Fresh & Easy Developing Smaller Version of its 3K Square-Foot 'Fresh & Easy Express' Format Stores

Breaking Buzz & Analysis

Tesco-owned Fresh & Easy Neighborhood Market is currently developing a 2,000 square-foot version of its 3,000 square-foot 'Fresh & Easy Express' convenience-oriented food and grocery market, according to multiple sources familiar with the project.

Fresh & Easy is constructing a prototype of the 2,000 square-foot store inside a space it controls near the 10,000 square-foot Fresh & Easy Neighborhood Market unit in Los Angeles' Eagle Rock Neighborhood.

El Segundo, California-based Fresh & Easy Neighborhood Market used that very same space to build a mock-up of its 3,000 square-foot 'Express' format stores, of which their are currently about 10 units, all in Southern California.

The new 2,000 square-foot market, called an F2 in Fresh & Easy speak - the 10,000 square-foot stores for example are referred to internally at Fresh & Easy as F10's, the 3,000 square-foot stores F3's, and the handful of 7,000 square-foot markets the grocer operates are F7's - is basically a scaled-down version of the 3,000 square-foot stores, according to sources who are familiar with the project.

For example, current plans call for smaller refrigerated, frozen food and produce cases than in the 3,000 square-foot stores as a way to compensate for the reduced square footage, according to our sources. Some types of cases and shelving also could be eliminated for the same reason, our sources say.

Neither Tesco or its Fresh & Easy Neighborhood Market chain have announced the development of the 2,000 square-foot stores. This is the first time Tesco's plans for a smaller version of the 3,000 square-foot 'Fresh & Easy Express' store is being reported.

Analysis

The first question any food and grocery retailing analyst or grocer worth his or her salt should ask upon reading this report is: 'Why a 2,000 square-foot version of what already at 3,000 square feet is a very small-format grocery market.?

The answer to that question, according to our sources (and to our reporting and analysis of Tesco and its Fresh & Easy chain for five years on) - and it's what we said was the primary driving force behind the 3,000 square-foot 'Express' format in our stories about the stores last year - is that Tesco's Fresh & Easy is searching for ways to reduce its new store development and opening capital cost while still growing its store count.

Since launching its California-based small-format fresh food and grocery chain in 2007, Tesco has always said it will break even financially with Fresh & Easy - which lost about $245 million in its most recent fiscal year and has lost about $1.5 billion over its five year history - by achieving scale, which means opening numerous stores over a short period of time.

For example, from 2006 to 2010 Tesco said it still planned to have at least 500 stores in four-to-five years, on its way to 1,000 stores over an about six or seven year period, which would be 2013-end-to-2014. It said this despite the fact it's paused opening new stores for many months at least three times in Fresh & Easy's five year history. The most recent period being at present.

But in 2011, not long after he took over as CEO of Tesco in March of last year, Philip Clarke said the United Kingdom-based retailer planned to open just 400 Fresh & Easy stores, which would allow Tesco to break even with its U.S. grocery chain by the end of its 2013 fiscal year, which ends February 2013.

Not many months later Clarke and Tesco changed those plans, saying instead of the 400 Fresh & Easy units needed to break even by the end of fiscal 2013, it had figured out a way to do so with just 300 stores.

But then earlier this year Clarke and Tesco pushed back Fresh & Easy's break-even time to the end of its 2014 fiscal year, at which time the retailer says it will then break even with Fresh & Easy Neighborhood Market. Tesco kept - so far - the 300 store number as the number of Fresh & Easy units needed to break even by the end of the 2014 fiscal year.

There are 199 Fresh & Easy stores in California, Nevada and Arizona.

Tesco's 2014 fiscal year-end is about two years away. That means it will have to build and open 101 stores between now and then to reach 300 units, which Clarke and company say is needed to break even at that time.

But Tesco has essentially stopped opening Fresh & Easy stores, with the exception of one or two here or there.

Instead, the retailer has embarked on a cost-cutting campaign of limited sorts with Fresh & Easy, which begs another key question any industry analyst or grocer should ask: "How can Tesco open 101 stores in two years - which is half as many as it's opened over the last five years - when beginning a couple months ago it essentially stopped opening new Fresh & Easy stores?

In fact, even if Tesco were opening Fresh & Easy stores at its high-point-pace, it would be near physically and logistically impossible, and not very smart, to open 101 stores in two years, particularly considering the continued poor performance of the California-based grocery chain and its need to reduce costs and raise margin at it to even come close to breaking even with Fresh & Easy

The answer to the question, as it pertains to the micro small-format store prototype being developed, isn't that Tesco is going to open 101 2,000 square-foot grocery markets - the format in development. For example, it's opened just 10 or so of the 3,000 square-foot Fresh & Easy Express stores in the year or so since the first unit was opened.

There are numerous reasons why they won't do so but here's a simple reason why if they do it won't help: The best 10,000 square-foot Fresh & Easy stores do about $150,000 in average weekly sales, and there aren't many of those units. That would mean the best of the 2,000 square-foot stores would do - at best - about 40,000 in weekly sales. If scale, as in growing sales by growing store-count, matters, 101 2,000 square-foot stores, even if they all were stellar performers, which they won't be, doesn't add up to a whole lot of annual sales when one looks at the big picture.

But hopes and dreams of reduced capital costs without considering the fundamental question - can 2,000 square-foot grocery stores operated the way Fresh & Easy operates them make any money - it appears spring eternal at Fresh & Easy Neighborhood Market.

Therefore, the Tesco-owned chain is developing a smaller version of its 3,000 square-foot 'Express' store, shaving 1,000 square feet off the store size.

Perhaps Tesco hopes it can "shrink" (in terms of store size) rather than grow (recall those days of a 1,000-store chain) its way to break-even with Fresh & Easy.

But size does matter. And a 2,000 square-foot grocery market, like all small formats - including 3,000 and 10,000 square-foot grocery stores - are fraught with problems when it comes to making money. Just ask Walmart - the now folded 'marketside by Walmart' stores and its fledgling small-format Walmart Express, which despite being 15,000 square-feet is having economic struggles endemic to many small-format grocery stores, particularly those run by chains without a history of operating such stores.

Or ask Safeway CEO Steve Burd, who put an end to the California-based supermarket chain's 'The Market' format (10,000-14,000 square-foot grocery markets ) after just two test units has been opened and operated for about one-year each. Both stores, in Long Beach and San Jose, California, remain open but Burd killed further development of the format over two years ago.

According to our sources, at present there isn't a set date for when - or if - the first 2,000 square-foot Fresh & Easy store will open. However, our sources say, Fresh & Easy already has a number of locations for the stores scouted out, although much of the grocer's real estate team was fired last Wednesday, which is an important indication of the future of Fresh & Easy Neighborhood Market's new store development plans.

Those plans: Little to nothing going forward for the rest of this year in terms of acquiring new store sites - there are already dozens of Fresh & Easy sites that have been sitting fallow for as long as four-to-five years - and opening new Fresh & Easy stores.

[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.]

'Eight Isn't Enough': Fresh & Easy Neighborhood Market to Open Ninth 'Express' Store Soon in Palos Verdes Estates, California

Companion Story - March 3, 2012: 'Eight Isn't Enough' - New Fresh & Easy Express Store Planned for Bell, California

Tesco's Fresh & Easy Neighborhood Market is now hiring employees for what will be its ninth Fresh & Easy Express mini-market, at 2201 Palos Verdes Drive West in the Southern California city of Palos Verdes Estates.

The store at Palos Verdes Drive West and Yarmouth Road in Palos Verdes Estates is scheduled to open next month, according to information we have. Fresh & Easy Neighborhood Market hasn't announced the store's opening date.

The 3,000 square-foot (selling space) Fresh & Easy Express store - there are currently seven 'Express' format units open and operating, all in Southern California, with an eighth store in Los Angeles' San Pedro neighborhood set to open soon (see here) - is going into the former family-owned Lunada Bay Market grocery store, which closed in August 2011.

All but a small portion of the Lunada Bay Market, pictured above shortly before it closed in August 2011, will house the ninth Fresh & Easy Express grocery market. [Photo credit: Elizabeth Stanley.] Pictured below is the inside of the Fresh & Easy Express store at La Cienega Boulevard and 18th Street, Los Angeles, which was the first of the 'Express' store to open, on November 2, 2011. [Photo credit: Fresh & Easy Neighborhood Market.]

The former Lunada Bay Market building is around 6,000 square-feet, according to planning documents on file at the City Of Palos Verdes Estates' planning department.

Fresh & Easy will use about 4,500 square feet of the space for the 'Express' market. About 3,000 square feet of that space will be the 'Express' store's selling space. The remaining space will be used for the bakery and back room. The remaining space is being offered for lease by a commercial real estate firm.

The Fresh & Easy Express mini-market will be Fresh & Easy Neighborhood Market's first store in Palos Verdes Estates, which is in Los Angeles County.

Green light for Fresh & Easy Express

Tesco's Fresh & Easy has publicly said its plans with Fresh & Easy Express was to open eight stores as a test, then decide to go forward with additional units based on the performance of the existing eight stores.

However, the grocer is clearly going forward with additional 'Express' units before store number eight opens. The Rancho Palos Verdes store has been in the works for sometime. So has the store in Bell, California.
Additional Fresh & Easy Express stores are set to be opened this year. There are also more units in the planning stages.

The story about the Bell, California location linked at top offers details about why Tesco and its Fresh & Easy Neighborhood Market chain are going forward with the micro small-format 'Express' stores, which offer about 2,700 SKUs, including groceries, produce, meats, fresh-prepared foods and non-foods, and small in-store bakeries, in 3,000 square-feet of selling space.

Los Angeles County: Fresh & Easy Express' ground zero

On December 10, 2010, we reported in this story - Fresh & Easy Neighborhood Market CEO Tim Mason Says 70 New Stores Possible in Los Angeles Area - that Tim Mason, the CEO of Fresh & Easy and Tesco's deputy CEO and chief marketing officer since March 2011, said Fresh & Easy Neighborhood market could open up to 70 stores in Los Angeles over the next couple years.

Last year Mason repeated this potential strategy in a July 12, 2011 presentation to the Town Hall Los Angeles civic organization, noting the 70 new store potential in the L.A. region. [Suggested reading - July 12, 2011: Tesco in America: A Few Things Tesco Deputy CEO-Fresh & Easy Neighborhood Market CEO Tim Mason Might (and Probably Should) Say in His Speech at Town Hall Los Angeles Today.]

Four of the seven Fresh & Easy Express stores opened since November 2011 are in Los Angeles County. Additionally, so is the eighth unit, which is set to open soon at Sixth and Gaffey Streets in Los Angeles' San Pedro district. Further, the cities of Palos Verdes Estates and Bell are also both in Los Angeles County, making seven of the 10 initial 'Express' stores Los Angeles County-located.

The grocery chain also has new standard-format (10,000 square-foot) Fresh & Easy stores opening in Los Angeles County this year, including those listed here.

Bottom line: Los Angeles County is ground zero for Tesco's Fresh & Easy Express format, which is something we said it would be over a year ago.

Look for many more of the mini-markets, along with some regular format Fresh & Easy stores, to pop up in Los Angeles County this year and beyond, assuming Tesco can come close to breaking even with Fresh & Easy Neighborhood Market by the end of this fiscal year, which started at the end of February 2012 and runs until the end of February 2013, as CEO Philip Clarke says it will.

Related Stories

[Readers: You can read past stories and analysis focusing on Fresh & Easy Express, beginning with our January 2011 report in which we broke the news Tesco's Fresh & Easy would launch the smaller stores, at this link - Fresh and Easy Express.]

Reader Resources

>Click here for a list of the Fresh & Easy Express store locations.
>Click here to view a list of upcoming Fresh & Easy store openings.
>Click here if you're interested in learning more about the city of Palos Verdes Estates.

Welcome to the (Eclectic) Neighborhood: Second of Seven Fresh & Easy Express Stores Opens Tomorrow in Hermosa Beach, California

Retail Ethnography - Bright Lights, Eclectic Neighborhood: Welcome to the Neon Fresh & Easy Express

Tesco's Fresh & Easy Neighborhood Market is set to open its second 'Express' format store - 3,000 square-feet of selling space, with an edited and limited assortment of the products it offers in its 10,000 square-foot grocery markets - at Pacific Coast Highway (PCH) and 8th Street in the coastal Southern California city of Hermosa Beach tomorrow morning.

We've been chronicling in words and pictures the creation of the soon-to-open Fresh & Easy Express store in what we've termed the eclectic Hermosa Beach neighborhood since December 13, 2011, when we published this piece - Welcome to the (Eclectic) Neighborhood: Hermosa Beach, California Fresh & Easy Express Set to Open Jan. 11, 2012 - which was the first story in our "Welcome to the (Eclectic) Neighborhood" trilogy.

A week later we updated you on how the Fresh & Easy Express store was 'doing' in the neighborhood, offering Part II of our "Welcome to the (Eclectic) Neighborhood" Hermosa Beach Fresh & Easy Express chronicles in words and pictures in this December 20, 2011 piece: Hermosa Beach, California Fresh & Easy Express Taking Shape For January 11, 2012 Opening.

The Christmas and New Year holidays have now come and gone and the Hermosa Beach Fresh & Easy Express store is set to be welcomed to the neighborhood tomorrow morning at 10 a.m, when the doors to the micro-small-format grocery market are opened.

Tonight a crew of Fresh & Easy employees are in the Fresh & Easy Express store preparing for tomorrow's grand opening.

The new neon sign on the front of the store is burning bright, as are the lights inside the store. The shelves are stocked but getting a touch up and facing, all in preparation for tomorrow's opening.

The Hermosa Beach, California fresh food and grocery market, which we've nicknamed the "Neon Fresh & Easy Express," will be the second 'Express' format store to be opened by the grocer.

The first Fresh & Easy Express market, at La Cienega Boulevard and 18th Street in Los Angeles, opened on November 2, 2011.

Tesco's Fresh & Easy plans to have seven of the small food and grocery markets, all located in Southern California, opened by the end of March 2012.

The next Fresh & Easy Express store set to open is the unit at Victory Boulevard and Buena Vista Street in Burbank, California. The store's opening date is set for one week from tomorrow, Wednesday, January 18. (You can see photographs of the Burbank Fresh & Easy Express store's construction in progress here.)

Tesco is hoping the new, 3,000 square-foot Fresh & Easy Express format stores will play a major role in its efforts to break-even with its Fresh & Easy Neighborhood Market chain in America, which is now four-plus years old and continues to lose a significant amount of money for the United Kingdom-based global retailer, which has operations in 14 countries and is the third-largest food, grocery and general merchandise retailer in the world.

The opening of the 'Express' store in Hermosa Beach tomorrow comes on the heels of an announcement Tesco's Fresh & Easy made late Monday (January 9, 2012) that it's closing 12 underperforming Fresh & Easy grocery markets, a story we broke on Sunday (see here) in Fresh & Easy Buzz, and followed up on Monday (see here), with a second story in which we listed the locations of the 12 stores the grocer is closing, along with reporting on the internal announcement about the store closings made to company employees by Tim Mason, CEO of Fresh & Easy and group deputy CEO of Tesco.

Mason made the announcement via an e-mail to selected employees of Fresh & Easy just a short time before we published our report on Monday. Following the publication of our story on Sunday and our follow up piece early Monday afternoon, in which we reported the stores to be closed, Fresh & Easy Neighborhood Market made the announcement of the store closures, although initial plans called for it to make the Wednesday.

One of the reasons Tesco CEO Philip Clarke and Mason are working hard to get the first seven Fresh & Easy Express stores opened before the end of March is because they hope the 3,000 square-foot grocery markets will perform well, and therefore help provide a key to breaking even financially with Fresh & Easy Neighborhood Market by the end of Tesco's 2012/13 fiscal year, which begins in February of this year and ends in February 2012. This is something Clarke, who took over as CEO of Tesco in March 2011, says will happen.

Tesco will report the results of its 2011/12 fiscal year, which ends in February, in April of this year. Tesco reported a half-fiscal year loss of $112 million for Fresh & Easy earlier this year, on sales of $470 million.

The loss is 23% less than Tesco reported for Fresh & Easy for the same period a year earlier but still remains substantial. As we reported Sunday, the closing of the 12 underperforming Fresh & Easy stores is part of Tesco's strategy to achieve break-even with the chain by the end of the 2012/13 fiscal year.

But tonight, on opening eve, all eyes are on the "Neon Fresh & Easy Express, the soon-to-be-opened store on a busy stretch of the Pacific Coast Highway in the the eclectic neighborhood in Hermosa Beach, California.

And come tomorrow, the new Fresh & Easy Express store with its bright neon sign will join Learned Lumber, Sassy's, The Tendor Box and numerous other retail stores in the eclectic coastal Hermosa Beach, California neighborhood, each one offering what it offers to the eclectic mix of residents who live there.

Welcome to the (eclectic) neighborhood, neon sign and all.

[Related Stories: Read our extensive coverage and analysis of Fresh & Easy Express, including our story that broke the news on the retailer's plans to launch the format, here.]

[Editor's Note: All photographs credit Fresh & Easy Buzz, 01/10/2012.]

Hermosa Beach, California Fresh & Easy Express Taking Shape For January 11, 2012 Opening

What a difference a week or so makes: New signs on the future Fresh & Easy Express, pictured above. Above photo taken 12/19/11. Photo below from our December 13, 2011 story. Photo credits: Fresh & Easy Buzz.

Retail Ethnography - Welcome to the (Eclectic) Neighborhood

A week ago today we wrote and published this story - December 13, 2011: Welcome to the (Eclectic) Neighborhood: Hermosa Beach, California Fresh & Easy Express Set to Open Jan. 11, 2012 - about the Fresh & Easy Express store Tesco's Fresh & Easy Neighborhood Market is preparing to open in early January 2012.

In the story we reported that El Segundo, California-based Fresh & Easy Neighborhood Market plans to open what is calls internally the "F3 store" on January 11, 2012.

The Fresh & Easy Express stores have about 3,000 square-feet of selling space in what is about 4,000 square-feet of interior space, hence the "F3 store" moniker. The standard stores are called F10's because they have 10,000 square-feet of selling space.

The grocery chain hasn't announced the opening date of the Hermosa Beach Fresh & Easy Express store, or the dates of any other stores it plans to open in January 2012.

Since our story came out last Tuesday, Tesco's Fresh & Easy has made considerable progress on the 'Express' store, which is located on Pacific Coast Highway (PCH) and 8th Street in Hermosa Beach.

For example, as you can see in the photograph at top taken Monday, December 19, the exterior of the building, which previously housed a furniture store called Mortise & Tenon, now sports two new signs - the vertical sign directing shoppers to the store's parking lot on 8th Street and the Fresh & Easy signage on the building's facade.

If you take a look at the second photo at top, which is from our December 13 story, you'll see that the two signs weren't on the future Fresh & Easy Express store.

The vertical Fresh & Easy Express sign (see top photo) directing shoppers to the parking lot on 8th Street replaced the old Mortsie & Tenon furniture store sign (see second photo at top).

The Hermosa Beach unit is one of four Fresh & Easy Express stores the grocer plans so far to open in early 2012, all in Southern California.

The other three units are: Los Angeles (Figueroa Street and Jefferson Boulevard); Burbank (Victory Boulevard and Buena Vista); and Laguna Niguel (Crown Valley Parkway and Golden.)

The first Fresh & Easy Express store opened November 2, 2011 in Los Angeles See the November 1 and 2, 2011 stories linked at the end of this piece for details and photographs.

On November 15, 2011 Fresh & Easy Market announced via a press release that it plans to open 20-plus new stores in early 2012.

The Tesco-owned fresh food and grocery chain didn't and hasn't announce the specific locations of the stores, mentioning just the cities the grocery markets will be located in.

However, through our reporting and research we've identified the addresses of the 20-plus stores, which we published in this story on November 15: Fresh & Easy Neighborhood Market to Open 20-Plus New Stores in Early 2012 - We Have What's Not in the Press Release.

Tesco's Fresh & Easy will close out 2011 with 184 stores in California (135 stores), Arizona (28 units) and Nevada (21 units.)

Of the 135 grocery markets located in California, 105 units are in Southern California. There are 14 stores, seven units each in metro Bakersfield and metro Fresno, in the mid-to-southern Central Valley, and 16 stores in Northern California.

Tesco has opened 29 new Fresh & Easy stores in calendar year 2011. No new store openings are planned the the remainder of the year.

The Hermosa Beach Fresh & Easy Express store is slated to open in three weeks. Stay tuned.

Related Stories

December 13, 2011: Welcome to the (Eclectic) Neighborhood: Hermosa Beach, California Fresh & Easy Express Set to Open Jan. 11, 2012

November 23, 2011: Tesco and its Fresh & Easy Chain Hoping 'Seven' is the Lucky Number For 'Fresh & Easy Express'

November 2, 2011: Open in Los Angeles: A Look at the First 'Fresh & Easy Express' Store

November 1, 2011: Analysis: Tesco Opens First 'Fresh & Easy Express' Store Tomorrow in Los Angeles ... So What ... ?

July 30, 2011: First 4,000 Sq. Ft. Fresh & Easy Neighborhood Market 'Express' Store Set to Open in Los Angeles' San Pedro Community This Year

January 23, 2011: Tesco's Fresh & Easy Neighborhood Market Looking For Locations For New, Smaller-Format 4,000-to-5,000 Square-Foot Stores

Welcome to the (Eclectic) Neighborhood: Hermosa Beach, California Fresh & Easy Express Set to Open Jan. 11, 2012

Retail Ethnography

Welcome to the neighborhood.

Tesco's Fresh & Easy Neighborhood Market plans to open its micro-small-format (3,000 square-feet) Fresh & Easy Express fresh food and grocery store (pictured at top) at Pacific Coast Highway (PCH) and 8th Street on an eclectic commercial block in Hermosa Beach, California on January 11 2012, according to the banner (below) the grocer recently put on the exterior of the vacant building being renovated to house the store.

And an eclectic block it is - particularly the three retail stores that will be neighbors of the Fresh & Easy Express market when it opens in less than a month.

Sharing the block fronting the PCH and across 8th Street are three stores: Sassy's, The Tender Box and Learned Lumber.

The last business, Learned Lumber, is self-explanatory - it's a lumber yard.

But the other two, Sassy's and The Tender Box, are nearly impossible to discern from just the names of the stores.

Venture a guess what type or format of stores they are, without looking a the photos?, of course

Fortunately you don't have to guess, that's what we're here for - to go out in the field and report, and then inform.

Sassy's (at left, above), which is located next to The Tender Box (at right, above) and is a mere baguette's throw from the future Fresh & Easy Express store, is a adult lingerie and costume shop, featuring everything for a night at home (lingerie), a special night out (adult costumes) or a mix of both in the same evening.

If you're thinking The Tender Box might be, say, a tobacco shop, think again. And when trying to guess, think about its proximity next door to Sassy's.

Give up?

Well, and remember we're merely the messenger, The Tender Box specializes in adult entertainment and toys, and we aren't referring to consumer electronics, although some of the inventory for sale in The Tender Box does require batteries to use.

Unique business names seems to be the norm for the block.

For example, the vacant 4,000 or so square-foot building (pictured below) Fresh & Easy Neighborhood Market is putting the 'Express' market in previously housed a furniture store named Mortise & Tenon. For those not familiar with the term mortise & tenon, it is a type of joint used in wood working, such as in furniture-making. The store will have about 3,000 square-feet of selling space.

All four of the stores - Fresh & Easy Express, the lumber yard, Sassy's and The Tender Box are on the west side of the PCH. Learned Lumber and Fresh & Easy Express are next to one another on 8th Street, while Sassy's and The Tender Box are next to one another across 8th Street.

And yes, no need to ask - Learned Lumber does sell plenty of "hardwood," and the now gone furniture store - which the Fresh & Easy Express is replacing - also offered various items made out of that particular variety of lumber back in its day on the block.

The eclectic nature of the businesses on the block shared with the soon-to-open Fresh & Easy Express store actually are a pretty good depiction of the Hermosa Beach neighborhood itself, which is, well ... eclectic.

The demographic is mostly young. But there are also a number of older, long-term residents in the area, including a few folks who still call themselves hippies.

It's also fairly bohemian or hipster if you're looking for a lifestyle generalization.

There are also numerous singles and young couples in the neighborhood, which is highly dense and filled with apartment complexes and condominiums.

Our four-plus years of research and reporting on Tesco's Fresh & Easy shows younger people, those about 35 and under, as well as singles, tend to be the demographic that thus far has taken to the Fresh & Easy format the most, from a demographic and lifestyle perspective.

Therefore, the demographic and lifestyle composition of the neighborhood could bode well for the Fresh & Easy Express, which is essentially a smaller - about 3,000 square-feet, as compared to 10,000 square-feet - and edited - about 2,500-2,700 SKUs, as compared to about 5,500 SKUs - version of the 10,000 square-foot standard-version Fresh & Easy stores.

The area isn't an inexpensive place to live however.

Housing costs and rents in Hermosa Beach are a bit less than is the case in nearby Manhattan Beach (where Fresh & Easy has a store), for example.

But Hermosa Beach is only affordable from the perspective of what people living in coastal Southern California consider "affordable" to be. As an example, If you're reading this and renting a two bedroom apartment in metro Phoenix, Arizona (or some place similar), multiply what you're paying by a factor of around three.

What the neighborhood doesn't have much of is foot-traffic. Rather, the traffic in and around the block where the future Fresh & Easy Express store will open at Pacific Coast Highway and 8th Street, on January 8, 2012, is mostly automotive.

The 'Express' market will front the PCH, as you can see in the photo above. But there's also an entrance on 8th Street, where there's a small parking lot, pictured below.

There's no on-street parking to speak of either on 8th Street (a few spaces on one side of the street is all) or on the PCH. Therefore, the small parking lot next to the Fresh & Easy Express store on 8th Street is about it on what is a very auto-traffic heavy block.

These same tight space conditions might also make food and grocery deliveries to the 'Express' store a bit of a challenge. The earlier in the morning the better would probably be a good move.

The Hermosa Beach neighborhood isn't a food desert.

There's a Ralphs' Fresh Fare supermarket, for example, along with a big CVS Pharmacy drug store, which has a large selection of groceries, perishables and frozen foods (and liquor, beer and wine) but no fresh foods like meat or produce, and a 7-Eleven convenience store, all a couple to a few minutes drive from the Fresh & Easy Express location at Pacific Coast Highway and 8th Street.

Additionally, there's a Whole Foods Market store about 10 minutes away by car from Pacific Coast Highway and 8th Street, along with a couple other grocery stores a 10-15 minute drive away.

The Hermosa Beach Fresh & Easy Express set to open January 11 is one of four 'Express' format stores Tesco's Fresh & Easy Neighborhood Market plans to open in early 2012, as we reported and detailed in this story on November 15, 2011: Fresh & Easy Neighborhood Market to Open 20-Plus New Stores in Early 2012 - We Have What's Not in the Press Release.

The other three Fresh & Easy Express stores with planned early 2012 openings are in Los Angeles, Burbank and Laguna Niguel. The addresses of those stores are in the story linked above.

Tesco's Fresh & Easy Neighborhood Market opened its first 'Express' store at La Cienega Boulevard and 18th Street in Los Angeles November 2, 2011.It's the only Fresh & Easy Express unit currently open.

In addition to the La Cienega store, we've identified the addresses of six more future Fresh & Easy Express stores - the three noted earlier set for early 2012 openings, plus two more, which we listed in this November 23, 2011 story: Tesco and its Fresh & Easy Chain Hoping 'Seven' is the Lucky Number For 'Fresh & Easy Express.'

There are also photographs of the Burbank Fresh & Easy Express, construction in progress, in the November 23 piece.

Back at Pacific Coast Highway and 8th Street, where the Fresh & Easy Express store will soon open in the former furniture store building, we don't see a whole lot of retail synergy coming to the grocery market from its immediate neighbors - Sassy's, The Tender Box and Learned Lumber - although one can imagine that after spending time shopping in any or all three of the stores one might have worked up a bit of a thirst or hunger.

Conversely, we doubt if the Fresh & Easy Express will bring much new business to Sassy's, The Tendor Box and Learned Lumber, since all three stores tend to be what retail experts call destination stores.

The lumber yard, for example, tends to deal primarily with contractors and local handymen rather than off the street trade, although its probable that after loading a truck with lumbar a contractor might venture over the the Fresh & Easy Express for a bite to eat and a beverage.

And we could be completely wrong about synergies in the case of Sassy's and the Tender Box. Both stores cater to women as well as men, for example - and it is a fact women shop for groceries at a much higher percentage than men do. So perhaps the close proximity of the three stores will lead to a bit of synergy for the two stores plus the Fresh & Easy Express.

But, in a less tongue-in-cheek analysis, based on the demographics of the neighborhood, the potential for the Fresh & Easy Express store doing well in the area is fairly high. For example, the large selection of ready-to-eat and ready-to-heat fresh-prepared foods available in the "Express' format stores should be particularly popular with the young and single residents in the Hermosa Beach neighborhood.

Conversely, the major drawback for the Fresh & Easy Express store at Pacific Coast Highway and 8th Street in Hermosa Beach is the lack of adequate parking. The nearby Ralphs, CVS drug store, 7-Eleven and Whole Foods Market store all have large parking lots, for example. And since the neighborhood is high on auto transit and low on foot-traffic, having adequate parking is a very important variable.

But Fresh & Easy Express is a eclectic little store - its small but stocked with plenty of ready-to-eat and heat foods; has an in-store bakery; offers an assortment of groceries, perishables, frozen foods and non-foods items; sells beer and wine; and serves fresh coffee by the cup - and the commercial strip where it's located on Pacific Coast Highway and 8th Street offers an eclectic mix of retail, to say the least. So perhaps the little grocery store will fit right in, sharing the block with Sassy's, The Tender Box and Learned Lumber, in a Hermosa Beach bohemian kind of way.

[Editor's Note: Photo Credit - Fresh & Easy Buzz. The photographs were taken by a Fresh & Easy Buzz correspondent on 12/07/11. Click on the photos to enlarge.]

Related Stories

November 23, 2011: Tesco and its Fresh & Easy Chain Hoping 'Seven' is the Lucky Number For 'Fresh & Easy Express'

November 2, 2011: Open in Los Angeles: A Look at the First 'Fresh & Easy Express' Store

November 1, 2011: Analysis: Tesco Opens First 'Fresh & Easy Express' Store Tomorrow in Los Angeles ... So What ... ?

July 30, 2011: First 4,000 Sq. Ft. Fresh & Easy Neighborhood Market 'Express' Store Set to Open in Los Angeles' San Pedro Community This Year

January 23, 2011: Tesco's Fresh & Easy Neighborhood Market Looking For Locations For New, Smaller-Format 4,000-to-5,000 Square-Foot Stores

Tesco and its Fresh & Easy Chain Hoping 'Seven' is the Lucky Number For 'Fresh & Easy Express'

Construction on the Fresh & Easy Express store at Victory Boulevard and Buena Vista Street in Burbank, California, pictured above and below, is in full swing. The store is set for an early 2012 opening. The photos were taken by a Fresh & Easy Buzz correspondent on November 18, 2011. Note the "now hiring" banner in the photo below. [Photo credit: Fresh & Easy Buzz.]

Tesco's Fresh & Easy Neighborhood Market opened its first 3,000 square-foot (of selling space within a 4,000 square-foot interior space) Fresh & Easy Express format store at La Cienega Boulevard and 18th Street (1788 S. La Cienega Blvd.) in Los Angeles, California on November 2.

[See - November 1, 2011: Analysis: Tesco Opens First 'Fresh & Easy Express' Store Tomorrow in Los Angeles ... So What ... ? and November 2, 2011: Open in Los Angeles: A Look at the First 'Fresh & Easy Express' Store for details.]

Over the last week or so we've received e-mails from numerous Fresh & Easy Buzz readers, asking how many additional 'Express' stores Tesco's Fresh & Easy Neighborhood Market currently plans to open.

As we've previously reported, including most recently in our November 1, 2011 piece linked above, we've discovered an additional six Fresh & Easy Express stores Tesco and its Fresh & Easy chain plan to open next year, for a total of seven units thus far. All seven stores are in Southern California.

As a service to our readers, we've identified the specific locations of the additional six Fresh & Easy Express stores Tesco's Fresh & Easy currently plans to open.

Listed below are the addresses of all seven 'Express' units - the store opened November 2 and the six additional units planned thus far.

Tesco's Fresh & Easy has not publicly announced the specific locations of the six of the additional 'Express' stores to date. Therefore, we believe you're seeing all six locations for the first time here.

1. Los Angeles
La Cienega Boulevard and 18th Street
Los Angeles County
(Opened November 2, 2011)

2. Los Angeles
Figuera Street and Jeffferson Boulevard (near USC campus)
Los Angeles County

3. Los Angeles/San Pedro
Sixth and Gaffey Streets
Los Angeles County

4. Burbank
Victory Boulevard and Buena Vista Street
Los Angeles County

5. Hermosa Beach
Pacific Coast Highway and 8th Street
Los Angeles County.

6. Laguna Niguel
Crown Valley Parkway and Golden Street
Orange County.

7. Seal Beach
800 Pacific Coast Highway and Main Street
Orange County


The Burbank Fresh & Easy Express unit, pictured above and at top, is in a strip mall.  It will be the only grocery market in the small strip center. There's a Kroger-owned Ralphs supermarket across the street. Ralphs' is the leading grocery chain in Southern California. [Photo credit: Fresh & Easy Buzz 11/18/11.]

Fresh & Easy Neighborhood Market is currently preparing three of the six yet-to-be-opened 'Express' format stores listed above - the Figuera Street and Jeffferson Boulevard store in Los Angeles; the Pacific Coast Highway and 8th Street unit in Hermosa Beach; and the Victory Boulevard and Buena Vista Street location in Burbank - for early 2012 openings, as we noted in this story on November 15.

Fresh & Easy has also started hiring employees for the three 'Express' stores.

In addition to the seven Fresh & Easy Express locations, the 184-store fresh food and grocery chain continues to look for additional sites in California where it might locate the micro-small-format stores, which are a scaled-down version of the 10,000 square-foot standard Fresh & Easy markets.

The Fresh & Easy Express stores offer all the product categories - dry grocery, perishables, produce, meat, beer and wine, fresh-prepared foods - that the standard version Fresh & Easy stores do, but in an edited version.

For example, the 10,000 square-foot markets stock about 5,500 SKUs. In contrast, the Fresh & Easy Express format features about 2,500-2700 SKUs in the 3,000 square-feet of selling space.

The 'Express' store opened on November 2 in Los Angeles also has an in-store bakery and self-service coffee bar, which are features Tesco's Fresh & Easy is adding to about 100 of its stores. According to our sources, plans are for all of the Fresh & Easy Express stores to include the bakeries and coffee bars.

Tesco and its Fresh & Easy chain have said the Fresh & Easy Express format is a test.

However, Tim Mason, the CEO of Fresh & Easy Neighborhood Market and Tesco's group deputy CEO-chief marketing officer, said last year and again this year (see here and here) that Fresh & Easy could open as many as 70 new stores in the Los Angeles area over the next couple years.

Fresh & Easy has opened a handful of new stores in Los Angeles this year, with some planned there for next year. Many of the 70 potential units Mason is referring to would be Fresh & Easy Express stores, according to the information we have.

But for now its a total of seven Fresh & Easy Express stores that Tesco's Fresh & Easy plans to have open and operating in 2012.

And ... Tesco and its Fresh & Easy Neighborhood Market chain are hoping it's the 'Lucky Number Seven' when it comes to its Fresh & Easy Express format.

Open in Los Angeles: A Look at the First 'Fresh & Easy Express' Store

Tesco's Fresh & Easy Neighborhood Market opened its first 3,000 square-foot Fresh & Easy Express fresh food and grocery market today.

The store is at La Cienega Boulevard and 18th Street in Los Angeles, California.

Read our story below on the blog or at this link - November 1, 2011: Analysis: Tesco Opens First 'Fresh & Easy Express' Store Tomorrow in Los Angeles ... So What ... ? - for news, analysis and perspective on Fresh & Easy's 'Express' format and stores.

We'll have more on Fresh & Easy Express before the week is over.

Below is a first look at the outside and inside of the first 'Express' format store, which opened this morning in Los Angeles.

[Photo credit here.]

Analysis: Tesco Opens First 'Fresh & Easy Express' Store Tomorrow in Los Angeles ... So What ... ?


First in a series on 'Fresh & Easy Express'

In January of this year we broke the news that Tesco's Fresh & Easy Neighborhood Market was developing Fresh & Easy Express, a smaller, edited version - about 3,000 square-feet of selling space in 4,000 square-feet of interior space - of its Fresh & Easy fresh food and grocery markets, which average about 10,000 square-feet (selling space).

[Read our January 23, 2011 story here: Tesco's Fresh & Easy Neighborhood Market Looking For Locations For New, Smaller-Format 4,000-to-5,000 Square-Foot Stores.]

We also correctly reported in the January story that Fresh & Easy Neighborhood Market was looking for locations for the stores, and was planning on opening one, and possibly more than one, of the units this year

The Fresh & Easy Express stores will offer most everything - dry grocery, packaged baked goods, frozen foods, perishables, fresh meats, produce, ready-to-eat and ready-to-heat fresh-prepared foods - the Tesco-owned grocery chain offers in its 183 standard-version Fresh & Easy Neighborhood Market stores, but in an edited departmental fashion, with a limited product assortment.

Late this summer, about seven months after we broke the Fresh & Easy Express news, Fresh & Easy's corporate spokesperson confirmed our January report, publicly announcing the grocer's plans to open Fresh & Easy Express stores - stores with the format we reported they would have in our January story.

Not long before Tesco's Fresh & Easy announced the 'Express' store initiative this summer, we reported and published a follow up piece to our January 23 story, in which we identified what Fresh & Easy's executive management team thought at the time would be the first Fresh & Easy Express store it would open this year. That store being in the San Pedro area of Los Angeles, California.

[You can read our July 30, 2011 story here: First 4,000 Sq. Ft. Fresh & Easy Neighborhood Market 'Express' Store Set to Open in Los Angeles' San Pedro Community This Year.]

Since we published our story, Tesco's Fresh & Easy has had problems and delays in obtaining certain approvals from government officials for the San Pedro-Los Angeles 'Express' unit, which has set back the store's completion (remodeling of a vacant building) and opening date timeline. Among the problems has been an objection by a group of neighborhood residents to the grocer's application to sell alcoholic beverages at the location.

There are currently seven planned Fresh & Easy Express mini-markets, all in Southern California, set for openings beginning tomorrow through February-March 2012.

The locations of the seven stores are: Los Angeles - one unit near the University of South California campus, the San Pedro unit and the very-soon-to-be opened store at La Cienega Boulevard and 18th Street. Los Angeles County - one store each in Burbank and Hermosa Beach. Orange County - one mini-market in Seal Beach and a second unit in Laguna Niguel.

Tomorrow Tesco's Fresh & Easy is opening the La Cienega Boulevard and 18th Street store in Los Angeles as its first Fresh & Easy Express market.

We reported in this August 1, 2011 story - Six Fresh & Easy Neighborhood Market Stores in Southern California Being Readied For Openings - that Tesco's Fresh & Easy was preparing for an October or November opening for the store at La Cienega and 18th in Los Angeles.

The Los Angeles Fresh & Easy Express store opening on Wednesday, November 2 has about 3,000 square-feet of selling space inside an interior space of about 4,000 square-feet, which is the size we reported in January the 'Express' format stores would be.

Tesco has billed Fresh & Easy Express as a test.

However, Tesco CEO Philip Clarke and Fresh & Easy Neighborhood Market CEO Tim Mason, who is also Tesco's deputy CEO and chief marketing officer reporting to Clarke, have their respective fingers crossed that the 'Express' format stores - which take their inspiration from the existing Fresh & Easy grocery stores and the retailer's Tesco Express convenience stores in the United Kingdom - will not only do well but become a hit because they would like to have the micro-format option, which offers certain economies of scale on the expense side of the balance sheet, available to them as they work to grow Fresh & Easy's store-count from the current 183 units to 300 stores, a number they want to achieve by February 2013, but which based on an historical analysis model we've developed vis-a-vis Fresh & Easy we see them falling short of doing.

According to Clarke, Tesco needs to have about 300 Fresh & Easy stores open in order to break-even by the end of the United Kingdom-based retailer's 2012/12 fiscal year, which he says the El Segundo, California-based grocery chain will do. The end of the 2012/12 fiscal year is just 16 months away.

For all real and practical purposes, Tesco has until the day after Christmas 2012 to achieve break-even with Fresh & Easy. That's 13 months from today. The month of January 2013 and three weeks in February aren't going to be relevant in the bigger picture, terms of achieving break-even.

Tesco lost $113 million on Fresh & Easy in the first half of its 2011/12 fiscal year, which ended August 27, 2011. That's a 21%  improvement over the same period for the previous fiscal year. Tesco lost $151 million on Fresh & Easy Neighborhood Market in its 2010/11 fiscal half-year, and about $300 million for the full fiscal year, which ended February 27, 2011.

However, there's no guarantee the 21%-reduction in loss for the half-year ended August 27, 2011 is a trend.

We will be writing more about Fresh & Easy Express later this week and into next week. So for now we aren't going to get into extensive analysis on the format and its potential.

However, we don't believe the micro-format 'Express' stores or the format itself is even close to being a killer food and grocery retailing application for Tesco and its El Segundo, California-based Fresh & Easy Neighborhood Market chain.

We also believe that if the stores do on an operational basis what Fresh & Easy's CEO,Tim Mason, and the corporate spokesperson have said they will - which is, on the labor side, to employ the same number of workers (25-30) in the 3,000 square-foot stores as they do in the 10,000 square-foot stores, working the same number of average hours - and on the merchandising side, edit the selection and reduce the SKU-count considerably (Fresh & Easy stores offer 5,000-5,500 SKUs, which isn't many) - offering about 2,500-2,800 SKUs, like a good source told us earlier this year the 'Express' stores will do, that the economics of the micro-small-box stores will be  skewed in a failure direction  from the outset, regardless of such key operational variables like store location, pricing and promotion.

The solution: Fewer employees and employee labor hours per 'Express' store, and far more SKUs.

A store has to have considerably more turnover if it offers say 2,500 SKUs, compared to 5,000, for example.

The standard-version Fresh & Easy grocery markets suffer from too small average market sizes. Obtaining adequate market basket sizes is even more difficult to achieve in 3,000 square-feet than it is to do in 10,000 square-feet.

We've worked on small-box stores in the Western U.S. and extensively researched small-box food and grocery retailing economics (as it pertains to the industry in the U.S.) here at Fresh & Easy Buzz. Bottom line: It's a challenge for a chain to make money with 3,000 square-foot grocery stores.

Traditional convenience stores, which average far less than 3,000 square-feet in size in the U.S., can make money because they operate on much higher gross margins (selling products for considerably higher retail prices), which shoppers in the main accept as a trade off for what they perceive as "convenience," than grocery stores and supermarkets do.

The C-stores also have far lower operational expenses than grocery stores do, including in the area of employee labor.

But Tesco can't adopt the higher margin/higher-retail price model traditional C-stores use because Fresh & Easy Express is a smaller, edited version of its Fresh & Easy grocery stores. The name is on the store - Fresh & Easy Express - and the private brand products sold inside are the same as those in the 10,000 square-foot markets.

Therefore, were Tesco to try to offer significantly higher prices at the 'Express' stores, it wouldn't fly because consumers will compare the Fresh & Easy Express stores to the standard-version Fresh & Easy stores rather than to a traditional C-store, like 7 Eleven or Circle K, for example. The result: Damage to the Fresh & Easy brand.

We think it's a good idea for Tesco to experiment with the Fresh & Easy Express format though. But we would offer many more SKUs - we could easily get all 5,000-5,500 of the SKUs that are in the Fresh & Easy grocery markets in the 3,000 'Express' stores, for example, and it would look good, were we designing and merchandising the interior of the 'Express' format from scratch.

We'll be writing more about the Fresh & Easy Express format and stores in the coming days. Stay tuned.

First 4,000 Sq. Ft. Fresh & Easy Neighborhood Market 'Express' Store Set to Open in Los Angeles' San Pedro Community This Year

The Fresh & Easy store in Danville, California (pictured above) opened March 2 has about 10,000 square-feet of selling space inside. The San Pedro "Express" unit in Los Angeles will have less than half as much. [Photo: Fresh & Easy Buzz.]

Breaking Buzz

We broke the news in this January 23, 2011 story [Tesco's Fresh & Easy Neighborhood Market Looking For Locations For New, Smaller-Format 4,000-to-5,000 Square-Foot Stores] that Tesco-owned Fresh & Easy was developing a 4,000-5,000 square-foot edited version of its about 10,000 (selling space) square-foot Fresh & Easy Neighborhood Market stores and looking for locations in Southern California to test the concept.

We've now discovered what will  likely be the first smaller-format Fresh & Easy store to open. That unit, in Southern California, will be a 4,000 square-foot store at Sixth and Gaffey Streets (here) in San Pedro, which is a community in and around Los Angeles' harbor area and home to the Port of Los Angeles.

Fresh & Easy Neighborhood Market currently plans to call the 4,000-5,000 square-foot stores Fresh & Easy Neighborhood Market "Express," according to our sources, to differentiate the smaller units from the flagship (10,000 square-foot) Fresh & Easy Neighborhood Market stores, which it currently has 176 of in California (127 units), Metro Las Vegas, Nevada (21 units) and metro Phoenix, Arizona (28 units)

As we reported in January of this year, the Fresh & Easy "Express" format stores will essentially be a smaller and edited version of the 10,000 square-foot Fresh & Easy grocery markets. They will also borrow a couple elements from the United Kingdom-based retailer's Tesco Express (about 2,500-3,000 square-feet) convenience-style stores, which it operates in the UK and elsewhere in Europe.

Fresh & Easy Neighborhood Market has applied to the State of California for an off-sale beer and wine license for the 4,000 square-foot store at the San Pedro location, something we've verified through California's Alcohol Beverage Control Department.

Additionally, a hearing regarding Fresh & Easy Neighborhood Market's application for the beer and wine license is scheduled for September 21 of this year, according to a City of Los Angeles notice we recently reviewed.

In our January story we reported that among the current potential smaller store sites Fresh & Easy Neighborhood Market is looking at in Southern California include at least three locations in Orange County, along with more than one site in Los Angeles and nearby Santa Monica.

According to our sources, assuming it doesn't run into any objections in obtaining the beer and wine license for the store along with incurring other types of delays, Fresh & Easy CEO Tim Mason and his senior staff would like to open the 4,000 square-foot "Express" store in San Pedro around mid-November of this year, although as we always say about new store opening dates at Tesco's Fresh & Easy, they are fluid and dynamic. If the store doesn't open this year, it will open in early 2012, our sources say.

We reported in this December 10, 2010 story [Fresh & Easy Neighborhood Market CEO Tim Mason Says 70 New Stores Possible in Los Angeles Area] that Tim Mason, who since then has become the deputy CEO of Tesco as well as CEO of its El Segundo (Southern) California-based Fresh & Easy Neighborhood Market chain, told members of the Valley Industry & Commerce Association of the San Fernando Valley at a meeting that Fresh & Easy was looking to open up to 70 new stores in the Los Angeles area.

"We've identified 70 opportunities [new store locations] in Los Angeles", Mason told a meeting of the Valley Industry & Commerce Association of the San Fernando Valley (VICA) on December 9, 2010. "If we can open those 70 opportunities, that will be 1,400 jobs, as well as 300 construction workers per-site. We’re eager to invest and we want to get on," he told the group.

Tesco's Fresh & Easy has opened three stores in Los Angeles County so far this year; in Long Beach, San Dimas and Walnut Park. A few additional new Fresh & Easy stores are set to open this year in Los Angeles County, including in Long Beach, which isn't far from San Pedro. In addition to Long Beach, Tesco has other Fresh & Easy stores near San Pedro, in Harbor City and Signal Hill., for example.

On July 12 of this month Mason said in a speech he gave at Town Hall Los Angeles that Fresh & Easy was still  looking at opening those 70 stores, saying as he did in December 2010 that part of the grocer's ability to do so is predicated on it not being bogged down with numerous local government regulations and objections by community and neighborhood groups.

Some of the 70 Los Angeles-area locations Fresh & Easy has identified are, like the San Pedro unit, in the 4,000-5,000 square-foot range and, like the store in San Pedro, will be "Express" units rather then flagship Fresh & Easy Neighborhood Market stores, although the 10,000 square-foot fresh food and grocery market remains Teco's primary format focus in the U.S.

Tesco's primary focus with Fresh & Easy will remain on the current 10,000 square-foot format stores, adding the smaller "Express" units as an adjunct or secondary format.

We'll have more on Fresh & Easy Neighborhood Market's "Express" smaller store initiative soon in Fresh & Easy Buzz. Stay tuned.

Tesco's Fresh & Easy Neighborhood Market Looking For Locations For New, Smaller-Format 4,000-to-5,000 Square-Foot Stores

Breaking Buzz

Tesco has developed a smaller-format version of its Fresh & Easy Neighborhood Market fresh food and grocery store - in the 4,000 square-foot -to- 5,000 square-foot range, compared to Fresh & Easy's 10,000 square-foot -to- 12,000 square-foot size - and is currently looking for potential locations for the smaller footprint stores in Southern California, where it's considering opening the first few of the smaller stores, and in Northern California, Fresh & Easy Buzz has learned.

The smaller stores are an addition to and not a replacement for the current 10,000 square-foot -to- 12,000 square-foot Fresh & Easy markets.

We don't have all the details on the new format as of yet.

However, based on what we've learned so far, the smaller format is essentially an edited version of the existing Fresh & Easy format.

The 4,000 square-foot -to- 5,000 square-foot stores would offer basically the same product category assortment as the 10,000 square-foot -to- 12,000 square-foot stores do but in a limited way, based on the fact the smaller stores will be about half the size as the existing Fresh & Easy markets are. Think of the smaller stores as essentially offering a limited assortment of the current Fresh & Easy store product assortment and mix, with perhaps a couple other minor tweaks here and there.

El Segundo, California-based Fresh & Easy Neighborhood Market's real estate team is currently looking at sites for the 4,000 square-foot -to- 5,000 square-foot stores primarily in Southern California and secondarily in Northern California.

Further, we're told both urban and suburban retail store sites are being looked at by Tesco's Fresh & Easy for the new, smaller stores, which could have the "Express" name attached top them.

For example, among the current potential smaller store sites the fresh food and grocery chain is looking at include at least three locations in Orange County, along with more than one site in Los Angeles and nearby Santa Monica.

According to our sources, one of the reasons Tesco's Fresh & Easy is considering opening the smaller stores is because Tesco's business model has restrictions on the amount of capital used to purchase and lease store locations. This is one reason, for example, there aren't 10,000 square-foot -to- 12,000 square-foot Fresh & Easy stores in Southern California cities like Santa Monica or regions like West Los Angeles, which have among the highest retail commercial real estate costs in Southern California.

In contrast, according to our sources, by being able to build or lease locations in the 4,000 square-foot -to- 5,000 square-foot range, Fresh & Easy Neighborhood Market can get into these desirable cities and neighborhoods because the rental and purchase costs for stores half the size of the existing Fresh & Easy markets in places like Santa Monica and West L.A., and elsewhere where retail real estate costs are similar, generally fit into the business model Tesco has set for Fresh & Easy when it comes to the amount of capital available for buying and leasing store locations.

Tesco's Fresh & Easy Neighborhood Market has been working for some time to come up with a way to adapt the current product offering (about 4,500-5,000 SKUs) in the 10,000 square-foot -to- 12,000 square-foot Fresh & Easy markets to a smaller format store, such as those we're reporting on in this piece, according to a source in a position to know such information.

The existing Fresh & Easy stores carry about 4,500-5,000 SKUs. Many independent grocery stores in the 4,000 square-foot -to- 5,000 square foot range carry 5,000 (and far more) SKUs.

Fresh & Easy Neighborhood Market could easily fit the same number of SKUs it currently offers in the 10,000 square-foot -to- 12,000 square-foot stores in the 4,000-5,000 square-foot units simply by narrowing the store aisles, using higher shelving, and reducing the amount of product facings it gives each item in the store. Sources tell us though that the smaller stores will offer a limited assortment of the current Fresh & Easy store mix rather than doing what we describe above.

The primary but not only reason Fresh & Easy Neighborhood Market has developed the smaller store format is because it wants to create more flexibility within Tesco's property capital allocation model, described earlier, which will then allow Fresh & Easy to open stores in these desired but so far unobtainable locations and still be within its property budget.

The smaller stores are Fresh & Easy's answer to this situation, according to the source, who says the first of these smaller stores should come on line this year in Southern California first, then later in Northern California.