Saturday, July 28, 2012

Fresh & Easy Neighborhood Market Planning Major Renovations at Two California Stores

Companion Story: Fresh & Easy Neighborhood Market Plans to Test Full-Service Checkout at Two Stores in California

Breaking Buzz & Analysis

Tesco's Fresh & Easy Neighborhood Market is planning to make major renovations at two of its stores in California, Fresh & Easy Buzz has learned.

The two stores are at Main Street and Raymond Avenue in the Southern California city of Alhambra, and at Lincoln and Sterling in Lincoln, California, which is near Sacramento in Northern California.

The key element of the renovation and retrofit project will be the addition of full-service checkout lanes in both stores, as we reported in this related story.

Fresh & Easy will keep the self-service checkouts currently in the stores, but plans to add the full-service checkout lanes as an option for customers, which is something we've been saying for five years the Tesco-owned grocery chain needs to do in all its stores.

In addition to adding the full-service checkouts, Fresh & Easy plans a major renovation and realignment of the produce departments in the two grocery stores, adding new display fixtures, which will be wood, along with reusing some of the existing fixtures as part of the produce redo.

Renovation plans also call for adding a coffee bar in the front of both stores.

There will be a few other changes made in the stores as part of the project. But the addition of the full-service checkstands, the complete produce department redo, and the new coffee bar are the key elements of the planned project.

The renovation project might pose some problems for Fresh & Easy Neighborhood Market though, according to one of our sources who's very familiar with the project and the plans, because one of the 50 corporate headquarters employees fired last Wednesday was James Smith, who as a director headed up Fresh & Easy's  construction efforts.

Smith, who worked for Fresh & Easy for nearly six years until being dismissed Wednesday (he was among the first employees at the chain in 2007), is the only person who to date has managed retrofits like those planned at the stores in Alhambra and Lincoln for Fresh & Easy Neighborhood Market, according to our sources.

Our sources say Fresh & Easy still plans to go forward with the project, however, despite no longer having Smith on board.

A source familiar with the project and plans says it's going to be very difficult to pull the project off in the August time-frame, not only because of Smith's departure, but also because the only architect who's ever done such a major retrofit for Fresh & Easy, Rick Redpath, is no longer employed at the firm, Nadel Architects, heading up the project for the grocer.

We've also learned from another source that Fresh & Easy is using a new general contractor for this project instead of LPS, the contractor it's used in the past for similar retrofits.

"Basically, it's an entirely new team, good luck with that," says one of our sources, commenting on the difficulties that can arise when a completely new construction team handles retrofits like the ones planned for the Fresh & Easy markets in Alhambra and Lincoln.

On the other hand, "often new teams, out to prove their worth, can get the job done," another of our sources familiar with the renovation project says. He adds though that "with all that's going on at Fresh & Easy," where he worked for about five years but isn't one of the employees let go on Wednesday," it's hard to understand why they are doing these renovations now." It's basically too late, in my opinion," he says.

For us here at Fresh & Easy Buzz, the key element of the retrofits is the addition of the full-service checkout lanes in the two California stores, as we detailed in our companion story here.

If Fresh & Easy keeps to its plans, the renovations are set to begin in just a bit over two weeks, August 16, and set to be completed by the end of August. We'll be watching closely.

[Editor's Note: Fresh & Easy Buzz is an independent Blog, and is not affiliated with Tesco, Tesco's Fresh & Easy Neighborhood Market, or any of its competitors. No member of the Fresh & Easy Buzz editorial team has ever or currently works for Tesco or its Fresh & Easy Neighborhood Market chain.]

Fresh & Easy Neighborhood Market to Test Full-Service Checkout at Two California Stores

Companion Story: Fresh & Easy Neighborhood Market Planning Major Renovations at Two California Stores

Breaking Buzz & Analysis

Tesco's Fresh & Easy Neighborhood Market plans to begin testing full-service checkout lanes in two California stores beginning, if all goes as planned, by the end of August, Fresh & Easy Buzz has learned.

The full-service checkout tests will be at the Fresh & Easy store at Main Street and Raymond Avenue in the Southern California city of Alhambra, and at the Lincoln and Sterling unit in Lincoln, which is near Sacramento in Northern California, according to information we have from multiple sources in positions to know about the plans.

The two test stores will continue to offer self-service checkout. The full-service checkout lanes will be offered in the test as an option to customers.

The full-service checkouts are part of a retrofit project Fresh & Easy is doing at the two stores. See our companion story here.

According to our sources, Fresh & Easy's senior management hasn't yet put a time period on the test in terms of if and when they will decide to roll the full-service option out to additional units. There are currently 199 Fresh & Easy grocery markets in California, Nevada and Arizona.

The decision to test full-service checkout at the two Fresh & Easy markets - an interesting one because since 2007 when the first stores opened the grocery chain's CEO, Tim Mason, along with its corporate spokesperson, have said publicly Tesco and Fresh & Easy Neighborhood Market are fully committed to the self-service checkout system, essentially saying it's a winner - was quarterbacked by new retail operations chief Tim Ashdown.

We broke the news about Ashdown's coming on board at Fresh & Easy in this May 2, 2012 story. Before joing Fresh & Easy Neighborhood Market a couple months ago he was CEO of Tesco's operations in China.

Since joining Fresh & Easy, Ashdown has been been a busy guy. For example, he was responsible for deciding to fire 50 employees at Fresh & Easy's corporate headquarters on Wednesday of this week, as one way of many to attempt to reduce the losses at the Tesco-owned grocery chain. [See the piece by our 'The Insider' columnist here.]

According to our sources, CEO Tim Mason approved Ashdown's decision. Mason and Ashdown then left it up to the various Fresh & Easy line managers to decide which specific people to let go, although the line managers were given guidelines, the chief one being that a certain financial target needed to be reached, which meant many of the employees fired were at director level; the highest paid staffers after top-level management.

For nearly five years we've been saying in Fresh & Easy Buzz that one of Tesco's major fumbles from day one with its Fresh & Easy Neighborhood Market chain is that it offers only self-service checkout in its fresh food and grocery markets in California, Nevada and Arizona.

In fact, we've done far more than say so -- we've offered historical analysis on why offering self-service checkout only is folly, along with offering proactive suggestions on why Fresh & Easy is missing the boat by not offering both full and self-service checkout.

We've also offered a variety of examples in various stories about why not offering both full and self-service checkout is a major point of competitive disadvantage for Tesco's Fresh & Easy.

A few of those examples include the inability to accept paper checks and WIC vouchers at the stores, along with the plain and simple fact that, based on nearly 40 years' experience in the U.S. food and grocery industry, which has included doing studies on shopper preferences for full or self-service checkout (including in California), the empirical evidence simply is that by offering self-service checkout only, Fresh & Easy limits its potential universe of customers because the majority of grocery shoppers in the U.S. just don't want to scan and bag their own groceries, particularly when they can go to numerous stores that offer groceries at the same prices, and even for less, than Fresh & Easy does, full-service checkout and bagging included at no extra charge.

In our analysis, testing full-service checkout at only two Fresh & Easy stores makes very little sense because it offers little in the way of a representative sample, although it is less expensive then testing it in five or six stores, which would not only make better sense - two urban stores, two suburban stores and one rural store, for example - but would provide a much better picture in considering whether or not to roll it out chainwide.

Of course from our perspective - and since we've said from day one that offering self-service checkout only is a huge mistake for Tesco - it's a moot point because we would have both self and full-service checkout in all stores without question or hesitation.

The move, in our analysis, really comes too late for Fresh & Easy. The chain basically has a year to show dramatic improvement in terms of reducing its losses. If not, the notion of breaking even by February 2014, which Tesco CEO Philip Clarke says will happen, not only won't be achievable but will essentially be a moot point. The operative point being: Can Fresh & Easy be anything more that a chain that finally stops losing money for Tesco?

In order to grow Fresh & Easy, even if it were to break even by February 2014 (if it's still around), Tesco has to have confidence in investing money in that growth - and it needs the confidence of its investors to continue doing so, considering about $2 billion has already been invested, and around $1.5 billion has been lost in five years. That confidence doesn't currently exist, even, we suggest, when it comes to CEO Philip Clarke, his (infrequent these days when it comes to Fresh & Easy) public prognostications to the contrary.

Meanwhile, five years after launching Fresh & Easy, and five years after we first pointed out why Tesco made a major mistake offering only self-service checkout in its Fresh & Easy stores, the retailer will test full-service checkout at the two stores in California.

No announcement has been made of this test by Tesco or Fresh & Easy. It will be interesting to see how they position it, now that it's being reported on.

California recently passed a law banning the sale of alcoholic beverages at self-service checkouts in the state's grocery and other format stores that offer adult beverages for sale. That law is currently in court, being challenged by the California Grocer's Association, largely because of Fresh & Easy, which is a member, since none of the trade groups other grocer-members offer self-service checkout only in their stores. As such, this could be one way Fresh & Easy explains the need for the full-service checkout test at the two stores.

Tesco isn't in any position to tinker around the edges with two-store self-service checkout tests at Fresh & Easy though. If it believes in Fresh & Easy, it should add the full-service checkout options to all the stores post haste.

And that's the central question and proposition: 'Does Tesco believe in Fresh & Easy?' It's a theme we will be returning to in the coming days in our reporting, analysis and commentary.

[Editor's Note: Fresh & Easy Buzz is an independent Blog, and is not affiliated with Tesco, Tesco's Fresh & Easy Neighborhood Market, or any of its competitors. No member of the Fresh & Easy Buzz editorial team has ever or currently works for Tesco or its Fresh & Easy Neighborhood Market chain.]

Thursday, July 26, 2012

Fear and Loathing in El Segundo: Mass Firings, Reduction in Store Hours at 33 Fresh & Easy Stores ... and More

The Insider - Heard On the Street

Regular followers (and if you aren't one, you should be) of our Fresh & Easy Buzz Twitter Feed are aware that for the last couple months we've been reporting there in real time on numerous interesting developments at Fresh & Easy Neighborhood Market's corporate headquarters in El Segundo, California - near-daily closed-door meetings in the offices of the CEO and retail operations chief, and the increasing use of interns to staff various positions, for example.

These developments, and two big ones announced to employees at yesterday's weekly staff meeting, are all about Tesco's struggle to stop the financial bleeding at now five-year-old Fresh & Easy, and its attempt to make good on the promise made by CEO Philip Clarke that the United Kingdom-based retailer will break even with Fresh & Easy Neighborhood Market by February 2014.

Clarke, a Tesco lifer (he started as a teenager stocking shelves) who became CEO of the global retailer in March 2011, said shortly after assuming the corner office from Terry Leahy that Tesco would break even with Fresh & Easy by February 2013. However, he added a year to his promise earlier this year, after Tesco reported a $249 million fiscal year loss at Fresh & Easy, which was a mere $4 million less than it lost on the grocery chain two years prior.

Mass Firings
Yesterday Fresh & Easy issued pink slips to between 40-50 employees at its corporate headquarters in El Segundo. The firings are designed to help Tesco cut its way to break-even with what former CEO Terry Leahy hoped and insisted (he still says it will be a success) would be the global retailer's American dream - Fresh & Easy.

But in the five years since Tesco launched Fresh & Easy it has invested around $2.3 billion and lost about $1.5 billion on the fresh food and grocery chain. The losses continue to the tune of nearly $5 million a week.

Tesco's original plan was to have at least 500-600 Fresh & Easy stores operating by now, on the way to 1,000 units in six to seven years from the November 2007 launch. Five years on there are 199 Fresh & Easy stores in California, Nevada and Arizona.

The firings yesterday were across the board rather than focused primarily on the real estate department as Tesco and Fresh & Easy's public relations representatives told various publications who reported it that way. There is a focus on real estate and construction but employees let go span the departments, from IT and operations to commercial.

Reducing Hours at 33 Stores

In a second attempt at cost-cutting - and this is the first time it's being reported anywhere - Fresh & Easy plans to reduce the store hours at 33 stores beginning soon. At present plans call for opening those stores at 9 a.m. instead of 8 a.m., and closing the poor-performing grocery markets at 8 p.m. instead of 10 p.m. Currently the standard hours for all stores is 8 a.m. (a few units open at 7 a.m.) to 10 p.m.

As part of this move, there will be some store-level firings and reductions in worker-hours at the 33 Fresh & Easy stores. Fresh & Easy Neighborhood Market, which hires all its store-level non-management workers on a part-time basis, has already been reducing hours of store employees chain-wide as part of its cost-reduction program designed to help it stop the bleeding at the fledgling grocery chain.

I'm also told by sources in positions to know such things that Fresh & Easy plans to cut some store-level jobs in existing units (besides the 33 stores) that have workers who came on board from the nearly 30 Fresh & Easy units that have been closed over the last couple years. Fresh & Easy absorbed these employees from the closed stores, which added to its labor costs.

And More

An additional move - what I call tinkering around the edges in terms of cost-cutting - Fresh & Easy also plans to eliminate the "Kitchen Table" food sampling stations in the few stores where they remain. (The grocery chain started a program to eliminate these stations in 2011 and replace them with mobile carts but still has some stores with the fixed food sampling kiosks.) The "Kitchen Table" fixed-kiosks are staffed full-time by an employee, hence their elimination in stores where they remain.

The headquarters firings have been a long time coming. Why? Not because the workers didn't do their jobs but because, as we've been saying regularly for years in the blog, the Fresh & Easy model and business just doesn't, in its present incarnation and management, have the legs to achieve break-even in any other way but by making massive operational expense cuts -- and that's what Tesco has essentially concluded. Fresh & Easy has also from the beginning been overloaded with senior and middle management for a chain its size.

Meanwhile, moral at Fresh & Easy's corporate office in El Segundo is lower than it's ever been, according to numerous employees who work there, despite whatever spin its CEO and public relations staff may put on it. I know of numerous employees there looking for new jobs. Some have even created a saying, "The interns are taking over," reflecting Fresh & Easy's growing use of the college students and recent graduates throughout the headquarters operation.

Moral is down at store-level as well. For example, I know of a group of top managers who, frustrated by Fresh & Easy senior managements inability to improve the chain's performance, have been meeting to talk about whether or not they have a future at the grocery chain.

Here's what one store manager told me today, in fact: "Having talked to many store managers today, the feelings are not good.  Most of the talk is around what we should do. Stick it out or get out now?  The consensus was it's time to start seriously looking. A few people are hoping to be bought by someone else."

The firings at corporate headquarters and other changes detailed in my piece are just the beginning at Tesco's Fresh & Easy. More cost-cutting is coming, as are other changes.

The cost-cutting is all about Tesco being able to show some progress in terms of reporting less of a loss (than last half year) for the upcoming fiscal half year. If it achieves that, Tesco can tell the many investment firm analysts who follow it, who will then report it to their investor-clients, that progress is being made. CEO Clarke needs this because it's crunch time - he can't remain credible if he were to change the break-even date for Fresh & Easy once again, say to February 2015 instead of February 2014, for example.

But CEO's are supposed to be big picture, policy guys - that vision thing, as former U.S. President George H.W. Bush liked to call it - not bean counters. Therefore, Philip Clarke should be asking himself one central question, which is: 'What is my vision for Fresh & Easy Neighborhood Market in America and how can Tesco achieve it?' But what, in my opinion, Clarke is probably asking himself is this: 'Can I get Fresh & Easy to break-even by February 2014, as I've publicly said I would, and then find a buyer for it?'

-The Insider

[Editor's Note: Fresh & Easy Buzz is an independent Blog, and is not affiliated with Tesco, Tesco's Fresh & Easy Neighborhood Market, or any of its competitors. No member of the Fresh & Easy Buzz editorial team has ever or currently works for Tesco or its Fresh & Easy Neighborhood Market chain.]