News & Analysis
United Kingdom-based Tesco said today comparable-store-sales (called like-for-like in the UK) for its El Segundo, California-based Fresh & Easy Neighborhood Market chain increased by 11.9% for its 2011/12 fiscal year third quarter, which ended November 26, 2011.
The 11.9% comparable-store-sales gain is slightly less than the 12.4% Tesco reported for Fresh & Easy for its fiscal second quarter, which ended August 27.
Comparable or same-store-sales is a key indicator for retailers because the metric only includes stores open a year or more.
In contrast, overall sales growth as a metric includes new stores opened during a given quarter. Tesco reported a 29.2% overall growth rate for the third quarter for Fresh & Easy Neighborhood Market.
When looking at Fresh & Easy Neighborhood Market, comparable store sales are what's key because the numerous new Fresh & Easy stores Tesco opens tends to make the overall sales number meaningless when it comes to gaining any real understanding of the 184-store U.S. grocery chain's sales performance.
The 11.9% comparable sales growth number is a good one for Tesco's Fresh & Easy. It also continues a solid comparable sales growth trend for the grocery chain, which has turned in double-digit comparable sales increases over the last few quarters.
However, a considerable percentage of that double-digit comparable sales growth is due to heavy discounting by the chain during the third quarter, which included distributing numerous 20% off discount store coupons, along with the discounts offered customers with the new Fresh & Easy "Friends" reward card which was launched in early October, in our analysis.
Fresh & Easy's loyalty/rewards card gives customers points for certain purchases which they can redeem for cash discounts. For example, 500 points equals five dollars off any given total purchase. Fresh & Easy gave (and is still offering as an intro) shoppers 500 free points or $5 on their cards just for signing up.
Philip Clarke, Tesco's CEO, said today U.S. like-for-like revenue rose almost 30% in the "week around Thanksgiving," which "demonstrates the business is really gaining traction with customers."
What Clark didn't mention though - and what you aren't likely to read elsewhere because we track such things closely at Fresh & Easy Buzz - is that from November 2 through the week leading up to Thanksgiving, Fresh & Easy Neighborhood Market distributed five of its 20% off - $10 off purchases of $50 or more, 6 off $30, $5 off $25 - store coupons via its "friends of fresh & easy" e-mail-based flyer. The coupons are also easily available online by simply typing "fresh & easy coupons" into Google or one of the other search engines.
Fresh & Easy distributed the 20% off store coupons online on the following dates leading up to Thanksgiving on November 24: November 2, 9, 16, 18 and 22.
Fresh & Easy Neighborhood Market also distributed the coupons in its weekly advertising circulars, which are direct mailed to consumers homes.
Employees at a number of Fresh & Easy stores we visited in the three weeks before Thanksgiving were also handing out store coupons to shoppers. Additionally, a number of our correspondents reported in the same thing.
Such discounting, which has helped Tesco achieve double-digit same-store sales with Fresh & Easy for a number of quarters now, does little to help the U.S. chain's trading margin, which Tesco must increase significantly if, as CEO Philip Clarke says will happen, it's going to break-even with Fresh & Easy Neighborhood Market by the end of its 2012/13 fiscal year, which ends in February 2013.
As noted earlier, the 11.9% comparable-store-sales metric for Fresh & Easy is a good one.
The big question though is - at what cost (as in margin)?
Tesco doesn't report metrics like margin - or even sales and profit/loss - for Fresh & Easy for its third quarter.
Therefore, we can't know what that cost might be. For example, did Tesco improve its poor trading margin (negative 35% at fiscal half year) with Fresh & Easy during the fiscal third quarter? Conversely, Did the heavy discounting make that poor trading margin even worse? Did it stay the same?
We won't know any meaningful about whether or not the retailer improving its trading margin and is decreasing its loss with Fresh & Easy until Tesco reports its fiscal 2011/12 full year financials in April 2012. The fiscal year is over at the end of February 2012.
On October 5 of this year Tesco reported a fiscal 2011/12 half-year loss of $112 million for Fresh & Easy, on sales of $470 million. The loss is 21-23% (depending on how recorded) lower than the one iy reported for Fresh & Easy for the same period in the previous fiscal year.
Meanwhile, Tesco today reported its fourth-straight quarter of sales declines at home in the UK, which accounts for nearly 70% of the global retailer's revenue. Tesco has operations in 14 countries.
Sales at Tesco's UK stores open at least a year dropped 0.9 percent, excluding fuel and value-added tax, in the fiscal third quarter ended Nov. 26, the retailer reported today.
But despite the decline in sales at home, Tesco reported an overall increase in corporate revenue of 7.2%, including fuel (7.3% at constant exchange rates). and 5.4%, excluding fuel (5.5% at constant exchange rates) for its fiscal third quarter.
[You can view Tesco's fiscal 2011/12 third quarter reporting here.]
The fiscal fourth quarter, which ends in February, is a crucial period for Tesco with its Fresh & Easy chain, which is something we'll be offering analysis on in upcoming stories.
November 27, 2011: More Reshuffling: Number Two Marketing Exec Follows CMO Uwins Out the Door at Tesco's Fresh & Easy Neighborhood Market
November 18, 2011: Fresh & Easy Neighborhood Market Combining Big Seasonal Foods Assortment With Promos and Discounts to Lure Holiday Shoppers
November 10, 2011; Chief Marketing Officer Uwins Out in Top-Level Reshuffling at Tesco's Fresh & Easy Neighborhood Market
October 10, 2011: Gov. Signs AB 183: End of Self-Service Checkout Only in California For Fresh & Easy Neighborhood Market if Stores to Still Sell Alcohol