Tuesday, April 12, 2011

Fresh & Easy Neighborhood Market to Shrink Health & Body Care Sections in Stores; Add Candy and Snack Items

Fresh & Easy will continue to merchandise its 'retreat' private brand body care line (above) in the slimmed-down HABC departments. The products contain no artificial colors, parabens, mineral oils or SLS detergents.

Category Management & Merchandising
News & Analysis

Fresh & Easy Neighborhood Market is preparing for a fairly major chain-wide category re-merchandising project, in which the Tesco-owned fresh food and grocery chain will be significantly reducing the HABC (health and body care) sections and product SKU-counts in its 172 stores, Fresh & Easy Buzz has learned.

The project is set to start soon. Current plans call for it to be completed by early-to-mid summer.

In its new schematic, Fresh & Easy plans to reset the HABC section in each store, consolidating it down to just a single aisle - aisle six - which is an about a 40% space reduction.

In order to achieve the single-aisle consolidation, Fresh & Easy is eliminating numerous items and will offer an even more limited assortment of HABC category SKUs than it currently merchandises, putting a focus on carrying just the basic health and beauty/body care items, under a few national brands. Fresh & Easy will continue to offer its 'retreat' private brand HABC products in the store sections.

The HABC category reset will free-up shelf-space in the back in the stores, which is where the sections are located.  Fresh & Easy's merchandising team then plans to replace the HABA SKUs with a selection of bulk candy, along with adding new packaged cookie and snack food items.

Additionally, the HABC category reset will free-up space on aisle five in the stores. Fresh & Easy plans to use that space to add a variety of new packaged snack chip and related items, with a focus on the Frito-Lay brand.

Two aisle end-caps will also become available because of the HABA category reset. Current plans call for the end-caps to be used to merchandise vitamins, dietary supplements and energy bars, according to our sources.

Health and beauty/body care has been among the worst performing categories for Fresh & Easy Neighborhood Market since the chain's first stores were opened in November 2007. This poor category sales performance is the reason for the planned merchandising change and reset project, according to our sources.

By decreasing the amount of space for HABC in the small-format (10,000-12,000 square-foot) Fresh & Easy stores and reducing the number of SKUs offered in the poorly-performing category, then using the space to add the bulk candy and packaged cookie and snack food SKUs (which are traditionally higher-velocity categories and items) the grocery chain hopes to better maximize the available space, resulting in increased sales-per-square-foot in the stores.

Health and beauty/body care items are generally a good category for grocers because the items tend to offer retailer's higher margins than many consumable categories, like snack items, do. However, if the items aren't selling at a decent velocity, margin - good or bad - tends to be a moot point, as is the case with the overall category at Tesco's Fresh & Easy Neighborhood Market, where as we noted, HABC is a poor performer.

With this fact in mind, you can better see the philosophy behind Fresh & Easy's wanting to use the shelf space that will be freed-up by the HABC category reset to merchandise products like Frito-Lay brand snack chips, which tend to move off the shelves at a relatively high velocity in most grocery, drug, convenience and mass merchandiser stores.

Snack food giant Frito-Lay is owned by PepsiCo, best know as the maker and marketer of soft drinks, along with its snack chip brand. Fresh & Easy Neighborhood Market recently added a number of new Pepsi/PepsiCo brand soft drinks SKUs, along with those from Coca-Cola, to its stores. That and the planned offering of the new Frito-Lay snack chip SKUs is part of an overall planned increase in business the grocery chain has planned with Pepsi-Frito-Lay.

Pepsi and Frito-Lay distribute soft drinks and snack chips to all retail stores on a direct-store-delivery (DSD) basis, which includes having distributor service people merchandise the products. Store clerks replenish the shelves between deliveries, as needed. DSD, which Pepsi and Frito-Lay do very well, is a plus for retailers, including Fresh & Easy, because it not only provides vendor labor (stocking and merchandising), it also helps to manage inventory (which is good for cash flow) because the retailer need not slot the DSD items in its central distribution center and truck the SKUs to its stores.

One reason the HABC category has performed poorly in the Fresh & Easy stores is because in the main shoppers aren't using the stores as primary and in many cases even secondary shopping venues in significant numbers.

From a theoretical standpoint this might make sense since the Fresh & Easy format was designed to be a fill-in fresh food and grocery store, which shoppers would use for convenience purposes, along with shopping at bigger supermarkets and mass merchandise outlets.

But theory isn't always reality - and in practice this strategy isn't working very well for Tesco's Fresh & Easy, which needs to get its average market basket purchase size (the average amount of money a shopper spends per trip to a grocery store) up considerably, along with producing a significant increase in average store sales-per-square-foot.

In order to achieve these twin goals - which are just two of about five key metrics it needs to significantly improve in order to stem its $200 million-plus annual loss - Tesco's Fresh & Easy needs to get those customers who regularly shop at the stores (primary) to spend more money on each shopping trip. It also needs to convert a decent percentage of people who shop at the stores on an infrequent basis to more frequent customers, thereby increasing its total universe of at least secondary shoppers.

Shrinking the HABC sections and SKU-count won't alone do either of those two things for Fresh & Easy Neighborhood Market.

However, it will likely make better use the available space, at least from the perspective that the added consumables - bulk candy, packaged cookie, snack chip and other items - will most certainly sell in higher velocity that the HABC items currently are.

The average retail price points of the HABA items set to be discontinued are only slightly higher than the avewrage price points of the bulk candy and others snack food items that are replacing the SKUs. As a result, if the new consumable items set to replace the discontinued HABA SKUs sell at an about 15%-20% higher overall rate of velocity than the replaced SKUs, Fresh & Easy could then see a slightly measurable increase in store sales-per-square-foot attributable to the category re-merchandising project, in our analysis.

Product category merchandising - and item mix selection - is a dynamic process in food and grocery retailing. We like to compare it to painting the Golden Gate bridge, where once the painters finish painting one end of the famed span (a couple years after starting), they immediatly start over again on the end where they first began.

In other words, merchandising and re-merchandising is, or should be, an ongoing process, the goal of which is to continually fine-tune the product assortment offered and how it's merchandised, in order to optimize the stores' sales-per-square-foot.

This process is even more important in small-format, limited SKU-assortment stores like Tesco's Fresh & Easy because with few items - the 4,500-5,000 SKUs offered - there's less room for error than there is in the average supermarket, which carries 35,000-plus SKUs.

For a limited assortment grocer like Fresh & Easy Neighborhood Market to do well, it's essential, among other criteria, that it maximize its product mix, and localize it to the demographics and lifestyle criteria in its various market regions, which is something the Tesco-owned fresh food and grocery chain does not do, which is why you see the same product assortment in a Fresh & Easy store in a neighborhood that is 60% Latino but has few Asian-Americans as you do in a neighborhood that's 60% Asian but has a Latino population of 5%, for example.

In our analysis, Tesco's Fresh & Easy needs to put a much greater focus on analyzing and tweaking the product mix it offers in its stores.

We would look at a strategy that offers about 6,500 SKUs total, adding about 1,300 new SKUs to the stores. About 65% of those SKUs would be what's called a "core-mix," meaning the items would be slotted  in all Fresh & Easy stores. The remaining percentage of SKUs would be regionalized and localized, based on market region and neighborhood demographic/ lifestyle-oriented criteria.

As an example, Fresh & Easy stores in neighborhoods with significant Latino consumers would have a greater selection of Hispanic food items. And if the majority of those consumers were from Puerto Rico or Central America, for example, rather than from Mexico, the brands and items would be selected based on those regional preferences, which are real and significant. The same with Asian consumers.

Factors like education level (college graduates) age, percentage of married vs. single people and other key demographic and lifestyle-oriented variables should also be factored into the selection of that 35% of the total SKU-count that is regionalized and localized. And by addng the 1,500 new SKUs, Fresh & Easy could have roughly the same amount of items in its "core mix" as it currently carries in its stores in total.

As we said earlier, category merchandising and product assortment selection is a dynamic process, which is something United Kingdom-based Tesco needs to focus on like a lazer beam if it's going to even come close to breakng even with Fresh & Easy Neighborhood Market by the end of its 2012/13 fiscal year, which is less than two years away.


Anonymous said...

Until this month our family spent over half our food budget at F&E, shopping weekly because of the F&E very fresh organic milk. We used four gallons a week, including the milk for making our own homemade fresh cheeses, yogurt and ice creams.
While in the store we expanded our basket to include condiments, pasta, beans, rice, beverages, frozens, produce and household items.
Not any more. Our reason for going is gone. Recently the F&E Organic Milk was changed to ULTRA PASTEURIZED, meaning heated to 280 degrees, over a hundred degrees higher than pasteurized. The enzymes that make cheese and yogurt are now dead adding a month to the shelf life and taking most of the nutrients out of the milk. The process also forms the d-glutamates that make MSG toxic to brain cells, especially in children!
F&E staff was so proud of the freshness of the store brand milks. You could taste the difference. Now it tastes cooked and dead. Shelf surveys would show our store was selling out of Organic F&E milk so fast that about once a month we had to leave and come back another day for milk. No need for extended shelf life here!

We have shopped since the first week the store opened, always growing the market basket to include more and more different products.. always wanting more organic, fresh and healthy items. We stayed even when some items went up 50 to 66%, like cocoa and mayo did. Even though we have a huge retiree population we can't get unsalted nuts or low salt chips at our store. Half the population is Latino but you can't see that in our store. There is a large wine selection but the cheese choices are very pedestrian. We have a huge chip selection but very little fruit.

Your article should be taken very seriously by those who want F&E to succeed. We hope they listen to you. Unfortunately, unless they quickly reverse their decision to kill off their organic milk, they are losing a lot of customers who had been drawn by their previous efforts to provide high quality fresh organic milk. And once we were in the store we went for other organic and healthy products, willing to pay more, even in difficult times, for our families' fresh, clean food.
They really need to take the word "Fresh" off of their ultra pasteurized milk. Now they can advertise "It'll last till summer cause the bugs won't drink it anymore! It's not much more than white water with 2% fat and altered protein neuro excitotoxins now, but we will still be charging $6.58 a gallon! Stock up!"

Anonymous said...

Doesnt make sense to me. I thought "FRESH and easy" was going for the whole healthy segment (and decent prices)? I dont see how adding chips and cookies and stuff helps that image.

I also agree with anon above. Even in areas with 60%+ hispanic population, the SKUs do nothing to reflect that.

RogerC said...

Supermarket News picked up and ran your story: http://supermarketnews.com/news/fresheasy_revamp_0413/