Tuesday, January 18, 2011

Fresh & Easy Neighborhood Market Launches 'Extra-Low Every Day Low Price' Merchandising Program

Private brands & grocery merchandising

Tesco-owned Fresh & Easy Neighborhood Market today launched a new everyday low-price-oriented merchandising program in its 156 stores in California, Nevada and Arizona, in which it's guaranteeing the shelf prices on a selected number of its private brand items for an extended period of time. Fresh & Easy is calling the shelf prices on the selected group of items: "extra low every day."

Among the first batch of products included in the program include: 'fresh&easy' apple juice, in a 64 ounce bottle ($1.99); a multi-pack of 'f'resh&easy' brand bone-in loin pork chops ($1.99 pound); a multi-pack of 'fresh&easy' chicken breasts (1.99 pound); and assorted varieties of 'fresh&easy' packaged pasta (99 cents each).

Additional private brand items in the new everyday low-price-oriented program include various varieties of fresh&easy brand packaged cheese, ice cream, pre-packaged fresh lettuce items, and bagged vegetable steamers.

The shelf prices on the first batch of private brand items in the new everyday low-price-oriented merchandising program, which have shelf signs featuring the item price and the words "every day" below it, are guaranteed for about two months - from today -to- March 22, 2011. After March 22 Fresh & Easy reserves the right to raise the prices on the products, although it may or may not do so.

Based on our research, the shelf prices on the items listed above with the "extra low everyday low-prices" listed are the same as they were before Tesco's Fresh & Easy launched the program this week. That's not to say the price points are good or bad. Rather, its to say the price points on those specific items weren't lowered from what the shelf prices were a few weeks ago. The pasta price of 99 cents a unit everyday is excellent, for example. On the other hand, a number of the other items are about the same as what nearly all of Fresh & Easy's competitors offer on their respective private brands of the same variety.

The key proposition in the new merchandising program though, in our analysis, is the "price guarantee," in which the grocer is pledging not to raise the "extra low every day" shelf prices on the selected items for a given period of time.

EDLP, high-low, or both?

At first blush Fresh & Easy's new everyday low-price-oriented (EDLP) merchandising program looks like a move by the grocer to become more of an EDLP operator, rather than the hybrid EDLP/high-low grocer it currently is.

However, that's not the case. In addition to launching the merchandising program in the stores this week, Fresh & Easy Neighborhood Market also distributed a spate of its deep-discount store coupons today, which included a $6-off purchases of $30 (20%-off) or more coupon online and a $5-off purchases of $2o (25%-off) or more in its direct-mailed paper advertising circular.

The grocer also continues to distribute an online and direct-mailed weekly promotional circular, which features various items at reduced prices for a one week period of time.

The deep-discount store coupons, which can be used by shoppers on any of the retailer's private brands or manufacturer brands offered in the Fresh & Easy markets - the coupon amount is taken off customers' total grocery order purchase - is a promotional device and therefore part of high-low food and grocery retailing philosophy and practice - particularly because Fresh & Easy uses the coupons regularly - rather than a merchandising philosophy normally associated with EDLP grocers.

Many high-low retailers, such as Walmart and WinCo Foods, to name two that operate in the same markets as Tesco's Fresh & Easy Neighborhood Market does, use promotional mailers, coupons and other promo devices occasionally, but not on a regular basis like Fresh & Easy does. These retailers focus primarily on everyday low shelf pricing, using promotions at times as a device to stimulate customer draw and sales.

Fresh & Easy, on the other hand, is what we call a mixed or hybrid EDLP/high-low operator because the grocer uses the EDLP philosophy and practice and the high-low promotional variant equally in its stores.

It is our analysis though that Fresh & Easy Neighborhood Market CEO Tim Mason and his senior executive team, at least conceptually, have launched the "extra low every day low prices" merchandising program in the hope if it's successful down the road it could allow the grocer to stop distributing its deep-discount store coupons on a regular basis, as it has been doing chronically since 2008.

The 20% and 25%-off coupons take a big bite out of the fresh food and grocery chain's overall margin, which currently is in the cellar, at a negative-38%. Mason and company must get this margin up significantly, say at least in the low plus-twenty percentile, in order to have a chance of ever making a profit with Fresh & Easy, in our analysis.

Tesco has set the end of its 2012/13 fiscal year, a little over two years from now, to break-even with Fresh & Easy Neighborhood Market. Tesco lost $151 million on Fresh & Easy in the first half of its current fiscal year - 2010/11. The current fiscal year is over at the end of February 2011.

Significantly reducing the frequency of, or eliminating completely, the deep-discount store coupons will be a tough slog for Fresh & Easy though because, by using them so regularly, the chain has created a perception among shoppers that the vouchers, and the 20%-25% discount (if used to buy the minimum dollar purchase required) they offer, is a normal part of the grocer's pricing policy. In other words, a perception exists among customers, in our observation and analysis, that without the coupons the prices at the Fresh & Easy stores are too high.

The evidence of this phenomenon is two fold: When in the past Fresh & Easy tried to not use the store coupons for a couple months in 2009, sales in the stores dropped, and customers complained about the lack of coupons to the grocer in huge numbers, many saying that without the coupons they were not shopping in the stores or buying much less when they did shop at Fresh & Easy.

The retailer responded to these twin developments in 2009 by resuming regular distribution of the discount coupons, something its continued on a regular basis ever since, including this month.

Extra-low - everyday

Obviously it's too early to offer an analysis on the efficacy of Fresh & Easy Neighborhood Market's new everyday low-price-oriented merchandising program, since it is just starting. However, we can see pitfalls with the program, as well as some potential positive opportunities.

Overall though, it's our analysis right now that the program isn't going to have any material benefit on Fresh & Easy's sales. Even more important - and obvious - it will do nothing directly to help increase the grocery chain's gross margin.

The program could over time possibly help create a better overall customer price perception of Fresh & Easy. However, a true picture of how the stores can do will not come until the grocer stops - and perhaps it never will - using the deep-discount store coupons on a chronic basis.

For example, Fresh & Easy seldom lets more than two or three days pass between the expiration date of a batch of coupons and the distribution of a new batch. A good test would be to issue the coupons for just one week out of each month. Then we could see how the stores do for the other three weeks out of the month when the coupons offering 20%-25%-off shoppers' total grocery purchases aren't available.

We don't see this happening though. Why: Because it's our analysis that without the regular distribution of the coupons as described above, sales at the Fresh & Easy stores would drop substantially, despite the fact the everyday prices in the stores are decent, and despite the fact the chain distributes a decent promotional circular each week.

It's not too early to offer this, however: What we call the "Fresh & Easy coupon conundrum"and the associated issues described above is something incoming Tesco CEO Philip Clarke, who takes over the corner office at Tesco's corporate headquarters in the United Kingdom in early March, should be very concerned about.

Related Stories

Click on the following links - , , , , , , , - to view a selection of related stories in Fresh & Easy Buzz.

1 comment:

Anonymous said...

Fresh & easy is a fine "no frills" store and hopefully will hold there own without the union trying to get a stonghold on them. To all the workers that want union, I say as a union store worker, count your lucky stars the union isn't bargaining for you.The union wants those weekly dues so they can live a very comfortable life. The union big shots (that is).If you work & are not a lazy person then you should not worry about getting the union in your stores. They were probably very useful "back in the day" but if I was non-union I am sure I would have made more than a20 cent raise for the entire year , last year. No one should work as hard as we do for so little. Thanks to the union!