It appears our coverage of the Tesco Fresh & Easy Neighborhood Market-UFCW union issue in part has contributed to a discussion among a Fresh & Easy employee or two and others on the grocer's Facebook site about whether or not the grocery chain should be a union shop at store-level. The ongoing discussion - titled "Anti Union" - is led by Tom (who says in one post he is a unionized electrician) and Jane, who is a Fresh & Easy employee. It also includes comments by a couple other employees so far.

You can read what's being discussed and debated by the Fresh & Easy Neighborhood Market employees on the Facebook page here. We suspect the discussion isn't over, by the way.

Below is the transcript from the Facebook Discussion Page, as of today (June 29, 2010). The last post at the bottom is from Fresh & Easy employee Jane, on June 26, 2010.

Fresh & Easy Neighborhood Market Facebook Discussion Page:

anti union

Topic: anti union
Displaying all 14 posts.

Correus: heard people want to go union, ive been apart of the grocery union and its nothing compaired to other unions that are usefull, i personally feel its useless !!! what do other employees think?

Alex F: unions!

Jane: did you know that tesco is union? I would LOVE to see the union come in. There are way too many heath and safety issues in this company, one store has 6 out of 30 employees out on workers comp! I think that the company is afraid to go union because then they might actually have to start following the law and giving us better pay and hours. Just the fact that they freak out when anyone brings the union up should say something. If fresh and easy is so confident that the union is not needed, then why try to discourage employees from talking to union reps? To be informed from both sides? Sounds to me they want us all to be ignorant pushovers. If this isn't so then why not not invite some union reps to the next round of city meetings to have a little debate about the situation.

Tom: Exactly! Jane, you certainly don't sound like the typical "ignorant pushover" at F&E. What irks me the most is that your CEO makes over $6.18 million annually and the store workers like you make barely enough to live on. Kudos to you Jane for having a VOICE. I do hope your fellow F&E workers join in. I've been following interesting articles on relating to other F&E antics involving anti union issues.Best of luck to you in your struggle with this issue. Other F&E employees speak up for yourselves.

Tom: and you should also research CEO pay scales for those companies too.

Jane: Hey Romo, You do know that if we do go union, when we sign our contracts they will not lower our pay, we will start right where we are and only go up from there, right? or are you just listening to the one sided opinion of the company? And as for the DM or RM coming in, that doesn't always get anything accomplished, say the hundreds of dollars of code product on the shelf on a daily basis. When you point it out to your manager they tell you that your DM doesn't care if loads are done correctly as long as they are done on time.I'm not saying we one hundred percent need the union, but what I am saying is that if our ceo really believes that we don't need it, why is he so afraid of letting us get both sides of the story?

Jane: out of code product

Jane: either way, why is the company so unwilling to let us have an option? I have no plans on staying with this company, I just would like to see the people who are planning to stay have a great company to work for, and fresh and easy has a great idea, they just have a long way to go.

Tom: One other point for you to consider: "The San Francisco Bay Area is arguably the strongest union region in the United States, particularly in the supermarket industry. All of the region's chains are unionized, as are nearly all of the multi-store independents. " (Financial Times). Consider the correlation between your CEO publicly stating F&E has no plans to expand in northern CA and the union fight. Also what about the recent purchase of Two Sisters (distributor) to fight union? If it is the "employees choice" why is your CEO making it so difficult? Why do managers brain wash employees or more severly and ILLEGAL threaten employees? Read up on the court cases where F&E has been had to offer employee jobs for wrongful termination and give back pay and severence. Educate yourselves==sometimes the top brass (senior managemet) doesn't want you to know it all. Hmmm...wonder why?Does it have anything to do with CEO Mason having to share his wealth? C'mon folks his salary is 3 times that of any other supermarket CEO. Yea, I am part of a union---electrican---and there is no way I would work non union.

[Fresh & Easy Buzz Editor's Note to Tom: That quote about the unionized chains and independent in the San Francisco Bay Area is actually from Fresh & Easy Buzz, not the Financial Times.]

Jane: I have worked for many different companies, and fresh and easy is the first that has a ceo so stingy that we don't even get things like holiday pay, when union stores get double or in some cases triple pay. Did you get the card from Glassell Park? did you know that when they all got together and said they wanted to union the company started kissing their asses and gave them a 30 % increase in hours.

Tom: "Mr Mason said Fresh & Easy was still planning to have open only about 50 new stores in its current fiscal year ending in April 2011, and as yet had no plans to reactivate its expansion into Northern California."Copyright The Financial Times Limited 2010Get all the facts, Correus--especially if you think you have a future with the company.

Tom: You should do your own research. Don't just listen to others, find out all you should know about the company you work for and want a future with. I happen to read tons of financial papers so I know where F&E is right now both legally and financially. There are companies that do pay employees what they deserve. Consider having representation. Like I've said before, there is no way I'd ever work non union. It's your job and your choice.Best of luck to you. I hope it all works out the way you want.

Jane: Your so right Tom. I am not expecting people to just take my word and agree with me. I just want people to open their eyes and think for themselves, do some research and make educated decisions.
on Saturday

Jane: I hope it all works out for you too, I'm sure it will. You seem like your just the kind of person fresh and easy would love to move into management.

Tuesday, June 29, 2010

A Pictorial Look Inside Smart & Final's First SmartCo Foods Store in Denver, Colorado

Fresh & Easy Buzz Editor's Note: Yesterday in this story - June 28, 2010: Smart & Final to Open its New Format SmartCo Foods Stores in California and Arizona - we reported that City of Commerce (Southern), California-based Smart & Final plans to bring a version of its new-format SmartCo Foods' food and grocery store to California and Arizona, opening at least one store in each state later this year.

In yesterday's piece we also have a Sidebar-profile of the first SmartCo Foods store, which opened on June 23, at 1442 South Parker Road (at East Florida Avenue) in Denver, Colorado. Four more SmartCo Foods units are set to be opened this year in Metropolitan Denver. Smart & Final says it plans to open 20-25 of its new format stores in the Metro Denver region over the next couple years.

Last week, and again this week, Smart & Final's SmartCo Foods is going all out in promoting its first store in Denver, Colorado. On grand opening day it even told shoppers they could have their cake - and eat it to. Slices of the massive sheet cake above were offered to the first customers in the store on grand opening day, June 23.

New food and grocery retail formats, by existing and new-to-the-market retailers, are a big deal in a big, mature national market like the U.S. - they don't happen all that frequently. And in many ways they're an even bigger deal in the Western U.S., which hasn't seen a new format of note since Tesco's entered California, Nevada and Arizona with its Fresh & Easy Neighborhood Market fresh food and grocery store format and (now 159) stores in November 2007.

Because new formats (and aded competition) matter, and because Fresh & Easy Buzz likes to be a source of "fresh" information for our readers, below is a look in pictures, to go with yesterday's SideBar profile, of the first SmartCo Foods store opened in Denver Colorado last week.

A Pictorial Look at the First SmartCo Foods Store in Denver, Colorado

The produce department in Smart & Final's Denver SmartCo Foods store, opened on June 23, is huge and offers an extensive selection of fresh produce and related items. It borrows the farmers market-style design and bulk produce item merchandising scheme from the company's Henry's Farmer's Market chain (see above) and combines it with supermarket-style upright shelving for packaged fresh produce and related items (see below).

Note the extensive number of packaged fresh produce and related item SKUs (above), in addition to all mounds of bulk produce (top photo).

The SmartCo Foods format, and first store in Denver, includes a large bulk foods department. The department is similar to those of grocers Western U.S. grocery chains WinCo Foods, headquartered in Idaho, and Sacramento, California-based Raley's.

Grand Opening Day (and Beyond) Events-Promotions

Skittles the Clown, a local favorite, keeps the little customers happy at SmartCo Foods' grand opening on June 23.

Top of two photos: customers line up at dawn, waiting for the store's doors to open at 6 a.m on grand opening day, June 23. SmartCo Foods gave the first 300 shoppers free grocery bags. Next: The patient customers head into the store at 6 a.m, when SmartCo Foods opens the doors of its first store in Metropolitan Denver, Colorado.

On grand opening day, June 23, SmartCo Foods donated $10,000 to two Denver-area non-profit groups, The Denver Scholarship Foundation and Denver Kids. Above, Myles Mendoza (right) accepts a $5,000 donation for the Denver Scholarship Foundation.

Glenna Norvelle (above) of Denver Kids, Inc. accepts a $5,000 donation from SmartCo Foods.

The popular Denver Broncos cheerleaders were on hand at the Denver SmartCo Foods store on June 26, signing autographs (above) and posing for photographs (below) for shoppers, along with creating a little heat among customers of all ages, shapes and sizes (above).

Monday, June 28, 2010

Smart & Final to Open its New Format SmartCo Foods Stores in California and Arizona

City of Commerce, (Southern) California-based Smart & Final opened the first of its new format SmartCo Foods food and grocery stores in Denver, Colorado on Wednesday, June 23 -- and on grand opening day of the 57,000-square-foot store, located at 1442 South Parker Road (at East Florida Avenue) in Denver, Smart & Final's president, Dave Hirtz, made additional news, telling members of the press and others that Smart & Final plans to open SmartCo Foods stores in California and Arizona later this year.

Although he wasn't specific, the first Arizona SmartCo Foods unit is set to be in the Phoenix Metropolitan region, according to our information.

The first California store will likely be in Southern California, where Smart & Final is headquartered, although Smart & Final also has plans to open SmartCo Foods stores in Northern California as well.

Smart & Final, which was founded in 1871 as a cash & carry grocer in downtown Los Angeles, operates its 247 non-membership Smart & Final banner and Smart Foodservice cash & carry stores throughout California, as well as in Arizona, Oregon, Washington, Nevada, Idaho and northern Mexico.

The company also owns the Henry's Farmers Market chain, which it acquired from Whole Foods Market, Inc. in 2008. There are currently 35 Henry’s Farmers Market and Sun Harvest Market (in Texas only) banner stores open and operating in Southern California and Texas.

The farmers market-style Henry's and Sun Harvest stores emphasize natural and organic products and fresh produce but also carry some conventional grocery products, as well as having fresh meat, bakery, deli-prepared-foods, bulk foods and non-foods departments.

Smart & Final is opening its first Henry's Farmers Market store in Northern California, in El Grove near Sacramento, in August. The company is growing the Henry's chain rapidly in terms of opening new stores. [June 5, 2010: Henry's Farmers Market Opening its First Northern California Store in August With A Big 'Local' Push]

Additionally, Smart & Final operates 33 small-format grocery stores under the Smart & Final Extra banner in California and northern Nevada. The Extra stores, unlike the Smart & Final non-membership stores which carry mostly club pack size items, offer about 5,000 SKUs of basic-pack food and grocery items, along with an assortment of club pack grocery products. The Extra stores have fresh produce and meat departments, delis, an in-store bakery and a selection of non-foods.

SmartCo Foods makes the fourth distinct format for Smart & Final, and in fact is a hybrid of its non-membership store format, Henry's and Smart & Final Extra. This was evident at the grand opening of the first SmartCo Foods store in Denver on Wednesday.

The 57,000 square-foot Denver, Colorado SmartCo Foods store, which is in a vacant Albertsons supermarket, is one part supermarket, one part warehouse club, and one-part farmer's market (the produce department primarily).

[Read the Sidebar at the end of this story.]

Smart & Final's planned entry into Southern California and Arizona with SmartCo Foods later this year will add yet another layer of competition into two of the most hyper-competitive markets in the U.S. Smart & Final operates its non-membership warehouse stores in Southern California and Arizona, and its Henry's and Smart & Final Extra stores in Southern California, but the new SmartCo Foods format is significant as a new entry in the markets because its hybrid supermarket/warehouse store/farmers market style format, in a good-sized retail box, is the equivalent of being a new retailer, since it doesn't mimic Smart & Final's other formats.

Smart & Final's push into Southern California and Arizona comes only shortly after we reported that Idaho-based WinCo Foods is planning a major push into Arizona, beginning in Metropolitan Phoenix. [See - April 27, 2010: WinCo Foods' Entry Will Put the 'Ultra' in the Already 'Hyper-Competitive' Metro Phoenix, Arizona Market and May 3, 2010: Winco Foods is 'Moving Fast-Forward' With Metro Phoenix, Arizona Market Entry]

WinCo also announced this month that it plans to build a huge 1 million-plus square-foot distribution center in Southern California as part of its major growth plans in the region.

Employee-owned WinCo Foods launched a major Western USA growth strategy in 2008, as we reported on and wrote about here: December 29, 2008: Competor News: Winco Foods to Expand in California and Nevada in 2009; Put Aggressive Focus on Central Valley, Northern California and Northern Nevada. Read more here.]

For Tesco's Fresh & Easy Neighborhood Market, which has the majority of its current 159 stores in Southern California and Metro Phoenix, Arizona, the addition of Smart & Final's new SmartCo Foods stores in the two regions - along with WinCo Foods' entry into Arizona and planned store growth in Southern California - means yet another competitor to deal with as Fresh & Easy works towards stemming its loses, which were $253 million in the fiscal year ended on February 27, 2010. Tesco estimates a similar loss for fiscal year 2010/11, which end in early 2011.

It also means added competition to all of the other grocers - and in the respective markets overall -particularly those in the value-based and discount niches, in Southern California and Arizona, the degree of which will depend on how many SmartCo Foods stores - and how fast it opens them - Smart & Final plans to open in the two regions.

WinCo Foods plans to open numerous new stores in Southern California and Arizona over the next five years.

Based on the fact Smart & Final is opening five SmartCo Foods stores in Metro Denver between this month and December (five month period), and plans to have 20-25 over the next couple years, it's likely the retailer's plans for Southern California and Metro Phoenix are similarly ambitious. It takes numerous stores in a region in order to achieve any efficiencies and critical mass, after all.

Sidebar: A Look at the First SmartCo Foods Store in Denver, Colorado

City of Commerce, (Southern) California-based Smart & Final opened its first new format SmartCo Foods store (pictured above) on June 23, at 1442 South Parker Road (at East Florida Avenue) in Denver, Colorado. The store is the first of five SmartCo Foods stores Smart & Final plans to open this year in Metropolitan Denver. The retailer says it plans to open between 20-25 SmartCo Foods stores in Colorado over the next couple years.

SmartCo Foods is a brand new format for Smart & Final, although more correctly it's a hybrid of the retailers current three formats - its small-format Smart & Final non-membership warehouse stores, it's natual and organic foods-focused Henry's Farmers Market, and its Smart & Final Extra smaller-format supermarkets.

The 57,000 square-foot Denver SmartCo Foods store, which is in a vacant Albertsons supermarket is one part supermarket (Smart & Final Extra), one part warehouse club (Smart & Final club format), and one-part farmer's market (Henry's).

The format and store offers basically everything a regular supermarket does in terms of departments and products, although the SKU count is a bit less (about 30,000 total SKUs) than traditional supermarkets operated by say Safeway Stores or Kroger offer. But in addition to regular pack groceries, SmartCo also features a club-pack department (pictured above), which is nearly as big as the 15,000 -to- 20,000 square-foot flagship Smart & final banner non-membership stores the retailer operates.

Additionally, borrowing from the Henry's Farmers Market format, the produce department in SmartCo Foods is expansive, and is designed to look like a version of a farmers market. The department offers both conventional and organic fresh produce items. Another leaf SmartCo Foods takes from Henry's is that the store features a bulk foods department. SmartCo also offers nearly the complete selection of the retailer's Sun Harvest private natural and organic brand, which includes products across all dry grocery and perishable categories.

The supermarket-side of SmartCo is influenced in part by Smart & Final's Extra format, as well as by the traditional American supermarket fromat in general.

Here's a look at what the store offers in terms of its departments and features:

The produce department - offers a selection of fresh fruits and vegetables, including both conventional and organic items, with a focus on value pricing. In an effort to support local Colorado growers, SmartCo Foods says it's making an effort to carry locally-grown produce, which is something its Henry's Farmers Market chain focuses on.

The meat department - is staffed by trained meat cutters. It features Cattleman’s Finest (a private brand Smart & Final uses) beef products as well as a broad selection of high-quality pork and poultry products, and fresh and frozen seafood. The meat department is self-service style. Most of the fresh meat is packaged in the department.

The in-store deli - offers ready-to-eat prepared sandwiches and other grab-and-go items, a variety of fresh salads, entress and side dishes, along with a large assortment of deli meats and cheeses.The in-store bakery - features a full-selection of breads, muffins, pastries, cakes and cookies baked fresh in-store daily.

Bulk foods - features bulk bins filled with a variety of grains, healthy snacks and other unpackaged items.

Health & Beauty - offers a full selection of conventional health and beauty products as well as Smart & Final's Sun Harvest brand vitamins, supplements and beauty care products made with natural ingredients.

Foodservice & Business - carries a large assortment of practical products, which include: catering supplies, paper and party products, straws, cutlery, portion cups, hot cups, cold cups, clear cups, serving trays, and commercial-strength cleaning supplies. The department is positioned to small business foodservice operators as well as consumers.

Warehouse Savings - features club-pack items offered primarily on an in-and-out basis, value-priced. The products include: paper goods, beverages, packaged foods and groceries and more.

At 57,000 square-feet (the other four stores set to open this year range from about 45,00o to the same size) SmartCo is Smart & Final's largest store format to date. The Smart & Final non-membership stores and range from about 15,000 -to- 20,000 square-feet, the Extra stores aren't much larger, and the Henry's and Sun Harvest stores are in the 20,000 -to- 35,000 square-foot range.

The other four Colorado SmartCo Foods stores soon to open are located at:
>5141 Chambers Road in Denver
>3615 West Bowles Ave. in Littleton
>16746 E. Smoky Hill Road in Centennial
>1750 North Main St. in Longmont

The SmartCo Foods website is here. Check out the opening week ad specials, like whole chickens for 59 cents a pound, $1.49 per-gallon milk , eggs for 79 cents a dozen and more here.

Sunday, June 27, 2010

The Insider: Will Tesco Acquire Supervalu, Inc. and Change its 'Fresh & Easy' Game in America?

The Insider: Heard on the Street

I ended my last column - June 12, 2010: Will Phil Clarke Shake Things up at Fresh & Easy Neighborhood Market USA When He Becomes Tesco CEO in 2011? - with the question below:

"What follows then - the big question in this scenario should it play out - is: 'Who would replace Tim Mason, say in late 2011, as CEO (or whatever the title might be) of Fresh & Easy Neighborhood Market USA?' And: I'm going to leave that question to be addressed in part two of what is going to be a series of columns on this topic, which is: 'Will incoming Tesco CEO Philip Clarke shake things up at Fresh & Easy when he becomes CEO in March 2011.' But Here's a hint: The central premise of my follow-up next column can be summed up in this question: 'If my scenario does become reality, would Phil Clarke name a new chief for Fresh & Easy Neighborhood Market from Tesco's ranks, or would he name a veteran U.S. food and grocery retailing executive to head up Tesco's fledgling U.S. operations?' But that's only a part of the next column. Stay tuned."
In today's column I'm going to offer one answer to the question in part by harking back to my April 29, 2010 column - Heard on the Street: There's Something About Albertsons ... In Southern California - about Supervalu, Inc. You need to read the column to get the full background.

First, a little back story: For over two years Fresh & Easy Buzz has mentioned in various stories and analysis pieces that the real game-changer in the U.S. for Tesco would come were the United Kingdom-based global retailer acquire a major U.S. food and grocery retailer. We've even mentioned in the past a specific retailer - Minnesota-based Supervalu, Inc. - that in our analysis is (or should be) the prime candidate for such an acquisition by Tesco.

In fact, earlier this year The Insider suggested via an e-mail exchange to United Kingdom-based financial analyst Mike Dennis (as well as a few others), who currently works for the firm MF Global and has followed Tesco plc for many years, that an acquisition of Supervalu by Tesco has the potential to be a game-changer for the UK-based retailer, which continues to struggle with its small-format Fresh & Easy Neighborhood Market chain, which currently has 159 stores in California, Nevada and Arizona. Tesco has projected a loss of about $253 million for fiscal year 2010/11, which ends in February 2011. That loss is on top of a loss of $253 million for fiscal year 2009/10 (the year just ended) and $208 Million for its fiscal year 2008/09. In other words, daylight, in the form of break-even, is a long way away for Tesco with Fresh & Easy.

Dennis, who knows Tesco as well or better than most, didn't disagree with my premise. However his opinion was that Tesco won't acquire Supervalu or a chain of similar size - Supervalu is the second-largest U.S. supermarket chain (after Kroger) and the fourth largest retailer of food and groceries in America - because of the huge debt load it would have to take on in order to make such an acquisition, which is a good argument from a financial-stock analysis perspective. But as I suggested, there's the "grocer or merchant element" to always consider as well. We left the e-mail exchange there.

But here's a summary of my strategy and scenario for a Tesco acquisition of Supervalu, Inc., which is ripe for the pickings, based on its low level of performance but excellent asset value, at least excellent in my analysis and opinion. (Note: I am neither for nor against an acquisition by Tesco plc or any other party of Supervalu, Inc. Nor do I own any Tesco or Supervalu stock at present.)

My strategy and scenario for Tesco's acquiring Supervalue is primarily - but not exclusively - for its small-format, hard-discount Sav-A-Lot chain. There are about 1,200 Save-A-Lot stores currently in the U.S. Nearly all of the stores are east of the Rocky Mountains. Supervalu plans to double the Sav-A-Lot store-count over the next five years. There's only a handful of Sav-A-Lot stores in California, and just a small store-count in the Western U.S. in general. As such, there's plenty of room for growth out west, as well as elsewhere in the country.

Having Sav-A-Lot would make Tesco, along with Aldi USA, the leading operator of small-format discount grocery stores in the U.S. Sav-A-Lot would also give Tesco a dual small-format retail strategy - Sav-A-Lot and Fresh & Easy.

Fresh & Easy Buzz has long argued a major problem with Fresh & Easy is that it's a format muddle. It's one part discount format, another part prepared foods format, yet another part natural and specialty foods format, and still yet another part convenience store. As such we argue trying to be everything in one box has resulted in a format muddle. The most successful food retailing formats are well differentiated - Walmart (discount), Wegmans (hybrid-upscale), Aldi USA (hard discount) Whole Foods (natural-organic), and the like.

Having Sav-A-Lot then, Tesco could, as an example, turn Fresh & Easy into a more differentiated format, perhaps focusing primarily on fresh, prepared foods and natural and organic products, offered at discount prices. Sav-A-Lot could then be Tesco's primary discount grocery format. This is what I mean by gaining a dual format advantage for Tesco by having Sav-A-Lot.

Secondarily, but still important, Supervalu owns Albertsons in Southern California. Albertsons is the number three market share grocery chain in the region, behind number one Ralphs (Kroger-owned) and Vons (Safeway-owned). With ownership of Supervalu, and thus Albertsons, Tesco would go from having virtually no market share with Fresh & Easy in the Southern California market to being number three. That's a game-changer, at least in the market share numbers game. Supervalu also owns the upscale Bristol Farms chain in Southern California, 16 stores. I think this could be a good asset for Tesco. But it also could fetch a decent price if sold.

Perhaps Tesco could change up the Albertsons format, making it similar to its superstores in the UK, which in addition to offering fresh food and groceries also offer a strong selection of general merchandise, clothing, electronics and other non-food product lines. Tesco does this in UK stores no bigger than the average Southern California Albertsons. In fact, many are smaller. This format, unlike Fresh & Easy, also taps into Tesco's core retailing competence, supermarkets and superstores. It also, if executed well, might find a niche in Southern California, since there isn't anything currently similar. If you haven't seen them, think of the Tesco UK stores I'm talking about as much smaller versions of Walmart supercenters, for example. I put it out there more of as a thought experiment for now, rather than as a definitive suggesten.

Beyond Sav-A-Lot and Albertsons Southern California, Supervalu has some good retail grocery chain assets. These chains include, for example, Jewel-Osco, which is a major player in the Metropolitan Chicago, Illinois market. After California, Nevada and Arizona, Metro Chicago is the next U.S. market Tesco planned to enter with Fresh & Easy in its original strategic plan, and up to early 2009, when it halted the original strategy and postponed its launch into Northern California. In the original plan, Metro Chicago was supposed to happen in mid-to-late 2010 -to- early 2011.

Other key Supervalu-owned chains include Shaws on the east coast and others. (You can view all of Supervalu's chains here.) I'm not going to get into an analysis of each Supervalu chain here. That's not my focus. Perhaps in a future column?

My focus: Beyond keeping Sav-A-Lot and Albertsons Southern California, an acquisition of Supervalu gives Tesco the ability to play on a huge chessboard in terms of strategically deciding which U.S. markets it wants to be in and which formats it wants to keep. For example, if its wants to be in Metro Chicago (and other parts of the Midwest) and on the east coast with traditional supermarket formats, it can keep Jewel-Osco and Shaws but sell all of the other chains, using the cash to pay down the debt acquired in the acquisition.

This cut-and-paste scenario can be played out in a dozen different variations. It all depends on which formats - other than Sav-A-Lot, all of Supervalu's chains are traditional supermarkets or superstores, ranging from price-impact focused formats to mid-range and upscale - and which market regions Tesco wants to operate and be in. And remember, supermarkets and superstores are what Tesco operates best.

Supervalu also operates a wholesale grocery division, which sells to independent grocers. Tesco could - and I would - sell that off. It should fetch a decent price, and there are at least three or four wholesale grocery companies and cooperatives out there that would love to buy all of or pieces of Supervalu's wholesale division. This would provide additional cash for Tesco to use to pay down the Supervalu acquisition debt.

So, what I'm suggesting in summary is: Supervalu, Inc. is an excellent U.S. acquisition for Tesco. I also believe that if a decent offer were to be made, Supervalu's board would have to take it. Why? Because Supervalu, Inc. shareholders, particularly the institutional investors, would likely demand it. The company's stock is once again back near its 52-week low after seeing a pretty good run up earlier this year. Additionally, most analysts have fairly poor mid-term -to- longer-term outlooks on Supervalu, Inc. This combination of factors makes the company a hot potato for acquisition. In fact, one of the reasons the stock went up considerably earlier this year was because rumors of acquisition were strong. Tesco was never mentioned in those rumors.

Additionally, in summary, I'm suggesting acquiring Supervalu (at a decent cost) would be a good move for Tesco, if it's really serious about being a major player in U.S. food and grocery retailing. The fact is as I see it, the odds on Tesco ever becoming anything more than a minor, niche player in the U.S. with just Fresh & Easy aren't in the retailer's favor.

Conversely, an acquisition of Supervalu, Inc. would vault Tesco from a tiny start up with Fresh & Easy, with 159 stores and about $450 million in annual sales, to the fourth-largest retailer of food and groceries in America, just below Kroger (number three), Costco (number two) and number one Walmart. That's game changing folks.

Ask yourself this, which one of these two (above) positions do you think Tesco, which is the third-largest food and grocery retailer in the world, wants - and needs - to be in in America?

I've shared this scenario with a number of analysts and other people in, and observers of, the U.S. food and grocery industry. Many of them, unlike Mike Dennis who just said he didn't think it will happen, dismissed my suggestion that a Supervalu, Inc. acquisition would not only be a smart strategic move for Tesco, despite the cost, but actually if done well - the wholesale and retail chain asset sales aspect - a financially prudent one, right out of hand. Additionally, Tesco could bring in a private equity firm as a partner in the acquisition, which would spread the financial burden around a bit. Cerberus, for example, partnered with Supervalu in the acquisition of Albertsons Inc. a few years ago.

Until recently, a Tesco acquisition of Supervalu Inc. has merely been a concept I've shared via e-mail exchanges with various analysts like MF Global's Mike Dennis and others in order to test my proposition and get feedback.

However, two recent developments lead me to conclude that Tesco could actually be considering acquiring Supervalu.

The first recent development is that sources tell me Tesco executives have met with Supervalu executives to discuss such a deal. And that there's been more than one such meeting.

The second development is that Fresh & Easy Buzz has learned from more than one source Tesco plans to make a couple big and important announcements in the next couple weeks, starting as soon as at its July 2 shareholders' meeting, regarding Fresh & Easy Neighborhood Market and the UK-based retailer's plans in the U.S.

Additionally, a San Francisco City Supervisor confirmed the information at a meeting on Thursday, June 24, of the Lincoln Park Neighborhood Association, which was held in the Richmond District of San Francisco, California. [June 26, 2010: Tesco Planning to Announce in July When First Northern California Fresh & Easy Neighborhood Market Stores to Open] The purpose of the meeting was a presentation by representatives of the CVS drug chain and its local developer, Landmark Retail Group, about a new CVS store coming to the neighborhood.

Earlier this year, Tesco's Fresh & Easy Neighborhood Market sub-leased 40% of a vacant Albertsons building at 3132 Clement Street in San Francisco's Richmond District to CVS. Tesco has a 25 year lease on building, which has remained vacant since Fresh & Easy Buzz reported on its acquisition of the building in April 2009. [April 13, 2009: Despite Postponing its Northern California Launch Again Earlier This Year Tesco's Fresh & Easy Planning Third San Francisco Store; First Stockton Unit] Tesco's Fresh & Easy has never publicly confirmed it has the lease. The about 32,000 square-foot building is in addition to the two store locations in San Francisco the grocer has confirmed. Those two store locations are: Third Street & Carroll and Silver Avenue & Goettingen Street.

At the June 24 meeting, which was held inside the vacant Albertsons store at 32nd Avenue and Clement Street, the CVS and Landmark Retail Group representatives, presented plans for the 14,271 CVS drug store to members of the neighborhood. Tesco's Fresh & Easy is using the other 50-60% of the space for a future grocery store. The two stores will be divided by a wall.

Also attending the meeting was Supervisor Eric Mar, who represents the Richmond District on the San Francisco City and County Board of Supervisors.

During the meeting, Supervisor Mar said he's had recent conversations with Tesco Fresh & Easy Neighborhood Market executives. In those conversations Mar said he was told two key things.

The First is the retailer remains committed to opening its Fresh & Easy stores in Northern California, including in San Francisco, which is something Fresh & Easy Buzz reported here in April and again in May, 2010.

The Second is that Tesco will be making a couple "big announcements" in the next couple weeks, which likely will include - but won't be the only one- when it will start opening the 37 confirmed Fresh & Easy stores (and numerous non-confirmed stores Fresh & Easy Buzz has reported exist) in Northern California. Eighteeen of those confirmed stores are in the San Francisco Bay Area; 19 are in the Sacramento/Vacaville Metropolitan region. (See my comment regarding the July 2 Tesco shareholders meeting.)

The Insider can't tell you right now with complete certainty that one of those big announcements Tesco is set to make in a couple weeks or less will be the announcement that it's acquiring Supervalu, Inc. I'm sure one though will be about when Tesco plans to start opening its Northern California stores.

But what I can say is the probability right now is at least 50-50 that Tesco could acquire Supervalu, and announce it soon. And if that happens - the acquisition - it will be a major game-changer for Tesco in America, and for U.S. food and grocery retailing, because it will be the first time in modern history, if ever, a foreign-based retailer would be one of America's top 5 food and grocery retailers.

Recent columns by 'The Insider'

~June 12, 2010: Will Phil Clarke Shake Things up at Fresh & Easy Neighborhood Market USA When He Becomes Tesco CEO in 2011?

~May 20, 2010: Welcome to Discountopia USA

~April 29, 2010: Heard on the Street: There's Something About Albertsons ... In Southern California

['The Insider' will be devoting additional columns to the topic of whether or not incoming (March 11, 2011) Tesco CEO Philip Clarke will "shake things up" at Fresh & Easy USA.]

Saturday, June 26, 2010

Tesco Planning to Announce in July When First Northern California Fresh & Easy Neighborhood Market Stores to Open

Northern California Special Report

Tesco plans to announce in the next couple weeks, and possibly as early as next week, on July 2, at its 2010 shareholders meeting in London, when it will open the first of its 37 confirmed (and numerous non-confirmed) Fresh & Easy Neighborhood Market stores in Northern California, Fresh & Easy Buzz has learned.

[Related story - April 19, 2010: Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait]

The announcement will be one of multiple big and important announcements Tesco plans to make about Fresh & Easy USA at the July 2 meeting and/or later in July, according to our sources.

Among our sources for the information is Eric Mar, a member of the City and County of San Francisco Board of Supervisors. At a meeting of the San Francisco Richmond District Lincoln Park Neighborhood Association on Thursday, June 24, at which a Fresh & Easy Buzz correspondent attended, Supervisor Mar said he recently had conversations with Tesco Fresh & Easy Neighborhood Market executives who told him two things: That the retailer remains committed to opening its stores in Northern California, including its current three sites in San Francisco, and that it would be making some "important announcements in the next couple weeks" that would include information about the Northern California stores and Tesco's launch into the market.

Supervisor Mar's information matches information we had previously obtained from other sources.

The purpose of the Lincoln Park Neighborhood Association's June 24 meeting was a presentation by representatives of the CVS drug chain and its local developer, Landmark Retail Group, of plans they've filed with the City of San Francisco for a drug store at 3123 Clement Street (32nd Avenue and Clement Street) in the Richmond District, which borders Golden Gate Park in the San Francisco's West of Twin Peaks area. The Richmond District, along with the neighboring Sunset District, are also referred to as "The Avenues" because of the long and flat (unusual in the city) avenues that lead out to Ocean Beach at lands-end.

In April 2009 [April 13, 2009: Despite Postponing its Northern California Launch Again Earlier This Year Tesco's Fresh & Easy Planning Third San Francisco Store; First Stockton Unit] we reported Tesco's Fresh & Easy had leased a vacant, former Albertsons store at 32nd Avenue and Clement Street in San Francisco's Richmond District for a future Fresh & Easy Neighborhood Market store. Tesco has a 25 year lease on the about 32,000 square-foot building at 3123 Clement. Fresh & Easy has yet to publicly confirm the Clement Street location.

Earlier this year Tesco's Fresh & Easy sub-leased about 40% of the building - 14,271 square-feet - to the CVS drug chain. Recently CVS submitted formal written plans (see above) to the City of San Francisco to turn the 14,271 square-feet into a drug store. Tesco plans to put a Fresh & Easy store in the remaining space. The two stores will be separated by a wall. CVS hopes to get approval for the store as soon as possible, for a 2011 opening. (If you double-click on the plan graphic above you can enlarge it for better viewing.)

It was at the meeting on Thursday evening, which was held inside the vacant building at 3132 Clement, where Supervisor Mar, who represents the Richmond District, told those in attendance, including the Fresh & Easy Buzz correspondent, that Tesco executives have assured him they will open the stores in Northern California, including the three current planned locations in San Francisco, which is something we've been consistently reporting, most recently in April here and in May, 2010 here.

It was also at the meeting where the Supervisor said he's had recent conversations with Tesco Fresh & Easy Neighborhood Market executives in which they told him Tesco will be making "a couple important announcements in the next couple weeks." Among those announcements will be one regarding Tesco's future plans to open its stores in Northern California, he said he was told.

[Note: See our current 'The Insider' column here for additional information.]

As mentioned earlier, Tesco is holding its 2010 shareholders meeting in London on July 2. We expect these "big announcements" to come then. Any additional announcements not made at the meeting should come in July, but no later, according to our information.

Stories in our on-going 2010 Northern California Market Special Report Series

June 14, 2010: Newly-Named Whole Foods Market CO-CEO Walter Robb Comes Full Circle With the Opening of the New Store in Mill Valley CA

June 5, 2010: Sprouts Farmers Market Opens First Northern California Store in Sunnyvale; Strikes Up Partnership With Local Non-Profit Farm

May 29, 2010: Going Rural: Fresh & Easy Neighborhood Market to Build First Store in Los Banos, California

May 28, 2010: First Phase of Fresh & Easy Neighborhood Market-Anchored Condo Development in San Francisco's Bayview Set For Completion in June

April 19, 2010: Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait

May 9, 2010: A Whopping 15 of Whole Foods Market's 41 New Stores in Development are in California - And Nine of The 15 Are In Northern CA

May 8, 2010: Sprouts, and Likely Henry's to Beat Fresh & Easy to Northern California Despite it's Big Head Start

May 6, 2010: Going Smaller & Getting 'Hybrid': Walmart's Smaller Supercenter in Vacant Retail Buildings Strategy Began in 2008

[Readers: Click here and here to read more of Fresh & Easy's Buzz's extensive reporting and analysis on Tesco's Fresh & Easy-Northern California, as well as on the Northern California market in general.]

Friday, June 25, 2010

A Four Month Pause: No New Fresh & Easy Neighborhood Market Stores Set to Open Until September 2010


Tesco's Fresh & Easy Neighborhood Market currently has no plans to open any new stores in either July or August, Fresh & Easy Buzz has learned. Our source information is strong enough on this that if Fresh & Easy were to open a store, say in August, it will be because the grocer decided to do so after today.

The next batch of new Fresh & Easy stores will likely open in September 2010, according to our information. Look for as many as 9-10 new store openings in September.

There are currently 159 Fresh & Easy stores open and operating.

Tesco's Fresh & Easy hasn't opened any new stores since April 2010, despite having numerous units in California, southern Nevada and Metropolitan Phoenix, Arizona completed and sitting empty.

If the next new store opening doesn't come until September, as we're reporting, that will mean the grocery chain has taken a four month new store opening pause - from May -to- August 2010 - which is similar to what the grocer did for about three months back in March 2008, just five months after its first store opened in November 2007. [See - March 29, 2008: Tesco's Fresh & Easy 'Taking a Pause' From New Store Openings: A Full Review In the Works] [ April 14, 2008: Commentary: Fresh & Easy Should Use its New-Store Opening 'Pause' in Part to Further Train, Develop and Reward its Store-Level Employees.]

Fresh & Easy started calendar 2010 off with a new store opening big bang. The grocer opened five stores in January, nine units in February, Three in March, and 11 Fresh & Easy food and grocery markets in April., for a total of 28 new stores in the first quarter of calendar 2010. However, with no new stores set to open in the second quarter, the total will remain at 28 new Fresh & Easy stores opened in the first half of calendar 2010.

Tesco's Fresh & Easy continues to publicly say, via its corporate spokesman, that it's taking a slow and cautious approach to opening new stores because of the continuing recession, which has hit the states of California. The economy in all three states is improving though.

But this argument, which is nearly two years old, really begs the question, in our analysis. That question, or central proposition is:

If you're a major global retailer like Tesco, the third largest food and grocery retailing company in the world, and you say you still believe strongly in your U.S. format and chain, Fresh & Easy, which Tesco says it does, and you have many stores completed and sitting empty, which you're paying monthly rent on, why, recession or not - and the economy is without a doubt improving significantly - would you not open those stores, particularly a few of the completed 18 stores in Northern California's San Francisco Bay Area, a region where the economy is considerably better (and improving faster) than it is currently in Southern and Central California, southern Nevada and Metro Phoenix, Arizona, the market regions where Fresh & Easy has its current 159 stores?

Further, since one of the key positioning points of the Fresh & Easy format and stores is that they're affordable - Tesco has even claimed the prices are at least 10% lower than Fresh & Easy's supermarket competition, and that's not including the regular 20% off discount store coupons the grocer regularly distributes - one must then also logically ask why such a format, Fresh & Easy as described by Tesco, wouldn't be the perfect answer for shoppers during a recession? And since it's not, what's wrong?

We aren't going to answer the question in this piece. But if you read through Fresh & Easy Buzz, which we've been publishing since late 2007, you'll be able to derive some answers, at least based on our close observation, research, reporting and analysis of Tesco's Fresh & Easy for nearly three years.

This question, or central proposition, though is the one Tesco needs to ask itself internally. It should also seek some outside, unbiased and objective counsel on the question as well. Answering the question honestly, then moving forward with changes based on those answers, is the first key step the grocer needs to take in order to have a chance of real success - breaking even, then profits, and ultimately growth - with Fresh & Easy Neighborhood Market.

In April of this year Tesco CEO Terry Leahy said the company will open about 50 new Fresh & Easy stores in its fiscal year 2009/10. That fiscal year started at the end of February, which means 14 of the 28 new stores opened so far in calendar year 2010 were opened in Tesco's 2009/10 fiscal year, leaving 36 new stores to be opened between now and the end of February 2011, when the fiscal year ends.

That's an eight month period, which works out to opening an average of between four -to- five (four some months, five others) new stores a month. That's a decent pace. However, in Northern California alone, Tesco has 37 store locations which have been confirmed since 2008, more that we've reported on but aren't confirmed by the grocer. Most of the Northern California stores aren't completed. Work hasn't even started on many. But a couple, like the store in Pacifica, California near San Francisco, are completed and sitting empty.

In Southern and Central California, southern Nevada - where a new Fresh & Easy store hasn't been opened in nearly a year - and Metro Phoenix, Arizona, the grocer has probably as many or more than 36 stores that are either completed and sitting empty or could be completed rapidly, but has put construction on hold.

A new CEO, current director of international operations and IT Philip Clarke, will be taking over for Tesco CEO Terry Leahy in early March 2011. As such we don't expect to see any change in the number of Fresh & Easy stores opened this year, over Leahy's estimate. In fact, if anything, perhaps fewer.

Because Tesco has a strong culture of succession planning, Philip Clarke is already working with CEO Leahy in the corner office at Tesco corporate headquarters in the United Kingdom, in addition to doing his current job. Clarke has had little if any involvement in how Fresh & Easy has been run to date, that's been done by Tesco director and Fresh & Easy Neighborhood Market CEO Tim Mason, under CEO Leahy's supervision and support.

But come March 2011, CEO Clarke will have to decide what he wants to do regarding Fresh & Easy, which lost $253 million in fiscal year 2009/10 and $208 million in fiscal year 2008/09. In addition, Tesco is estimating a loss in that same $253 million range for fiscal year 2010/11. These are operating losses and don't include the hundreds of millions of dollars in start up investment Tesco has made for Fresh & Easy USA.

The most significant, in a challenging way for Tesco, aspect of the higher loss in 2009/10, compared to 2008/09, is that the loss of $45 million more in 2009/10 came with a substantial increase in sales at Fresh & Easy. (See the links above.) Why is this important? Because a key part of Tesco's strategy with Fresh & Easy is predicated on an assumption that as scale and sales increase, losses will narrow. But the opposite happened in 2009/10 over 2008/09.

Additionally, Tesco is predicting an increase in sales of 50% in fiscal year 2010/11, over 2009/10. But it's also projected a loss of about $253 million, the same as 2009/10. This means that increased scale - the significant predicted year-over-year 50% increase in sales - does absolutely nothing to decrease the loss at Fresh & Easy, based entirely on Tesco's own numbers and estimates. For those who know even just a little bit about the food and grocery retailing business, this is a serious problem.

Tesco also just spent what Fresh & Easy Neighborhood Market CEO Tim Mason says is in the "tens of millions of dollars" to buy and takeover its produce supplier, Wild Rocket Foods, and its fresh meat and prepared foods ingredient supplier, 2 Sisters Food Group. The takeover is over adding what CEO Mason says is about 750 employees to the Tesco Fresh & Easy Neighborhood Market payroll.

Tesco's line, which most all of the grocery industry trade press and mainstream business press has published in its stories on the takeover, is that the company is doing this because it demonstrates confidence in Fresh & Easy... ect.

But Tesco intentionally brought Wild Rocket and 2 Sisters with it to the U.S. as part of a strategy of outsourcing its fresh produce and meat supply functions in order to achieve cost savings. In other words, built into the financial assumptions for Fresh & Easy's breaking even is having the two companies there as independently-owned supply partners to absorb labor costs. Adding 750 new employees to the Tesco Fresh & Easy payroll by taking over Wild Rocket and 2 Sisters blows those break-even assumptions right out of the water, most probably. Tesco can probably take some sort of an accounting charge over the cost of buying the two companies.

You do the math. Assume the fully-burdened cost per employee is $30,000, which is reasonable. Multiple that by 750 added employees to the Tesco Fresh & Easy payroll. Since Wild Rocket Foods and 2 Sisters Food Group both only had Fresh & Easy as their respective U.S. customers, there's no other revenue source for Tesco regarding its ownership of the two companies. That means the added labor cost of these 750 new employees has to come from current and future Fresh & Easy Neighborhood Market revenue. (We suspect layoffs of some sort will come soon at both Wild Rocket and 2 Sisters.) This could blow Tesco CEO Leahy's projected $253 fiscal year 2010/11 loss for Fresh & Easy out of the water, possibly meaning an even bigger loss for the fiscal year which ends in February 2011.

Terry Leahy will be leaving the CEO position on March 11, 2010, and Tesco won't report it's fiscal year 2010/11 sales and earnings, including its loss for Fresh & Easy until the following month, April. Therefore he won't be around to have to deal with the numbers - be they less than $253 million, around $253 million, or possibly more.

But new CEO Philip Clarke will be there in April 2011, just a little over a month into his new job as CEO of Tesco. And you can bet he's already thinking about what he's going to say, and do, about it. We also doubt if opening new stores is the primary thing on incoming CEO Clarke's mind right now - or at the top of his "to do list" - regarding Fresh & Easy Neighborhood Market.


June 1, 2010: No New Fresh & Easy Neighborhood Market Stores Likely This Month

May 1, 2010: No New Fresh & Easy Neighborhood Market Stores Set to Open This Month

March 30, 2010: Tesco Set to Open 11 New Fresh & Easy Neighborhood Market Stores in April

March 29, 2010: Tesco's Fresh & Easy Set to Hit 150-Plus Store-Count Mark on April 7

March 16, 2010: A New Fresh & Easy Store Opens in Las Vegas Tomorrow on St. Patrick's Day; Will Tesco CEO Sir Terry Leahy's Proud Irish Eyes Be Smiling?

March 7, 2010: Three New Fresh & Easy Stores Opening This Month; First Opening March 10 in Palm Springs, California

January 27, 2010: February New Store Opening 'Big Bang' For Tesco's Fresh & Easy; Nine New Stores So Far

February 24, 2010: Fresh & Easy Store Opens its Doors in South Los Angeles

April 19, 2010: Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait

April 13, 2009: Despite Postponing its Northern California Launch Again Earlier This Year Tesco's Fresh & Easy Planning Third San Francisco Store; First Stockton Unit

January 14, 2010: UFCW Union Launches Informal Boycott of Fresno CA Fresh & Easy Stores Today; One Day After the Stores Open

April 20, 2010: Strong Group Revenue & Profit For Tesco... But $253 Million Loss at Fresh & Easy

June 23, 2010: Tesco Fresh & Easy Neighborhood Market CEO Tim Mason Gets Big Stock Award Featuring a Singular Twist

June 4, 2010: Every Little (Bit) Helps: Tesco Fresh & Easy Neighborhood Market CEO Mason Paid $6.188 Million For 2009]

June 21: The Missing Link in Tesco's Purchase of Fresh & Easy Neighborhood Market Meat Supplier '2 Sisters Food Group'

Thursday, June 24, 2010

Warren Buffett Strikes Again: Buys 2 Million More Shares of Tesco Stock For 3.2% Ownership Stake

In a March 1, 2010 story - Warren Buffett, 'The Oracle of Omaha,' Wants you to shop at Tesco...But He Doesn't Mind if You Shop at Walmart - we reported Warren Buffett (above), often called 'The Oracle of Omaha' because of the combination of his legendary investment skills and near-lifelong residence in Omaha, Nebraska, where he was born and raised and still lives, disclosed in his annual letter to shareholders that his Berkshire Hathaway holding company had increased its common stock share holdings in United Kingdom-based Tesco plc to a total of 234,247,373 shares, valued at $1, 367 billion, giving him ownership of about 3% of the company. The precise total was more like 2.99%, which is why Buffett's then stock buy didn't trigger a disclosure as required by law in the UK when an investor acquires 3% or more of a company.

Now Warren Buffett has struck again, buying nearly 2 million additional shares of Tesco plc stock on Tuesday, June 22.

Buffett, through Berkshire Hathaway, now owns 242 million Tesco shares, or 3.02% of the company. The shares are valued at about £968 million - or $1.445 billion, based on today's exchange rate.

And because Buffet's stock buy on Tuesday increased his ownership stake in Tesco, which owns and operates Southern California-based 159-store Fresh & Easy Neighborhood Market USA, over that 3% threshold, Tesco plc is required to disclose it, which the global retailer did today in this financial news release.

'The Oracle of Omaha' first invested in Tesco through Berkshire Hathaway in 2006, right about the time the retailer announced it was coming to America with Fresh & Easy, acquiring shares then equaling about a 1% ownership stake in the company. Since then Buffett, who's also called 'The Sage of the Plains' (the Omaha angle again), has regularly increased his purchases of Tesco stock, resulting in the 3.2% ownership stake he now has as of Tuesday.

It's safe to say Buffett is bullish on Tesco.

It's also safe to say the $208 million fiscal year 2008/09, and the $253 million fiscal year 2009/10 losses for Tesco's U.S. Fresh & Easy Neighborhood Market grocery retailing venture, along with Tesco's projected 2010/11 fiscal year loss of about the same amount as in 2009/10, haven't detouried Warren Buffett from buying more Tesco plc stock, as evidenced by his big buy on Tuesday. Nor does Fresh & Easy CEO Tim Mason's $6.188 million 2009 pay package seem to have dissuaded the legendary investor from increasing his stake in Tesco. Tesco plc reported record profits in April for its 2009/10 fiscal year.

The disclosure today of Buffett's latest buy also resulted in Tesco's stock share price getting a nice lift, even though the UK's FTSE dropped by 39 points.

Interestingly, we just mentioned Warren Buffett briefly in a piece published in Fresh & Easy Buzz yesterday - June 23, 2010: Tesco Fresh & Easy Neighborhood Market CEO Tim Mason Gets Big Stock Award Featuring a Singular Twist - in relation to a letter the CtW Investment Group and the Change to Win Coalition of labor unions sent to Tesco shareholders on June 17, asking the investors to vote against the company's senior executive-board of director pay package at Tesco's annual shareholder meeting on July 2, 2010.

In yesterday's story we said this about the probability Tesco investors will vote down the pay package, called the Remuneration Report:

The objective reality is the probability of Ctw Investment Group and the labor union group getting a majority investor vote against the Directors Remuneration report is highly unlikely for a number of reasons, chief among those reasons being that the majority of Tesco investors with voting rights are the big, institutional investors. For example, U.S. billionaire Warren Buffett, who owns 3% (about $1.3 -to- $1.4 billion in value) of Tesco plc through his Berkshire Hathaway holding company and investment firm, won't likely vote against the report.

Based on the disclosure by Tesco today that Warren Buffett has bought nearly 2 million more shares in the company, we feel in even stronger stead in terms of our prediction on which way he - and the majority of investors who have voting rights - will vote on the approval of the Remuneration Report at the shareholders meeting in London on July 2, which is to approve it per Tesco's request.

Meanwhile, his now 3.2% ownership stake makes Buffet one of Tesco's top shareholders, moving him even higher up than he already was before buying the additional 2 million shares on Tuesday.

Being so bullish on Tesco plc, as he's also been on Walmart Stores, Inc., we doubt if this is the last buy of Tesco stock 'The Oracle of Omaha' makes. [See - March 3, 2010: Mr. [Tesco] Three Percent Warren Buffett Still Has That 'Oracle' About Him]

Read more about Tesco plc investor Warren Buffett in Fresh & Easy Buzz here

New Fresh & Easy Clock Logo-Shaped Candies Are A Pretty Sweet Idea

Private Brands Showcase: Confections Category

Tesco's Fresh & Easy Neighborhood Market is introducing a new line of fresh & easy store brand fruit candies (pictured above) in the shape of its clock logo, which it features as part of its corporate logo on all of the "Fresh & Easy" signs on its 159 stores in California, Nevada and Arizona.

The fresh & easy clock-shaped candies are set to be in the stores on July 7.

We don't yet know how the candies taste since they haven't hit store shelves yet - but we like the product concept, in large part because in addition to serving the primary role as a product in the confections category, the line has the potential, at least in concept since it's obviously too early to tell, to serve a secondary function as an incremental branding element for the Fresh & Easy brand, which the clock plays a central role, and should play a greater role, in.

We like dual elements in product design, when they make sense, here at Fresh & Easy Buzz. This one makes sense.

The clock has the potential to be a strong branding element for Fresh & Easy if marketed well, in our analysis.

Regarding the clock as branding element, here's a suggestion: Have a bunch of those temporary tatoos kids love so much made up in the F&E clock design. Give them out to children in the stores as premiums for various occasions like grand openings, special events, or just semi-regularly for fun. It's simple. But we think it would serve as a part (elements of that incrementalism) of a whole in terms of various and multiple tactics as part of an overall strategy to build the brand, using the clock as a key element.

And besides, who've been told that at least one, and perhaps more than one, member of the Tesco Fresh & Easy corporate family has an actual, not temporary, tattoo of the F&E clock on their body. That's what we call real "branding."

[Private Brands' showcase is a semi-regular feature of Fresh & Easy Buzz. In it we highlight various Fresh & Easy private brand - and private brands from other grocers - products: the good, the bad and the ugly, offering analysis and commentary on the brands, items and related aspects.]

Wednesday, June 23, 2010

Tesco Fresh & Easy Neighborhood Market CEO Tim Mason Gets Big Stock Award Featuring a Singular Twist

News & Analysis

Tesco plc director and Fresh & Easy Neighborhood Market USA CEO Tim Mason (pictured above) has been granted rights to 292,085 ordinary shares of United Kingdom-based Tesco plc stock under Tesco's executive incentive plan, for which no payment by the reciepient is required. It's essentially a stock grant.

The shares were awarded to Fresh & Easy CEO Mason yesterday as part of Tesco's 2009/10 fiscal year annual defered bonus for the company's top executives, who are also members of its board of directors.

The number of shares awarded to Mr. Mason was calculated using an average Tesco plc market price of 388.05 pence, according to Tesco plc's investor relations department.

In addition to Tim Mason's stock share grant of 292, 085 shares, Tesco plc CEO Terry Leahy received a bonus award of 459,644 shares.

The following other Tesco executives-directors received the stock awards yesterday:

>Commercial and Marketing Director Richard W Brasher, 196,696 shares
>International and IT Director, Incoming CEO, Philip A Clarke, 196,696 shares
>Chief of Retailing Services and Group Strategy Director Andrew T Higginson, 196,696 shares
>Retail and Logistics Director David T Potts, 196,696 shares
>Group Finance Director Laurie McIlwee, 147,522 shares
>Corporate and Legal Affairs Director Lucy Neville-Rolfe, 147,522 shares

In an interesting development, all of the directors except for Fresh & Easy Neighborhood Market CEO Tim Mason, received their share awards in the form of nil cost options (share options that can be exercised without payment of a subscription price; essentially a regular stock option). In contrast, Mason's 292,085 shares is in the form of an unfunded promise to deliver shares, which means, among other things, he can't exercise the options at any time, like the others can if they choose to.

For Tim Mason this basically means that unlike the other directors, who's shares will be increased to reflect the dividends that would have accrued on vested shares had they been reinvested in shares in the period between the stock grant and its exercise (the nil cost option), and can be exercised if desired, his award is what's called grant and vesting (an unfunded promise to deliver shares), which means the award will vest but Mason won't be able to exercise any of the 292,085 shares before May 22, 2013.

We suspect, among other considerations, the special handling of Tesco plc director and Fresh & Easy Neighborhood Market CEO Tim Mason's stock award might have something to do, but not exclusively by any means, with Tesco's being under attack by the CtW Investment Group, which invests money from labor union pension funds in various corporations, including Tesco plc. The group is arguing that Mason received excessive compensation for fiscal year 2009/10. [Read our June 4, 2010 story on his compensation package here: June 4, 2010 - Every Little (Bit) Helps: Tesco Fresh & Easy Neighborhood Market CEO Mason Paid $6.188 Million For 2009]

On June 17, 2010, CtW investment Group and the Change to Win coalition of labor unions, many of which have pension fund monies invested in Tesco, sent this letter to Tesco plc shareholders regarding Tim Mason's pay package. In the letter they urge Tesco shareholders to vote no on proxy Item #2, the Directors' Remuneration Report, at Tesco’s upcoming July 2 annual shareholder meeting in London, UK.

The group also distributed this press release about the letter and campaign to media outlets far and wide on June 17. The release has generated considerable press on the issue, focusing on Mason's 2009/10 pay package and the group's attempt to get Tesco plc shareholders to vote against it at the July 2, 2010 shareholders meeting.

Perhaps Tesco believes that granting Tim Mason's stock award on the unfunded promise basis, which means he can't exercise any of the shares until May 22, 2013, will help blunt some of this criticism, leading to a majority vote of Tesco shareholders in favor of the Directors' Remuneration Report at the July 2 shareholder meeting. Or perhaps, among other considerations, it's just good politics, considering Fresh & Easy's $253 million loss for fiscal year 2009/10? If shareholders were to vote the report down it would mean Tesco couldn't go forward with the pay packages, including the stock awards listed above, for the corporation's directors.

The objective reality is the probability of Ctw Investment Group and the labor union group getting a majority investor vote against the Directors Remuneration report is highly unlikely for a number of reasons, chief among those reasons being that the majority of Tesco investors with voting rights are the big, institutional investors. For example, U.S. billionaire Warren Buffett, who owns 3% (about $1.3 -to- $1.4 billion in value) of Tesco plc through his Berkshire Hathaway holding company and investment firm, won't likely vote against the report.

These big investors will likely vote for the package for two key reasons. First, Tesco plc had record profits in its 2009/10 fiscal year. Therefore the investors aren't going to let Tim Mason's pay package get in the way of affirming the report. Second, these institutional investors don't want to veto the report because doing so would lead to a drop in Tesco's stock share price, meaning their investments would drop in value.

Adding to this, voting against the report would likely lead to uncertainty in the market vis-a-vis Tesco plc, potentially leading to further reductions in the retailer's share price. This is the last thing these big, institutional investors want to happen.

The investor-types at CtW Investment Group are aware of this probability, as are the heads of the labor unions. Or they should be. Ctw has authored resolutions at previous Tesco annual meetings that were rejected by these same big, institutional investors, who've got the votes.

However, the unions see a secondary benefit to the "vote against the report" campaign, which is to increase the pressure on Tesco via investors and the public (via the media) in its efforts to organize and unionize Fresh & Easy Neighborhood Market's store-level employees, which the United Food & Commercial Workers (UFCW) union has been trying to do since the first Tesco-owned Fresh & Easy grocery stores opened in late 2007.

Tesco's annual shareholder meeting is just 10 days away. Therefore we'll see the results of this issue come to a head very soon, at least in terms of the shareholder vote - but certainly not in terms of the ongoing campaign to unionize Fresh & Easy workers.

Fresh & Easy Buzz Linkage: Related Stories:

June 4, 2010 - Every Little (Bit) Helps: Tesco Fresh & Easy Neighborhood Market CEO Mason Paid $6.188 Million For 2009

June 21, 2010: The Missing Link in Tesco's Purchase of Fresh & Easy Neighborhood Market Meat Supplier '2 Sisters Food Group'

June 20, 2010: NLRB Judge Rules Against Key Fresh & Easy Neighborhood Market Supplier '2 Sisters Food Group' in Labor Relations Violations Case

June 20, 2010: NLRB Judge Rules Against Fresh & Easy Neighborhood Market in Spring Valley CA Store Labor Law Violation Case

March 4, 2010 - Aministrative Law Judge Finds Tesco's Fresh & Easy Violated Labor Relations Act in Ex-Store Employee, UFCW Union Complaint

August 5, 2008: UNI Global Union Launches Tesco-Specific Alliance; Calls For Tesco Executives to Meet With UFCW Union Officials Over Fresh & Easy Neighborhood Market

June 26, 2008: Tesco 2008 AGM: Barack Obama Sends Second Letter to Tesco CEO Requesting the Company Meet With U.S. UFCW Union Leaders About Fresh & Easy

June 26, 2008: Tesco 2008 AGM: Charges of Tesco's Exploiting Workers at Indian Factory Heat Up On the Eve of Corporate Annual General Meeting

June 22, 2008: Vocal Cast of Critics and Advocacy Groups to Attend Tesco's Annual General Meeting On Friday, June 27

June 4, 2008: News and Analysis: UFCW Union Takes its Tesco Union Organizing Campaign Across the Pond to the United Kingdom Beginning Today

February 11, 2008: Supermarket Union President Asks Britain's Prince Andrew to Arrange A 'Sit-Down' With Tesco Fresh & Easy Neighborhood Market Senior Executives

Some additional links here.

[Photo credit: Fresh & Easy Neighborhood Market]