General Merchandise 'Growing Legs' at Tesco's 'Food-Focused' Fresh & Easy Neighborhood Market

Merchandising at Tesco's Fresh & Easy
News/Analysis/Commentary

Tesco is hoping the addition of more general merchandise items to its 175 Fresh & Easy Neighborhood Market stores in California, Nevada and Arizona, along with featuring items in the category more prominantly in displays, will help it grow the average market basket size purchases (the amount spent on each store visit) its customers make.

The more money a shopper spends each time he or she visits a grocery store is important in the grocery business because retailers operate on extremely slim profit margins, which are reduced even further by the items promoted each week in advertising circulars and in-store, along with - and particularly in Fresh & Easy's case because it uses them as a regular part of doing business - other vehicles like discount store coupons, in which the discount percentage comes out of the grocer's profit margin.

What grocers want customers to do is, along with buying the items offered on promotion and the basics on their shopping lists, to also pick-up impulse items offered for sale at full margin, such as that decadent chocolate cake from the bakery, a couple pints of Ben & Jerry's ice cream from the freezer case, a prepared meal from the deli, and household items like can openers and cooking pans, for example.

For those of you not familiar with the ways of grocery store merchandising, this is why you see inviting (and often higher retail priced) food and non-consumable impulse-oriented items like fresh flowers displayed in can't miss locations inside supermarkets, as well as why those useful household items like wine cork openers and ice cream scoops are displayed on clip-strips next to compatible grocery products on store shelves. It's all about getting shoppers to buy more items, hopefully at full margin, than they planned to before entering the store.

For example, in a May 3, 2011 story - Tesco's Fresh & Easy Neighborhood Market Launching 'Clip-Strip' Cross-Merchandising Program in Stores - we reported Fresh & Easy Neighborhood Market was launching a clip-strip merchandising program in its stores, featuring an assortment of general merchandise items.

The general goal of such programs, which nearly every U.S. grocery chain uses in one form or another, is to create added sales by placing items on shelving strips throughout a store, tied-in to compatible products on store shelves, as a way to encourage shoppers to buy an item or two (or more) on impulse.

Who doesn't need another ice cream scoop, for example?

And there's always a better corkscrew than the one you've been using at home for five years.

How about measuring cups for the kitchen? Can never have enough of those, right?

Then there's the toys. Kids are the original impulse shoppers after all, regardless if mom likes it or not, although grocers need to be careful and not go to far with the toys, since mom may decide to shop elsewhere.

Since we reported on and detailed the new clip-strip program at Tesco's Fresh & Easy in our May 3 piece, we've noticed in our coverage of the food and grocery chain that its merchandisers and retail operations chiefs have been adding additional general merchandise items to the stores, displaying the products on end-caps and, in the words of one of our correspondents, on "clip-strips with legs."

For example, below is one of those "clip-strips with legs" that recently sprouted in most of the 175 Fresh & Easy stores. The photograph (as were the other two below) was taken by a Fresh & Easy Buzz correspondent in one of the grocery chain's stores last week.

The clip-strip rack, which includes kitchen items like ice cream scoops, pizza cutters, kitchen shears and measuring spoons, is attached to an end-cap display that features a variety of consumable and general merchandise items, all with a picnic or cookout theme.

Tesco's Fresh & Easy is also currently featuring general merchandise items on two end-caps in its 10,000-12,000 square-foot stores.

The end-cap above features a variety of household and kitchen-oriented items - glass tumblers, bowls, serving trays, paper pates, napkins and flatware.

Also notice the related items on the "clip-strip with legs" on the side of the display above.

On the second end-cap (below), Fresh & Easy is offering an assortment of reusable carry bags in a variety of different sizes, shapes, colors and price-points.

The clip-strip (including the ones with legs) and end-cap display programs are chainwide at Tesco's Fresh & Easy.

Fresh & Easy Neighborhood Market has had a general merchandise in-and-out merchandising program operating in its stores for some time. However, the current clip-strip and display programs are the most extensive general merchandising offerings, particularly in terms of store square-footage and display space, we've seen in the stores since we began covering the grocer in late 2007.

Analysis & Commentary

We offer three merchandising takeaways from Fresh & Easy's new strategy of increasing both the number of general merchandise items it offers in its stores and the more prominant display space the grocer is giving the category and items:

>When Tesco launched Fresh & Easy in November 2007, its merchandising plan was for the stores to be almost completely food-focused, offering only a very limited assortment of general merchandise items in the grocery markets, along with devoting very little if any off-shelf display space to the category.

That merchandising strategy has changed completely.

As you can see from our reporting here and in May, Fresh  Easy Neighborhood Market has embraced the general merchandise category, at least in a clip-strip and in-and-out off-shelf merchandsiing way, fairly strongly.

>Fresh & Easy's adding of the clip-strip program and increased displaying of general merchandise items on store end-caps, which is something nearly every U.S. grocer does to various degrees, demonstrates Tesco is begnnng to realize nearly four years after launching that it might be wise to emulate successful merchandising programs that have been tried and true in the U.S. food and grocery retailing industry for decades.

The big question with this form of imitation though is: Does it fit with the Fresh & Easy format? Our answer is no.

However, if it helps Tesco increase sales and average market basket purchase size in its Fresh & Easy stores, then at this point in the game for the retailer, whether the general merchandise push fits with the format or not is really a moot point. Although it is an important merchandising question in terms of its working because such programs, when not compatible with a given format, can end up as more of a negative than they canbe  a positive for a grocery chain.

But Tesco has entered "crunch time" with its Fresh & Easy Neighborhood Market chain, which it says will break even with by the end of its 2012/13 fiscal year, a mere 21 months from now. Most recenty it lost $300 million on Fresh & Easy, in its 2010/11 fiscal year, which ended February 26, 2011.

Therefore it's probably wise to experiment as much as it can from a merchandising standpoint if it hopes to come close to break-even in 21 months.

>Lastly, will the increased general merchandise product selection (clip-strip program) and display focus in-store help Fresh & Easy to increase average market basket purchase size and therefore assist in increasing same or comparable store sales at the chain?

It's impossible to tease out to any precise degree how much a given merchandising program can contribute to those two metrics, unless such a program is a major one and there aren't numerous other merchandising changes going on at a chain at the same time.

Neither is the case with Fresh & Easy. The general merchandise program is small and incremental-oriented, although still significant.

It's also one of numerous changes and additions Tesco is currently making at Fresh & Easy Neighborhood Market.

We broke the news about the major changes planned for Fresh & Easy in these two stories -  April 12, 2011: Fresh & Easy Neighborhood Market to Shrink Health & Body Care Sections in Stores; Add Candy and Snack Items, and May 18, 2011: Major Changes Coming to Tesco's Fresh & Easy Neighborhood Market Stores - in fact.

Fresh & Easy is starting the health and personal care category section and bakery category section resets and additions in selected stores this month, according to our sources.

On Tuesday, Tesco reported an 11.1% first quarter gain in comparable-store-sales for its Fresh & Easy Neighborhood Market chain. As we noted in our story here - June 14, 2011: Tesco Reports First Quarter Comparable Sales Growth of 11.1 % For Fresh & Easy Neighborhood Market - the gain is significant for the chain despite the deep-discounting that helped Fresh & Easy achieve the boost.

But many problems and struggles remain, including: sustaining that comparable-store-sales gain, increasing sales at numerous under-performng stores and dramatically raising Fresh & Easy's whopping negative-38% margin, to name three

Tesco is counting on the general merchandise emphasis and the other changes and additions detailed in the stories linked above, along with the continued use of its discount coupons and other promotional vehicles - plus a new television adverising campaign it's preparing to launch in Southern California, where 101 of the 175 Fresh  Easy stores are located - to keep comparable-store-sales at Fresh & Easy growing at or near double-digits between now and the end of its 2012/12 fiscal year, when CEO Philip Clarke says the United Kingdom-based global retailer will break-even with its U.S. chain.

Related Stories

May 18, 2011: Major Changes Coming to Tesco's Fresh & Easy Neighborhood Market Stores

May 3, 2011: Tesco's Fresh & Easy Neighborhood Market Launching 'Clip-Strip' Cross-Merchandising Program in Stores

April 12, 2011: Fresh & Easy Neighborhood Market to Shrink Health & Body Care Sections in Stores; Add Candy and Snack Items

Also see these links - buying and merchandising, category merchandising, clip-strip programs, deep discount coupons, grocery merchandising, store discount coupons Category Management Report, HABC category, resets - for more related stories.

Tesco's Fresh & Easy Neighborhood Market Launching 'Clip-Strip' Cross-Merchandising Program in Stores

Breaking Buzz
News & Analysis - Merchandising

Tesco's  Fresh & Easy Neighborhood Market is launching a "clip-strip" cross-merchandising program in its stores, featuring a selection of numerous packaged general merchandise items like kitchen gadgets, cookware, toys and other products, merchandised on plastic "clips" attached to grocery shelving strips throughout the aisles.

The general merchandise "clip-strip" program was launched in the first batch of Fresh & Easy stores a little over a week ago, and is being implemented in all of the grocer's 175 units in California, Nevada and Arizona.

Tesco's Fresh & Easy Neighborhood Maket has not announced the new merchandising program publicly.

The general merchandise products are supplied to Fresh & Easy Neighborhood Market by distributor ATA, which for many years has implemented similar "clip-strip" and "j-hook" merchandising programs for grocery chains - Kroger Co. and Safeway Stores, Inc. are two examples -  independent grocers, drug stores, convenience stores and mass merchandisers.

ATA, which was founded in 1991 by Sumner Bennett and has distribution centers in Hayward, California and Nashville, Tennessee, is also a full-service "rack-jobber," meaning it offers merchandising services for its "clip-strip" programs, providing the labor to stock and replenish the general merchandise items for retailers. ATA is providing this service for Fresh & Easy Neighborhood Market.

As you can see in the photographs accompanying the story, the general merchandise items are cross-merchandised throughout the Fresh & Easy stores. In the stores we visited, the only sections without the "clip-stripped" products were the refrigerated/frozen food cases and fresh produce.

The philosophy and strategy behind "clip-strip" merchandising programs, which U.S. grocery stores have been using for many decades, is to create impulse sales by cross-merchandising related non-food and consumable items (as you can see in the photos) adjacent to compatible products on the shelves, in order to generate added impulse sales from shoppers. Cross-merchandising wine bottler openers next to wine and champagne (see the photo below), for example, frequently results in these types of impulse purchases by shoppers.

A number of grocers (some of Safeway's divisions, for example) also include higher-ring, higher-margin consumable items in their "clip-strip" programs, such as packaged sun dried tomatoes, dried mushrooms and gourmet dry-sauce mixes (near dry pasta), in order to achieve the same objective - impulse sales from shoppers.

All of the items we saw in the Fresh & Easy stores we visited were non-consumable, general merchandise products, however, which isn't uncommon, as numerous other grocers do the same.

Launching the "clip-strip" cross-merchandising program and using ATA to handle it is a good idea for Tesco's Fresh & Easy for a variety of reasons - although because of the limited and incremental nature of such programs it will result in minor overall added sales for the grocery chain.

First, Fresh & Easy needs to increase its customer average market basket size - the dollar amount of groceries a shopper buys during a visit to one of the stores. Therefore, any form of merchandising - and particularly a cross-merchandising-oriented effort like the "clip-strip" program that has the potential to add impulse purchases to customers' regular, planned item purchases - is a net positive for the grocery chain.

For example, suppose Jane A. Customer buys $20 dollars worth (planned purchase) of food and groceries at her local Fresh & Easy market. But while shopping in the store's aisles, she notices a wine opener, a plastic cat food can lid and a plastic "Pop Tart" container - all of which are currently available on "clip-strips" in the stores we visited - and tosses the three items in her shopping cart, which total, say, $7, bringing Jane's average market basket order for that particular shopping trip to $27, rather than the original $20 she planned to spend.

The result: An added $7 Jane might not have spent if the "clip-strip" program didn't exist at Fresh & Easy - as was the case until now - along with offering a potentially higher average market basket (purchase) for the store.

Additionally, "clip-strip" programs utilize available shelf space because the items are attached to the grocery shelf strips, thereby adding incremental sales without any additional cost to the retailer of added shelving or fixtures.

If the items sell well in a store, they also add to the store's average sales-per-square-foot metric, since the "clip-stripped" items are offered within a store's existing walls.

The "clip-stripped" general merchandise items, which are rotated periodically, are also almost always offered on a "guaranteed sale" basis by ATA and other distributors. In other words, if certain items don't sell over a given period of time, they're either traded out by the distributor for different items of equal dollar value or credited on the invoice to the grocer by the distributor.

Further, when grocers select to take the full-service merchandising service offered by ATA and other "rack jobbers," for "clip-strip" programs, that means the distributor sends merchandisers into the stores to stock and replenish the general merchandise items on a regular basis, which means no labor cost for the grocer. ATA is providing this service-level to Tesco's Fresh & Easy.

Lastly, the programs also offer advantageous seasonal opportunities for grocers. For example, in the summer months, items related to outdoor activities - picnics, cookouts - can be featured on the shelf strips next to related food and grocery items like condiments, beverages, hot dog and hamburger buns and others. Doing this takes advantage of seasonality to spur impulse sales.

The "clip-strip" item selection can also be partially geared to neighborhood demographics. For example, if a grocer desires to, it can have ethnic-oriented general merchandise items included in the overall merchandise  mix, say for its stores in neighborhoods with high Latino or Asian populations. Chopsticks are a good example, as are tortilla warmers.

And let's not forget the toys - a selection of which are almost always included in grocery store "clip-strip" programs, including the one being launched at Tesco's Fresh & Easy - frequently to the displeasure of mothers and fathers who take the kids grocery shopping.

Toys, largely because of those little customers sitting in the shopping cart child-seats, often are among the best-selling general merchandise products offered in "clip-strip" programs, regardless of where the items are placed on the shelf strips in stores.

But placing toys in, for example, the breakfast cereal aisle, and clipped on the shelf strip eye-level to a child sitting in a shopping cart seat, generally is a good bet if a grocer wants to generate some solid impulse sales.

According to our sources at Fresh & Easy Neighborhood Market, most of the 175 stores should have the "clip-strip" programs in place by the end of this week.

Additionally, new Fresh & Easy stores will include the cross-merchandised. "clip-strip" program and items in the stores when they open.

The "clip-strip" program won't cure Tesco's financial problems with Fresh & Easy's Fresh & Easy Neighborhood Market. [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 it and similar merchandising programs - along with making some major changes at Fresh & Easy - are essential for Tesco if it wants to come close to breaking even with its U.S. fresh food and grocery chain by the end of its 2013 fiscal year (just 23 months away), as CEO Philip Clarke says it will do.