Will Plants and Flowers For Mother's Day Help Tesco's Fresh & Easy Neighborhood Market Blossom and Bloom?

Analysis/Commentary

Tesco's Fresh  Easy Neighborhood Market is using an assortment of fresh floral bouquets and live plants as its promotional leaders this week, in a effort to entice consumers to shop for mom at its stores in California, southern Nevada and metropolitan Phoenix, Arizona

The week leading up to Mother's Day on Sunday has become an extremely competitive period between grocers and other format retailers, ranging from drug chains like Walgreens and CVS and club stores like Costco, to mass merchandisers like Target and Walmart and many others, all wanting to get consumers' bodies in their store aisles and shoppers' dollars in the cash register tills.

In its weekly advertising circular, which started yesterday and runs through May 10, and in its stores, Tesco's Fresh & Easy is offering four fresh floral arrangements, all at value prices.

The arrangement, all pictured at top, are: A dozen roses, priced at $8; a Rose and Alstromeria Bouquet, at $10; a mixed Mother's Day Bouquet, for $15; and at the higher end, a Hand Tied Bouquet for $15.

Along with the four different varieties of floral arrangements, the grocer is offering two plant specials -  a four inch Mini Potted Rose, for $4, and a blooming Hydrangea plant, at $14.

The promotion and weekly ad also ties in fresh strawberries - at 98-cents for one pound - with the fresh flowers and live plants, along with offering wine, chocolate and Fresh & Easy's "retreat" private brand of body care products (20% off), all at promotional prices for mom.

Along with using the fresh flowers and live plants at the lead horses in this week's Mother's Day promotion, and cross-promoting the related consumable goods and "retreat" brand body care items, the 175-store fresh food and grocery chain is also promoting a selection of its "fresh&easy packaged food items for Mother's Day, using the tag line: "A brunch with mom is the best gift of all."

Among the 10 items being promoted under the Mother's Day brunch theme are: "fresh&easy" brand orange juice; pancake mix, premium coffee; and bacon. There's also a fresh, ready-to-heat quiche, packaged bagels, and four other 'fresh&easy' brand items. You can view all the items here.

Fresh & Easy Neighborhood Market also this week distributed an online coupon good for $10-off purchases of $50 or more, which is good through the Mother's Day holiday, along with including coupons offering $3-off purchases of $20 or more, in some markets, and coupons with a $5-off purchases of $20 or more value, in other markets, in its paper advertising circulars, which it mails to resident's homes.

The dozen roses we saw in Fresh & Easy stores we visited today looked of good quality, a real value at $8.

At the $8-dozen promotional price the rose bouquets are basically a "loss-leader" (as are a couple of the other floral arrangements) for Tesco's Fresh & Easy, meaning after taking the wholesale cost of the roses, adding what it costs to handle them (human labor, distribution to the stores), and including the shrink factor - the number of bouquets Fresh & Easy will have to sell for a discount, usually at 50% or more off, the day after Mother's Day - the grocer will be happy if it breaks-even on the promotional offering, or loses just a few cents per dozen.

However, if the $8 dozen rose bouquets bring in customers who normally wouldn't do any of their Mother's Day shopping at a Fresh & Easy store or get shoppes to fill their baskets with other goods sold in the stores, then a loss leader like the roses can be well worth it, unless of course those shoppers just buy the roses and nothing else.

Even worse is if they buy three dozen ($24 plus tax) roses, and nothing else, and use one of the $5-off-$20 coupons to make the purchase, resulting in getting the roses for a mere net $19, or slightly over $6 a dozen.

Remember our loss-leader discussion above? The coupons, which are used regularly by shoppers at Fresh & Easy, also bite into that loss on the dozen roses. For example, the scenario described above with the $5-off coupon adds to the margin loss on the roses for Fresh & Easy, making a loss-leader item (the roses) a potentially big loss-leader item.

But - such are the risks grocer's take every day. And the super-competitive Mother's Day promotional week is certainly not an exception to that rule. In fact, it kicks the risk factor up a notch or two because its become such a highly-competitive promotional period among retailers.

It's a very competitive, multi-channel, multi-format retail market in California, Nevada and Arizona, which is something United Kingdom-based Tesco has been learning the hard way over the last three-and-one-half years  with Fresh & Easy, as it struggles to stem the loss at its 175-store Fresh & Easy chain, which were over $300 million for the recently-ended 2010/11 fiscal year (February 26, 2011), on sales of $800 million.

The first Fresh & Easy stores opened in November 2007. Tesco has lost nearly $1 billion since then on Fresh & Easy. That doesn't include the start up costs.

You can bet Fresh & Easy Neighborhood Market's CEO, Tim Mason, who about five years ago moved out of Tesco's corporate headquarters in the United Kingdom where he was head of marketing to Southern California to start up Fresh & Easy in El Segundo, doesn't think a $300 million loss is anything to write home to mom - or mum - about.

Instead Mason, who as of March added the title Tesco deputy group CEO, a position just below CEO Philip Clarke on the organizational chart, to his Fresh & Easy CEO title, is more likely hoping droves of shoppers in California, Nevada and Arizona rush to his Fresh & Easy stores this week, excited by the hot promotional prices on the flowers and plants, and in the process buy a basket full of other food and grocery items, particularly those that offer decent gross margins to the Tesco-owned fresh food and grocery chain.