Behind the Buzz: Tesco Opens Three New Fresh & Easy Neighborhood Market Stores in Northern California Tomorrow

News/Analysis/Commentary

Tesco's Fresh & Easy Neighborhood Market is set to open three new stores in Northern California tomorrow morning.

Once opened tomorrow, the three grocery markets in the San Francisco Bay Area cities of Hayward (Mission Boulevard and Rousseau Street), San Jose (Saratoga Avenue and Payne Avenue) and Napa (Imola Avenue and Jefferson Street), will give Fresh & Easy 11 units in Northern California and 175 stores total in California, Nevada (21 units) and Arizona (28 units.)

The new store at Saratoga Avenue and Payne Avenue is the second unit in San Jose for Fresh & Easy Neighborhood Market. On March 2 the grocery chain opened one of its first two stores in Northern California, in San Jose's Willow Glen neighborhood. [See - March 2, 2011: Fresh & Easy Neighborhood Market Opens First Two Stores in Northern California Today.]

The Hayward store is located in a middle-income neighborhood. The neighborhood doesn't have an abundance of grocery stores and supermarkets, which is something that could benefit Fresh & Easy at the location.

Tesco's Fresh & Easy first announced its plans to open a store at Mission Boulevard and Rousseau Street in Hayward in early 2008, over three year's ago.

Tesco has a second unit in Hayward, at A Street and Hesperian Boulevard, that it's been sitting on since at least January 2008. We expect the grocer to open the store this year or next. But, as of last week, no construction work was taking place at the location.

The neighborhood surrounding the Fresh & Easy store opening tomorrow at Saratoga Avenue and Payne Avenue in San Jose is also comprised primarily of middle-income residents.

We reported in this September 22, 2010 story - Tesco's Fresh & Easy Neighborhood Market Planning A New, Third Store in San Jose, California that Tesco's Fresh & Easy planned to open the store at 1328 Saratoga Avenue (at Payne Avenue). The store wasn't one of the 37 units Fresh & Easy had previously announced it would open in Northern California. [See - November 5, 2010: Fresh & Easy Neighborhood Market Queuing Up Three Additional Stores in Northern California For Early-to-Mid 2011 Openings.]

When Fresh & Easy announced on August 19, 2010 its plans to start opening stores in Northern California in "early 2011," the Saratoga and Payne store in San Jose wasn't on the grocer's initial list of eight stores. [See - August 19, 2010: Tesco Will Open its First Eight Fresh & Easy Neighborhood Market Stores in Northern California in 'Early 2011.']

On November 10, 2010 Fresh & Easy Neighborhood Market announced it planned to open 12, rather than eight, stores in Northern California in "early 2011." The Saratoga and Payne unit was on the list of 12 stores. [See - November 12, 2010: Postponed But Not Abandoned: Fresh & Easy Neighborhood Market Gearing Up For Northern California Launch.]

November 2010 was the first time Tesco's Fresh & Easy publicly said it had a store location at Saratoga and Payne, although we broke the news of its existence in our September 22 story.

Tesco has a third Fresh & Easy store location in San Jose, at Almaden Road and Curtner. As of last week, no construction work was taking place at the vacant building on the site. Tesco has been sitting on (and paying the monthly rent on) the Almaden Road location since at least January 2008.

The store in Napa, at Imola Avenue and Jefferson Street, not only will be Tesco's first Fresh & Easy market in the city. It will also be the first store the grocer has opened in the North Bay Area.

Six of the current eight Fresh & Easy stores in Northern California are in the San Francisco Bay Area.

Four of the stores (Walnut Creek, Concord, Danville and Pleasanton) are in the Easy Bay Area. One store, the unit in San Jose's Willow Glen neighborhood, is in the South Bay Area. The remaining store (of the six) is in Pacifica, which is located on the coastal peninsula near San Francisco.

The remaining two stores are in Vacaville, which is between Sacramento and the Bay Area, and Modesto, which is in the Northern Central Valley.

The opening of the Fresh & Easy store in Napa should be of particular interest to readers of Fresh & Easy Buzz because of a story we published about the location on September 14, 2010. The story:  Eight Plus One: Napa Unit Added to Eight Fresh & Easy Neighborhood Market Stores Opening in Northern CA in Early 2011.

In the story, in addition to reporting before Tesco's Fresh & Easy announced its plans to do so that the grocery chain would open the Napa store early this year, we offered Tesco a suggestion, based on our knowledge, experience and analysis of the market and the specific Napa location, on how it could create a better opportunity for success with the store.

That suggestion included using a portion of an extra 3,500 square-feet available at the store to put in an in-store cafe, where the grocer could offer coffee and pastries, along with other baked goods, drinks and related items. The cafe would have a bar and some tables as well, so it would serve as a way to draw shoppers into the store as well as to keep them in the store longer, which research and practical experience shows results in the spending of more money per-store-trip.

The Napa store, however, is identical to virtually all the other 171 Fresh & Easy markets. Instead of using all or a portion of the extra 3,500 square-feet for a cafe, the space is currently being offered for lease.

You'll see in our September 14, 2010 story - Eight Plus One: Napa Unit Added to Eight Fresh & Easy Neighborhood Market Stores Opening in Northern CA in Early 2011 -  we presented a conceptual sketch as to how Tesco's Fresh & Easy could use the entire 3,500 square-feet, localizing and customizing the store to the neighborhood and city of Napa. It would have been an interesting and smart thing for Tesco to do as a test, in our analysis.

The idea and concept is all the more interesting because one week ago, on April 19, Tesco CEO Philip Clark, who took over in March, said the company plans to open the Fresh & Easy stores at 7 a.m., an hour earlier than most of the stores now open (a few units open later than 8 a.m.), and to serve coffee and pastries at all the stores in the early morning hours. You know - just like every convenience store, coffee shop/cafe (many featuring drive-through windows), fast food joint (more drive-through options) gas station, supermarket, doughnut shop, bakery and restaurant does in California, Nevada and Arizona.

Selling a cup of coffee and pastry to takeout in the stores isn't going to do much of anything to improve Fresh & Easy's sales, profits or image.

It's fine we suppose. Coffee is available nearly everywhere else, after all. (We forgot to include that's it's also available at most workplaces, in vending machines and in all those food trucks driving around in the early morning, in the list above. Some of us even make coffee at home in the morning.) But as a strategy and merchandising addition to Fresh & Easy Neighborhood Market, it's a near-empty and not very substantial cup of Joe, in our analysis. A shot of decaf, at best.

We aren't taking a cheap shot at Clarke about the plans to start selling coffee and pastries at Fresh & Easy. Instead, we're just looking at it in a serious, analytical way.

After all, he's the new boss at Tesco and had nothing to do with Fresh & Easy in his previous executive positions at the retailer, which were director of Europe and Asia retail operations and chief of information technology.

When Clarke was touring Fresh & Easy stores in February of this year, before he became CEO the first week of March, he was surprised shoppers couldn't grab a cup of coffee in the stores. A few units do offer it, like one he visited in Long Beach, California. [See - February 23, 2011: Incoming Tesco CEO Philip Clarke Visits America - And Fresh & Easy Neighborhood Market.]

He asked Fresh & Easy Neighborhood Market CEO Tim Mason (and others at Fresh & Easy), who became Tesco deputy CEO when Clarke became CEO, about the lack of being able to grab a cup of Joe in the stores more than once. And soon, coffee and pastries will be for sale in all the Fresh & Easy stores, as the Tesco CEO announced on April 19.

It's a nice thing, having coffee and pastries available in the morning. But Clarke will have to make some much bigger additions and changes in strategy and practice if he wants to break-even with Fresh & Easy by 2013, as he says will be the case. [See - April 19, 2011: Tesco's Fresh & Easy Neighborhood Market Posts Biggest One-Year Loss Yet - $307 Million Loss on Sales of $818 Million.]

But breaking-even is only job one. As the CEO of Tesco Clarke must ask himself another question at the very same time. That question: Then what? In other words, if Fresh & Easy does come close to or break-even by 2010, what's the strategy - for profitability, growth, ect. - going forward? That strategy needs to be developed now.

What might be helpful, and its something we first suggested over three years ago Tesco try at Fresh & Easy, is to include some small in-store cafes/seating areas in selected stores and see how they perform. Not long after we first offered the suggestion, Fresh & Easy CEO Tim Mason mentioned in an interview with a British newspaper that putting small cafes with sit-down areas in some of the stores was something he was considering doing. It never happened though.

Had Tesco tested the small in-store cafe concept even two years ago, say in about 6-12 Fresh & Easy stores, it would know by now if it was helping and could be using it as a way to help draw customers, keep them in the stores longer, build stronger shopper loyalty, develop a little needed in-store excitement, and create a better sense-of-place in the Fresh & Easy stores, the lack of which is a major reason they don't draw an adequate number of new and repeat primary and secondary shoppers, in our research and analysis.