Walmart Plans to Close Arizona 'marketside by Walmart' Stores, Dump Format By Year-End or Early 2011

The History - and End - of Walmart's 'marketside by Walmart' Format and Stores in Five Acts

Act 1: The beginning

We've been watching, reporting on and analyzing Walmart Stores, Inc.'s 'marketside by Walmart' (originally called just 'marketside') four-store chain of small-format food and grocery stores since before the stores were opened in four cities in Metropolitan Phoenix, Arizona in October 2008, nearly two years ago. [Read a selection of our stories here. Click the 'newer posts' link at the bottom of the linked page for additional stories.]

Act 2: The beginning of the end

On December 21, 2009, we reported in this piece - Wither Walmart's Small-Format 'marketside' Stores and Format? - that Walmart Stores, Inc. had eliminated its Web Site for the four then 'marketside' (now named 'marketside by Walmart') small-format grocery and fresh foods markets and replaced it with a single Web Page introducing the company's new line of 'marketside' store brand food products, which are named after the fresh foods-focused format stores in Arizona.

As you can see in the piece linked above, we further suggested in the story that 'marketside by Walmart's' days were numbered.

Act 3: The curtain is closing

On January 9, we followed up our December 21, 2009 piece with a story titled: Walmart's 'marketside': What's 'In-Store' for 2010? At the end of the piece we offered three predictions about the 'marketside by Walmart' format and stores and its 'Marketside' brand, which Walmart is using on packaged fresh-prepared foods, pre-packaged fresh produce, fresh salsas, packaged breads and baked goods, along with using to brand some of its supercenter deli departments.

Below (in italics) is the prediction we made in the story regarding the 'marketside by Walmart' format and stores. It just happens to be prediction number one:

Walmart will keep the four Arizona 'marketside by Walmart' stores open in 2010. It will do so in part to serve the research and development function we mention above. Walmart won't open any new small-format 'marketside by Walmart' stores in 2010 though, either in Arizona or elsewhere in the U.S.

So far - nine months into 2010 - our prediction is correct. Walmart hasn't opened any additional 'marketside by walmart' stores this year, nor has it closed the four Metro Phoenix, Arizona stores...yet.

Act 4: Enter the replacement format

In early July of this year, we published this story - July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store - in which we not only broke the news Walmart Stores, Inc. is looking for sights in Northern California for the 20,000 or so square-foot 'Neighborhood Market by Walmart' format and grocery store its been experimenting with in Rogers, Arkansas, but also said, based on information we obtained, that Walmart would eventually be closing the four Arizona 'marketside by Walmart' stores, shelving the format, and replacing it (the format not that actual four stores) with a final version of the 'Neighborhood Market by Walmart' prototype store.

Here's what we said (in italics) in the July 6 story:

Walmart Stores, Inc. currently has no plans to open any additional Marketside by Walmart stores - anywhere - including in Northern California. In fact, the retailer still holds leases on two sites in Southern California, one in San Diego and another in nearby Oceanside, but has no plans to open them as Marketside by Walmart stores. Construction at both locations, vacant retail buildings, has never been started, nor are there any plans to do so in the near future.

It's our analysis that Walmart is likely to replace the Marketside by Walmart format with some final version of the 20,000 square-foot Neighborhood Market by Walmart prototype, in terms of not opening any additional Marketside stores, and eventually close the four stores in Arizona, or replace one or more with the 20,000 square-foot prototype. It's important to note that the 20,000 square-foot prototype store in Rogers, Arkansas remains a work in progress in terms of not being cast in stone as the final format product, just like the name Neighborhood Market by Walmart might not end up being what it's called.

Act 5: The End is Near

Walmart's small-format 'marketside by walmart' has gone from withering in December 2008, to beginning to die on the vine in early January 2010, to starting to show signs of rot a little over two months ago, in July 2010, according to our chronology of reporting.

And now, the end is coming very soon for the four 'marketside by walmart' stores and the format.

Based on information we've obtained, Walmart Stores, Inc. plans to announce the closing of the four Metro Phoenix 'marketside by Walmart' stores - which are located in the cities of Gilbert, Chandler, Mesa and Tempe - before the end of December 2010, and no later than in the first quarter of 2011.

Yes, Walmart's small-format, Tesco Fresh & Easy Neighborhood Market-like, fresh food and grocery-focused small-format experiment will soon come to an end.

Currently, based on our information (and as we said in our July 2010 story), the format replacement for 'marketside by walmart' is the 20,000 or so square-foot 'Neighborhood Market by Walmart' prototype store in Rogers, Arkansas. Walmart continues to tweak the format, by the way.

Additionally, Walmart will continue to remodel and build its larger (average 40,000 square-foot) Neighborhood Market supermarkets, a few of which have had name changes to 'Neighborhood Market by Walmart' on a selective basis thus far.

So there you have it. Walmart's four 'marketside by Walmart' stores, which all opened on October 4, 2008, will soon be history, along with the format. The history of Walmart's 'marketside by Walmart' in five acts, as reported on and analyzed by Fresh & Easy Buzz.

But, like the story of the mythical 'Phoenix' (appropriate since the four 'marketside by Walmart' stores happen to be in Metro Phoenix, Arizona) rising out of the ashes, not only has a brand name - 'marketside' - for fresh-prepared foods, pre-packaged produce, fresh salsas, and fresh-baked breads, rolls and a cookie, along with a brand name for store deli/prepared foods departments - been born out of the small-format stores, but so too has a new format - the 20,000 or so square-foot 'Neighborhood Market by Walmart' prototype, which is rising out of what will soon be the ashes of the 'marketside by Walmart' format and stores.

Breaking News: New-Wave, Hybrid Food-Grocery-Convenience Store 'Locali Conscious Convenience' to Open Tomorrow in Hollywood, California

Locali Conscious Convenience, the first unit of the small-format, "green" and locally-focused hybrid grocery-convenience stores of what retailing entrepreneurs Melissa Rosen and husband Greg Horos hope to soon grow into a chain, opens tomorrow (Thursday, January 22) at 5825 Franklin Avenue in Hollywood, California, co-founder and co-partner Melissa Rosen tells Fresh & Easy Buzz.

We first reported on and wrote about the new, innovative format and store's development in this piece ['Locali Conscious Convenience:' New Small-Format Hybrid Convenience-Grocery Store Coming to Hollywood, California] on September 11, 2008.

The retail entrepreneurs had originally planned to open the store in late fall of 2008. However in December, 2008 they decided to wait until the first of the year to open the market, which puts a major emphasis on selling natural, organic and locally-produced convenience-oriented food and grocery items across multiple categories, because they wanted to time the opening with the start of the new year. "A new year, a fresh start, a new, fresh concept," is how co-owner Melissa Rosen described the decision to Fresh & Easy Buzz.

The small-format, eco-grocery and convenience market is only about 1,000 square feet. However the retailers are packing a wide-assortment of products into the space. The market is designed to be super-convenient yet extremely "green" in terms of its design and approach to convenience retailing. It's a neighborhood convenience market, designed to serve local neighborhoods and to promote and sell locally-produced products, although it will sell some non-local items as well.

" Our goal is to build a chain similar to 7-11, but on a smaller, sustainable scale, Melissa Rosen told Fresh & Easy Buzz in an interview.

"We would like to bring our healthy, fun and delicious food and beverages, eco-friendly home and lifestyle products, and outstanding/reasonably priced organic, biodynamic and sustainable wines, beers and sake to a diverse array of communities across the country. Our stores will continue to built in an eco and energy efficient manner and will vary in interior only with regards to the reclaimed wood used in the build out. While it is Douglas Fir for our first Southern California store, other locations will be furnished with reclaimed version of their own native woods."

"While other environmentally friendly convenience store/fuel stations like The Green Spot Market are pursuing a wonderful concept of making convenience stories healthier by selling organic and natural foods, our concept is different. Instead of making convenience stores more healthy, we want to make a healthy and eco-friendly lifestyle more convenient to pursue," Rosen added in response to a question about what in our analysis is a small but growing trend towards eco-convenience stores, which we wrote about in our September 11, 2008 story.

"This begins with our offering of consumer compost recycling and reverse osmosis filtered water for reusable bottle fill up. No petroleum based plastic bottled water will be for sale in our store," Rosen says.

"It also includes selling practical and affordable eco-friendly household items and gadgets that aid in individual conservation. In an ideal world, it would be lovely if we could all sit down for a two hour slow food organic meal daily, but our daily realities are usually far different. Locali acknowledges and embraces the need for fast foods in our increasingly harried (and budget tightening) world. To that end, we will offer an array of pre-packed healthy meals from local food artisans and restaurants, unique glass bottled juices and beverages, and a small array of kitchen staples including organic rice milk, cage-free eggs, seasonal produce, grains, olive oils and more."

In addition, Melissa Rosen says Locali Conscious Convenience will offer vegan and dairy homestead cheeses, crackers and spreads, natural snacks (popcorn, chips, nutritional bars, trail mix, etc.) and a selection of fresh, prepared soups, deli salads and sandwiches, and other ready-to-eat prepared foods.

"In the mornings, we will serve high-fiber muffins, cold and hot cereals, toast, hard boiled eggs and gluten-free bagels and muffins. We will serve fair trade organic coffee and wild harvested yerba mate throughout the day. In terms of wine, beer and sake, we will favor domestic organic, sustainable and biodynamic brands. In terms of the microbrews, they will be altering seasonally and you will be able to create your own pack based on taste," Rosen says in describing additional merchandising aspects of the the hybrid, convenience-oriented eco-market.

Melissa Rosen also tells Fresh & Easy Buzz she plans to involve the store, and future stores, in a wide-variety of community-based activities. "Another aspect (of the retailer's plans) that will be interesting is to see the (community) response to the litany of community initiatives we are planning," she says. "We're planning to have regular workshops on wellness, environmental and sustainability concerns. Our vendor sponsors are extremely excited about these plans because it will offer them a greater connection to the consumer than say through "the sample lady route".

Tomorrow's opening of the Hollywood store will be a soft opening, Rosen says. The retailer's contractors are still completing some last minute touches to the store. However, according to Rosen, the owners wanted to get the store open with the soft opening despite these minor contractor completion issues because they are excited to kick the store off in the first month of the new year. The new year, fresh start, new store concept focus we mentioned earlier.

The husband and wife retailing entrepreneurs are working with commercial real estate giant Cushman & Wakefield in a strategic process in which they are lining up additional store sites, first in Southern California, for future Locali Conscious Convenience store locations. The main focus right now though is to get the Hollywood store up and running and to build the business there first. Rosen says. Plans call for both future company-owned stores, as well as franchising to independent owners, Rosen says.

"Strategically we are completely focused on the first store. But we are working with Cushman & Wakefield on expansion plans. Alisi Mataele of Cushman & Wakefield is our guardian angel. She found us the amazing and affordable location for our first store and she introduced us to Leslie Mayer, Executive Director of Retail Services at Cushman & Wakefield. They have been extremely generous with advice as we approach our opening on Franklin Avenue in Hollywood," Rosen tells Fresh & Easy Buzz.

In developing its format and opening the first store tomorrow, Locali Conscious Convenience is building on a number of recent and current trends in food and grocery retailing. Those trends include more small-format stores, more hybridization between the conventional C-store and grocery store retailing formats ( more blending of the two), increased focus on neighborhood-oriented retailing, added retailer and consumer focus on locally-produced products and on shopping with retailers that offer such local products, the "green" movement, and a decade long trend towards more healthy natural and organic foods.

It will be key however for Locali Conscious Convenience to offer the food and grocery items, including the fresh, prepared foods offerings, it sells in its first store, as well as in future stores, at affordable prices. In this severe recession even committed natural foods consumers are trading down, looking for the value.

Shoppers will pay more in good times for convenience and "green" and healthy attributes and products. However, right now the premium most shoppers are willing to pay at stores that offer these attributes is a small one. If Locali Conscious Convenience can combine its innovation at the Hollywood store with offering affordable prices, which co-founder Melissa Rosen tells us is a key strategic focus for the retailer, we think its chances of succeeding are fairly high.

Additionally, the hybrid grocery-convenience eco-store concept should play well in Hollywood, where Tesco's Fresh & Easy also has one store. The city's young and hip -- and in many cases "green" -- residents should form a solid base for Locali Conscious Convenience. Fresh & Easy's Hollywood store, although different in concept than Locali but is alternative in many ways to traditional supermarkets and convenience stores, has proved most popular with consumers in the 18-35 age range, for example.

The Hollywood Locali Conscious Convenience store opens tomorrow morning, according to Rosen. Since it is a soft opening tomorrow there won't be a grand opening celebration. However, plans call for one soon.

Store Address:
Locali Conscious Convenience
5825 Franklin Avenue
Los Angeles, CA 90068
310-779-3439

Website:
http://www.localiyours.com/

Despite Postponing its Northern California Launch, Fresh & Easy Continues to Grab New Locations in the Region, Including Going Rural

Upcoming New Markets News: Northern California

Fresh & Easy Neighborhood Market may be postponing it launch into the Northern California market as CEO Tim Mason has said and Fresh & Easy Buzz has reported. However, that postponement isn't stopping Tesco's small-format, convenience-oriented grocery and fresh foods Western U.S. chain from grabbing new store sights in the region.

According to a report today in the Oroville Mercury Register newspaper, Tesco's Fresh & Easy Neighborhood Market has signed a lease to locate a store in a 14,550 square foot space in the Goldtown Plaza Shopping Center in the rural North Central Valley city of Oroville, which is in Butte County.

From the report: 'Fresh & Easy Neighborhood Market had sent a letter of intent to locate in the plaza. Now, Bud Tracy of Tracy Realty said the owners of Gold Town Plaza signed a lease and returned it to the company on Monday.

Peter Blasingame, a broker at Tracy Realty, said in spite of a slower economy, businesses had been interested in coming into the plaza at the corner of Oro Dam Boulevard and Washington Avenue. The Fresh & Easy store will probably come in the summer of 2009.'

Read the entire story from the Oroville Mercury Register here.

Oroville is located north of Sacramento in Butte County near the well-known university town of Chico.

Unlike the Sacramento Metropolitan region where the grocery chain has thus far confirmed it will open 19 Fresh & Easy markets, Oroville is in a rural part of Northern California.

The town's current population is only 13,732 -- it's a small rural town in an agricultural region.

Butte County, of which Oroville is the county seat, is famous for being rice country -- the heart of California's rice-growing region. Numerous other crops are grown in the region as well. Butte County has a current population of about 225,000. The biggest city is Chico, with about 75,000 residents.

Thus far, the vast majority of the 46 (and now 47) Northern California Fresh & Easy store locations we've identified (Tesco's Fresh & Easy has confirmed 37 of those locations -- 19 in the Sacramento/Vacaville region and 18 in the Bay Area) are in more urban, metropolitan regions -- the San Francisco Bay Area, the Sacramento/Vacaville Metro region, Monterey County, and Modesto in the Northern San Joaquin Valley.

The Oroville location signals that Fresh & Easy also is pursuing a rural-region store location strategy in Northern California along with its metropolitan region strategy. We say rural rather than suburban because the Butte County region isn't suburban.

Fresh & Easy could find a niche in some of these rural Northern California cities, such as Oroville and others, not so much for the basic groceries, fresh produce and fresh meats sold in the stores, but rather more so for the prepared and organic foods offerings, since at least in the case of Oroville there aren't any supermarkets that offer these categories in any significant way, particularly at discount prices.

Chico, which isn't far from Oroville in Butte County, is a different story, for example. It's a college town, home to a major California State University campus, and thus has numerous supermarkets and natural foods stores that offer strong prepared foods selections, along with extensive natural, organic and specialty foods category offerings.

So far, Oroville is the smallest city (and most geographically rural) we've found in which Tesco has locked-in a lease for a Fresh & Easy combination grocery and fresh foods market. Therefore, in our analysis this signals the start of a rural store location strategy now combined with the retailer's metropolitan region strategy for Northern California.

This is a significant development because it indicates the grocery chain wants to appeal to what is the vast variety of Northern California consumers, which range from Bay Area urbanites and Sacramento suburbanites, to more rural consumers and regions.

The Oroville location also signals Tesco's move into a new sub-region of Northern California. To date the primary focus has been primarily on the San Francisco Bay Area and the Sacramento/Vacaville Metropolitan region, which are contiguous. The secondary focus has been on the Northern San Joaquin Valley -- Stockton, Modesto (which is near both the Bay Area and Sacramento) -- and in a very limited way on the Monterey Bay Area, where thus far we've only discovered one store location, in the city of Seaside near Monterey. Fresh & Easy hasn't confirmed that location.

Butte County is a natural, northern progression geographically from the Sacramento region but its also qualitatively different because of its more rural nature.

In our analysis, we believe you will see Tesco looking at additional rural areas in Northern California as a way to achieve its "critical mass" store location strategy in the market, even though at present the grocery chain has postponed its launch into the new market region.

We do wonder though, why Fresh & Easy is locking up new store locations in Northern California? It has postponed its launch into the region at least three times. Originally, the Northern California stores were to start opening in mid-to-late 2008. That was changed to late-2008 -to- early 2009. Now the launch has been postponed again.

One thing all experienced food retailers know is that once you actually open stores in a new market region you are able to look at the market in a very real and different way.

It seems to us that locking in so many locations in various sub-regions in Northern California before opening even one store in the market could be a prescription for failure (at least for numerous stores, the locations of which were chosen pre operations in the market) in that it requires far too much guess work.

Instead, better to stop, say after locking-in 47 or so stores (we would have stopped at half that then opened some and went forward), and then wait until you actually open a few grocery markets before going forward with more new sites, is our analysis. It's what we would do, especially in Northern California, which is a very dynamic, difficult and super-competitive market, even for those with lots of experience in it.

In fact, had Tesco done something similar -- not pre-booked so many store locations before opening even one store -- in Southern California, Nevada and Arizona, we bet they never would have put Fresh & Easy stores in a number of the current locations where leases were signed long before the first store opened.

Why? Because many are bad locations, which is one reason such stores are underperforming. It's hard when using such a shotgun approach so far in advance of having some operational experience in a market to pick good locations when choosing so many so fast and so far in advance. Even the best store location pickers don't have that kind of crystal ball. But perhaps Tesco has a grand stategy in doing it this way in Northern California, like it did in the existing three markets, that we just aren't aware of.

Arizona Region Market Report: A Fresh & Easy Buzz Flashback - Tesco to Locate New Fresh & Easy One Mile Outside Downtown 'Food Desert' Tempe, Arizona

On August 11, 2008 we wrote this story, "Arizona Region Market Report: Which Food Retailer Will Seize the Opportunity Offered by the Lack of a Grocery Store in Downtown Tempe, Arizona?" In the piece, which you can read completely by clicking on the title above, we explored the fact downtown Tempe, Arizona (pictured above) is underserved by supermarkets that offer basic groceries and fresh foods at affordable prices despite having gone through a resurgence in recent times. That resurgence is ongoing today.

The city of Tempe, Arizona, which is located in the Phoenix Metropolitan region, has been trying to lure a grocer to open a store in the city's downtown for a number of years. Downtown Tempe has few supermarkets that offer a selection of basic groceries and fresh foods at affordable prices, making it what's commonly referred to as an urban "food desert."

It appears our piece written a little over three months ago was rather prescient. Well, close to it. Just one mile away from being very prescient in fact.

According to the city of Tempe, it looks like Tesco's Fresh & Easy Neighborhood Market has plans to open one of its small-format, convenience-oriented grocery and fresh foods markets close to the city's downtown core, about one mile away.

The grocery chain plans to open a Fresh & Easy store in what soon will be a vacant building at the southeast corner of Mill Avenue and Broadway Road in the city. The location is right on the outskirts of downtown Tempe.

Tesco's Fresh & Easy has applied for a beer and wine off sale liquor license at the location. Additionally, the retailer plans to go before the Tempe City Council on Thursday night with a proposal to remodel the soon to be vacant building, according to the city of Tempe.

The off sale beer and wine permit application shows the proposed Fresh & Easy market's address as 83 E. Broadway Road. That building is currently occupied by a Walgreens drug store. But a spokesperson for the city of Tempe says the Walgreen's is relocating this Thursday into a newly constructed building just down the way from the current store at the same intersection, just in the southwest corner. Therefore the building will become vacant for Tesco to remodel into one of its 10,000 -to- 13,000 square foot Fresh & Easy grocery and fresh foods markets.

Walgreen's is making the move because it wanted a larger and more modern store in the neighborhood.

While the proposed Fresh & Easy market isn't actually in the "food desert" downtown core of Tempe, being only one mile away will offer downtown residents a much more convenient location for grocery and fresh foods shopping than is currently available to them downtown.

Additionally, since one of the publicly stated strategies by Tesco for its Fresh & Easy stores is to locate a percentage of the stores in "food desert" communities and urban neighborhoods, opening a store just one mile from downtown Tempe, which is underserved by supermarkets, helps the grocer better fulfill this strategy than it has to date.

Only two of the current 102 Fresh & Easy markets in Southern California, Metropolitan Las Vegas, Nevada and Metro Phoenix, Arizona are located in what can be called underserved or "food desert" neighborhoods. Those stores are both in Southern California -- one in Compton the other in the Eagle Rock district of Los Angeles. The grocery chain is building a third store in a neighborhood underserved by food and grocery stores in a South Los Angeles low-income neighborhood.

Tesco has one Fresh & Easy market in Tempe. That store, at Baseline and Kyrene roads in the city, opened in September of this year. Their are currently about 30 Fresh & Easy grocery markets in the Phoenix, Arizona Metropolitan region.

It's not surprising Tesco's Fresh & Easy would locate the store on the outskirts of downtown Tempe in a building being vacated by Walgreen's. Fresh & Easy Neighborhood Market has located many of its current stores next to or near Walgreen's drug stores in all three of the markets its in. The grocer also has modeled its "critical mass" retail strategy -- opening numerous stores within a couple miles of each other -- after Walgreen's, which uses that strategy nationally in the U.S., which we were the first publication to point out and write about.

Tesco Fresh & Easy CEO Tim Mason Says He's 'Deliriously Happy' With the Chain's Progress Thus Far; We Prefer Andy Grove's 'Only the Paranoid Survive'

The photograph of Tesco Fresh & Easy Neighborhood Market CEO Tim Mason is from today's The Times (United Kingdom). The Times caption to the photograph is: 'Not usually a man for taking the back seat, Tim Mason has led Tesco's drive into America and insists that his is 'deliriously happy' with the progress so far.'

We're pleased Tim Mason is 'diliriously happy.' He's worked hard since launching Fresh & Easy and certainly deserves some happiness on the one year anniversary of the first stores officially opening in November, 2007. But in our long experience we haven't know many if any CEO's who are 'dileriously happy' over sales, profits (Fresh & Easy has none of those yet) or any other aspect of their operations. They have some brief happiness. But no dilerium.

In fact, we prefer the philosophy of Andy Grove, the former CEO and one of the founders of Intel Corporation, who says "Only the Paranoid Survive." It's the philosophy (and he wrote a book of the same name) he used to create not just a company but a new industry, semiconductors. Intel is today one of the largest and fastest growing companies in the world. Having met Grove during his days building Intel, we just can't picture him ever being dileriously happy. But Grove's made so many Intel employees and shareholders millionaires he's received plenty of second-hand delirious happiness to last a lifetime.

In this November 12 piece in Fresh & Easy Buzz, "Analysis: Hard Times at Fresh & Easy - Northern California Expansion to Be Postponed or Shelved Do to Economy; But its Only a Symptom Not the Cause," we speculated briefly in writing as to why Tesco Fresh & Easy Neighborhood Market CEO Tim Mason chose a British newspaper, The Times, to give an exclusive interview about his decision to scale back growth at the Southern California-based fresh foods and grocery chain.

We also suggested it was in our analysis a less than brilliant move to do so because it just reinforces Tesco Fresh & Easy's problem of trying to operate a Western United States small-format supermarket chain using primarily British food and grocery retailing strategies and methods. If Fresh & Easy is an American chain like Tesco says it is, why then give breaking news to British papers and not a local paper like the Los Angeles Times?

And if you don't believe our "using a British food retailing model in the U.S." argument, we offer you just one bit of evidence told to us by more than one former Tesco Fresh & Easy Neighborhood Market employee.

That item is that the former corporate director of grocery at Fresh & Easy, who recently let the U.S. and returned to work at Tesco headquarters in the UK, used to regularly correct the chain's headquarters-based category managers and buyers who reported to her when they used American supermarket industry terms like product line rather the the British industry term product range. And upon hearing the common and often-used U.S. supermarket industry term average ring (means same thing as market basket size) the former director had no clue what the speaker was talking about, we've been told. Average ring wasn't used again by that employee.

We know in part of course why Mr. Mason (or maybe someone at Tesco corporate in the UK choice it for him?) chose the United Kingdom's The Times newspaper to give the exclusive interview to though rather than the Los Angeles Times, even though the LA Times is the newspaper of record in the region where Tesco Fresh & Easy Neighborhood market USA is headquartered and has about half of its stores.

First, Tesco has long standing, nurtured media relationships with UK newspapers such as The Times. And its media relationship with The Times is about the best one it has in the UK. Far better than say the relationship it has with the UK- Guardian.

Second, Tesco cares right now more about speaking to investors and UK stock analysts who follow Tesco and its Fresh & Easy USA venture, than it does doing something as logical as demonstrating its American street cred by giving such an exclusive interview, and breaking company news, to the local paper of record, the Los Angeles Times. Right now, investors trump market region realities. Plus, the Los Angeles Times might not of thought the news important. The UK is 'Tescoland.' But in the U.S. Tesco (Fresh & Easy) is a fledgling grocery chain in the view of many in the mainstream business press.

Lastly (and probably the most determining factor), evidenced by this article in today's The Times (UK), Mr. Mason and Tesco's Fresh & Easy got a "two-fer." In other words, by giving The Times the exclusive interview on November 11, which was published in the November 12 edition and carried some negative news for the grocer, Mr. Mason received a nice, extremely positive profile in today's Sunday Times, which actually has a higher readership than the daily The Times. As our friends in the UK like to say: A little "tit for tat."

The story even includes a brief Q&A by the writer with Tim Mason, featuring the kind of questions a corporate public relations department dreams about reporters asking.

The piece also features a photo (the one at the top of this piece from The Times) of Fresh & Easy Neighborhood Market CEO Tim Mason riding in a Fresh & Easy bicycle-powered rickshaw in front of Fresh & Easy's corporate office in El Segundo, California. The Times' story says the office is in Palm Beach, Los Angeles. That's incorrect. The Los Angeles Times would have caught that one fast.

The photo caption is: "Not usually a man for taking the back seat, Tim Mason has led Tesco's drive into America and insists that his is 'deliriously happy' with the progress so far." Funny thing though: Mr. Mason isn't smiling at all in the photograph. And the poor guy pedaling the bicycle rickshaw actually looks rather distressed.

We should say, we aren't putting The Times down for doing either of the interviews. This isn't a media criticism piece. Rather we're merely observing and offering some analysis on the topic.

The story is essentially a positive profile of Fresh & Easy CEO Tim Mason and Tesco's Fresh & Easy Neighborhood Market, as the piece's title: "Tesco's American dream is still in sight," might be the first clue to suggesting. We have no problem with that either. We are neither pro or con Tesco or Tesco's Fresh & Easy. We're merely humble analysts and writers after all.

Regarding the profile, we find this comment from CEO Tim Mason in the profile piece very interesting:

"Mr Mason, chief executive of Tesco's operation in the United States, believes that one of the biggest problems of the past year has been a failure to make enough of Fresh & Easy's price credentials. It claims to be 20 per cent cheaper than the average American supermarket, such as Ralphs or Albertsons, but it relies on an everyday low-price model rather than one-off specials, which can grab customers' attention."

We find it interesting for two reasons. First, it is one of the few, if not first, self-critical public comments we've observed CEO Mason make about his and his top executives' performance to date with Fresh & Easy. That's good. Self analysis, and some professional humility, generally leads to improved results. You've got to know, and admit, what you are doing wrong before you can change and fix it after all.

Second, we find it interesting because the quote sounds like it comes right out of Fresh & Easy Buzz. We've been writing regularly since about May of this year that Fresh & Easy needs (and it still does) to create and then tout and hammer home its stores' value proposition and message. We most recently addressed it in this piece on November 12. We also addressed it in an analysis piece in June, which you can read here. [Click here to read a selection of posts from the Blog regarding Fresh & Easy's value proposition and related issues.

Tesco's Fresh & Easy does not have at present a coherent value proposition strategy. It needs to develop one, then create an integrated marketing and merchandising (with emphasis on integrated) program to communicate it -- and communicate it in a consistent and regular manner. If Fresh & Easy can do that (which really isn't that difficult to do), it's our analysis and opinion Mr. Mason and Tesco will see a major increase in business, especially in this recessionary economy, which is going to be with us for sometime unfortunately.

By the way, Fresh & Easy better do some serious price comparisons if it plans on further communicating that its prices are 20% cheaper than the competition, as is mentioned in the interview profile in The Times with CEO Tim Mason.

Why? Because it just isn't true. Fresh & Easy's everyday prices are about 20% cheaper than some of its competitors. But the prices also are 10% and 5% cheaper than some of the grocer's other competitors. And some competitors have everyday prices as low as Fresh & Easy's. Some competitors even have lower everyday prices than Fresh & Easy stores do. If they keep making this claim they better have hard, empirical data to back it up if challenged. If not it could prove to be a very embarrassing situation if Tesco's Fresh & Easy is challenged on the claim.

Another interesting aspect of the profile in The Times is the comment by Fresh & Easy CEO Tim Mason the retailer didn't realize the United States (including the Western U.S. markets of Southern California, Metropolitan Las Vegas, Nevada and Metropolitan Phoenix, Arizona where the Fresh & Easy markets are located) was a mature market, and that therefore he attributes some of the grocery grocery chain's sluggishness to the fact. Below (in italics) is the quote:

"It has taken a bit longer to penetrate catchments around the stores than we thought it would [and] I think the reason is because this is the first mature market, well-served market, that we have opened into, so actually it's not filling a vacuum and, therefore, has to earn its place. But as we go into the second year, we would expect to see unbelievably good like-for-like growth."

To quote an average American second grader -- 'Duh.'

Before opening its first store in late October, 2007, Tesco said it conducted at least two years of extensive research on the U.S. food and grocery retailing market, focusing on the Western U.S. markets of California, Nevada and Arizona most particularly. If the fact the U.S. (and these market regions) is a mature food and grocery retailing market didn't come out on say day five (and we are being generous) of the research project, there is something seriously wrong and flawed with Tesco's extensive market research. A mere one hour conversation with say three individuals experienced in the Western U.S. food and grocery retailing market could have demonstrated conclusively that it is in fact a mature market.

But that's just the tip of the iceberg. What Tesco has failed to discover and understand is the the U.S., unlike the UK, is a multi-format regional, sub regional and local food and grocery retailing market. No where is this fact more evident than in California, and to just a slightly lessor extent in Arizona and Nevada.

There is no real national food retailing chain in America. Supermarket format chains Kroger, Supervalue and Safeway (the three largest supermarket chains in the U.S.) come closest to it. But none of the three are true national supermarket chains.

Wal-Mart, with its multi-format food, grocery and general merchandise stores -- Supercenters, Sam's Club, Neighborhood Marker supermarkets and now small-format Marketside -- is the closest (its a mass merchandiser not a supermarket chain) national chain that offers a full selection of food and groceries in the U.S. But Wal-Mart isn't even completely national, although its working on it.

On the other hand, just three chains - Tesco, Wal-Mart-owned Asda and Sainsbury's -- control nearly 60% of the food and grocery retail market in the UK. Add the Morrisons chain and what is known as "the big four" in the UK have a combined 70% -to- 74% market share in that nation.

Additionally, the remaining 30% of the market is controlled by three other chains -- the Co-op (which earlier this year acquired the Somerfield chain making it the fifth-largest grocery chain in the UK), Marks & Spencer and Waitrose. These three combined control nearly 20% of that remaining 30%. The remaining 10% is held by the German hard discount chains Aldi and Lidl, Denmark-based hard discount chain Netto and disconter Iceland. That's about it.

In the U.S., regional chains, mostly privately-held at that, are the number one and two market share leaders in most regions of the country. And these are multi-billion dollar chains, not small operations.

In California alone there are at least four multi-billion dollar chains: Stater Bros. in Southern California (about $3.6 billion annual sales), Smart & Final, also in Southern California (annual sales over $1 billion), Save Mart, based in the Central Valley (about $6.5 billion annual sales) and Sacramento-based Raley's (about $3.5 billion a year).

In addition there are numerous other chains at the $1 billion in annual sales mark, many others in the multiple hundreds of millions, and scores of multi store independents in the tens of million in annual sales.

Further, the U.S., especially the Western U.S., is packed with various format retailers that sell food and grocery products in one or more categories. There are the club stores: Costco and Sam's Club; warehouse discount franchise chains like Food-4-Less; drug chains like Long's, CVS and Rite Aid; scores of ethnic supermarkets, hundreds of natural foods stores; scores more specialty foods stores; and still other mass merchandisers like Target, which operates Super Target Wal-Mart Supercenter-like combination grocery and general merchandise mega stores, as well as selling shelf stable and perishable food and grocery items in its Target discount stores. There are others besides these.

The U.S., unlike the UK, not only is a mature market, its a regional, sub-regional and local food and grocery retailing market with players of all shapes, sizes and formats battling for a share of the consumers' stomach. Until Tesco figures that out and then formulates a strategy to position Fresh & Easy Neighborhood Market in a distinct way amongst this retail melting pot, its going to struggle far more than it needs to -- and struggle far more than its top executives are going to let on in interview profile pieces is really the case.

Store Brands: Trader Joe's Long Private Label Products Journey - How Do Fresh & Easy's Store Brands Stack Up to Those Created & Sold By Trader Joe's?

On Wednesday, November 12, Fresh & Easy Buzz broke the story that Tesco's Fresh & Easy Neighborhood Market is considering redesigning the packaging of all of its fresh & easy store brand grocery category packaged goods products. You can read our report at the link here: "Breaking News: Tesco's Fresh & Easy Considering Two Major Changes, One Physical the Other Design Oriented, to Increase Sales in its 100 Stores."

In the story we mentioned comments made by Fresh & Easy Neighborhood Market category managers to two of our sources that an objective of the potential new fresh & easy brand product packages would be for the look to be "simpler and cleaner like Trader Joe's private label products are."

Trader Joe's has a number of store brand or private label branded products in the shelf-stable and perishable specialty, natural and organic food and grocery product categories.

In a November 10 story in Private Label Magazine, Mary Gustafson has a good (as well as related) piece about Trader Joe's and its private label products.

Southern California-based Trader Joe's, which was founded 50 years ago this year and operated for many years by entrepreneur Joe Coulombe but today is owned by members of Germany's Albrecht family who acquired it in 1979 (members of the family also own the global Aldi small-format, hard discount grocery chain), is one of the most successful private label or store brands marketers and merchandisers in the United States.

Trader Joe's private label philosophy is to not rely on a single store brand. Rather it creates multiple store or private label brands and approaches its brand creation, packaging design and merchandising in a fun and quirky way. This has worked well for Trader Joe's: with only 312 stores the chain did about $6.5 billion in annual sales in 2008.

Below is Mary Gustafson's article about Trader Joe's remarkable (private label) journey:

Trader Joe's Remarkable Journey
P/L Buyer
November 10, 2008
By Mary Gustafson

The average grocery shopper these days is tired, stressed out, worried about her bank account, over-scheduled, constantly in the car and at the end of a work day, hungry — and certainly not in the mood to shop for groceries. Throw a couple of kids into the equation, and you have a recipe for a retail meltdown. However, if she’s lucky, our world-weary consumer lives in a metropolitan setting full of many shopping centers — with at least one of them home to a Trader Joe’s store.

Viewed by many as an oasis in a vast desert populated by homogenous, impersonal cookie-cutter grocery store formats, Trader Joe’s, which is celebrating 50 years in business this year, has made it easier and sometimes downright fun to be a consumer.

Although a typical Trader Joe’s store is physically smaller and carries far fewer SKUs than the average grocery store, its eclectic mix of staples and specialty products has developed a cult following — from single folks who have trouble adjusting recipes for one to senior citizens who appreciate the short distance between the frozen foods and produce departments.

Trader Joe’s is privately owned and notoriously tight-lipped with regard to the media. However, you don’t need to read quarterly reports and stock prices to figure out how Trader Joe’s succeeds. All you need to do is step into a store and take a good look at the strength of the company’s private label products to get a sense of the Trader Joe’s “experience.”

A Taste of the Tropics

Trader Joe’s founder, Joe Coulombe, began with a convenience store chain in and around Pasadena, Calif., in 1958, under the name Pronto Markets.

In his book, The Trader Joe’s Adventure, author Len Lewis writes that Coulombe was inspired to turn his small c-store chain into nautical-themed gourmet and specialty shops while on a vacation to the tropics. Lewis says Coulombe recognized that people often are more open to new and exotic tastes when they are on vacation, which led him to try to re-create that experience at the retail level. He changed the name Pronto Markets to Trader Joe’s in 1967.

Lewis also writes that Coulombe always believed his stores would perform best in areas that had more well-educated consumers, but not necessarily high-income consumers. Thus, he quickly recognized that communities with colleges and universities were his best markets.

Southern California’s appreciation for slightly whimsical and offbeat concepts — in a commercial as well as cultural sense — also benefited Trader Joe’s in the beginning. Coulombe was able to implement his tropics-themed décor, including employees wearing Hawaiian shirts; displays made out of fishing nets, wooden planks and surfboards; and sample-tasting booths fashioned to look like Tiki huts.

Gretchen Gogesch, president of Integrale LLC, an innovation consultancy specializing in consumer research and emotion-driven strategy, says retailers could stand to learn a lot from the way Trader Joe’s defines its image and its products.

“Dare to have a unique point of view. Customers appreciate it and are drawn to it, especially if it’s a quirky one like T.J.’s,” Gogesch says.

“Hawaiian shirts, in-store nautical theme, friendly employees and great food in a funky store? Who knew? What Coloumbe did was celebrate that playful place in all of us.”

The process by which Trader Joe’s develops its products reflects the retailer’s informal and democratic corporate culture.

“The process is inclusive, meaning everyone can attend and give their thumbs-up/down to any product, as well as serve up ideas for how to improve something in test. Very smart. It draws from the T.J. culture established by founder Joe Coloumbe, who democratized, if you will, discriminating ‘taste plus palate,’” Gogesch says.

She surmises that Trader Joe’s operates on the idea that you don’t have to be wealthy to appreciate or have access to good-tasting food.

“That redefined the era of specialty foods and stores,” Gogesch says, adding that Dean & Deluca and Silver Palate were all the rage when Coloumbe was rolling out his humble stores.

“Coloumbe was likely one of the pioneers who taught consumers that cross-shopping was cool and smart — not to mention fun,” Gogesch says.

Very early on, Coulombe diversified his inventory by buying specialty and gourmet closeouts and overstocks on items such as brie cheese and local California wines.

These types of products helped attract a more niche customer base — and eventually the attention of German brothers Theo and Karl Albrecht, who own and operate the European Aldi chain, and to whom Coulombe sold the company in 1979.Now, headquartered in Monrovia, Calif., Trader Joe’s currently operates approximately 300 stores in nearly 25 states and is expanding rapidly.

Building the Brand

Undoubtedly, Trader Joe’s success rests on the strength of its private label products, which comprise, according to some estimates, about 2,000 products or about 70 percent of its sales. The rest of its selection, primarily in the produce, prepared meals, baked goods and dairy departments, is filled in with national brands and regional brands that vary by location.

But it’s the products that bear the Trader Joe’s brand, and the variations of that brand, that are responsible for the cult following the retailer enjoys.

Lynn Dornblaser, a new products analyst at the Chicago-based Mintel International Group Ltd., says Trader Joe’s employs savvy buyers and scouts who are always on the lookout for products that fit the chain’s philosophy, as well as the company’s commitment to sustainability, organics and innovation.

“Trader Joe’s buyers are hitting all the natural and organic trade shows, traveling, visiting Whole Foods, so that’s where their ideas are going to come from. They know what their ethos is, what kind of products fit with a Trader Joe’s experience,” Dornblaser says.

“One of the interesting things is that they’re able to take niche products, or products you can only find in a small specialty shop, and bring them to a wider audience.”

Laurie Demeritt, president and chief operating officer of the Bellevue, Wash.-based Hartman Group, says consumers seem to respond to the brand Trader Joe’s almost as if it were a real person. As such, they don’t differentiate between the stores’ private label products and national branded products. And because they see Trader Joe’s as a person, they trust that the products are safe (e.g., pesticide-free), organic and sustainable — and most importantly, taste good.

“Consumers think they can relax because T.J.’s has done all the research,” Demeritt says. “They think ‘I can have fun’ … That’s part of the feeling they have when they go there — it’s very unique to the industry, and it’s the most powerful marketing tool they have.”

The company’s lack of big advertising and marketing campaigns is notable, given the popularity and consumer loyalty Trader Joe’s enjoys. The company concentrates on promoting itself within its own stores, on its Web site and through participation in events within the communities in which stores are located.

Demeritt says the best example of Trader Joe’s-style marketing is reflected in its own Fearless Flyer, which is part newsletter, part advertising circular. Or, as Trader Joe’s describes on its Web site, “a cross between Consumer Reports and Mad Magazine.” The Fearless Flyer is a small booklet printed on what looks like old newsprint. It contains information about new products and suggestions about how to enjoy them.

According to Demeritt, consumers feel an emotional connection to Trader Joe’s because of what they read in the Flyer, the stories and narratives that appear on product packaging and the story the company tells on its Web site. That’s one point of differentiation, Demeritt says, that other retailers don’t offer with their private label products.

Demeritt also adds that the company’s most powerful marketing tool is its own employees. At any given Trader Joe’s store, the employees who stock the shelves are the same ones who work the cash registers, whereas in most grocery stores, employees are usually charged with one function or the other. Using this strategy, Trader Joe’s ensures that all of a store’s employees are knowledgeable about its products and can make recommendations about what’s new and what’s selling well at both ends of a shopping trip.

Above all, Trader Joe’s employees always appear to be genuinely enthusiastic — about both the products they’re selling and their desire to be helpful to customers. That way, the “Trader Joe’s personality” is expressed through-out the shopping experience.

“They’ve kind of managed to inject a huge amount of personality and romance/mystique [into the brand],” maintains Jim Hertel, managing partner of Willard Bishop, a Barrington, Ill.-based consulting firm. “Look at all the variance on the private brand and how it communicates a story. They’ve created an entire personality; they are unique in that. They aren’t afraid to poke fun at themselves. They seem to be saying, ‘We’re not taking ourselves too seriously, but we do take food seriously.’”

The variance of brands to which Hertel refers are the names of specific Trader Joe’s product lines. For example, Trader Ming’s refers to the company’s line of Asian/fusion foods; Trader Giotto’s includes some Italian products; Trader Juan’s represents the Latin/Mexican lines; and Trader Darwin’s includes vitamins and supplements.

“Merchandising and marketing are NOT competing functions. In so many retail organizations, these functions are discrete silos,” Gogesch explains. “You have to ask yourself, who wins in this scenario? If your answer is ‘the organization’ or ‘the bottom line’ you’re on a surefire track to failure. What is brilliant about the T.J. model is that those silos are seemingly removed; what you get are employees whose sole purpose and shared passion is delighting the consumer.”

As far as which products Trader Joe’s does best, both Hertel and Dornblaser insist that the retailer’s frozen foods — namely seafood, frozen entrees, veggies, appetizers, desserts and breakfast items — are the biggest draws.

“They bring the quality and the taste. I’ve never been disappointed with the frozen or prepared foods. Given space allocation, they certainly have a much greater representation of frozen meals and foods compared to other retailers. From a family point of view, there’s nothing better than to have a freezer full of frozen T.J’.s foods,” Hertel says.

Dornblaser thinks the best Trader Joe’s products are the ones that are completely original, as opposed to knock-off versions of national-branded products such as Cheerios.

“I think some of their most unique attributes is what they’ve done with ethnic foods in general — with Indian flavors, frozen bowl meals. For example, the Trader Giotto line is much more authentic-looking and tasting than other mainstream products in supermarkets … in terms of raising the bar,” Dornblaser says.

Dornblaser goes on to explain that she is very surprised that even her elderly mother loves Trader Joe’s, as consumers of her mother’s generation tend to stick to what they’re used to when it comes to grocery stores. Dornblaser explains older consumers are less likely to branch out into the more exotic and ethnic foods, the kinds of products Trader Joe’s is known for.

Shoppers like her mom, says Dornblaser, appreciate Trader Joe’s partly for the portion sizes and the affordability of products such as frozen fish, but mainly because each store’s physical size — typically between 10,000 to 15,000 square feet — makes shopping a lot easier.

Arguably, one of retailer’s most successful products has been its private label Charles Shaw wine, also known as “Two Buck Chuck.” A July 22 article in the Los Angeles Times details how in the 1970s, Coulombe and his wine buyers were able to engage in “aggressive wine merchandising” to successfully sell local wines very inexpensively under the Trader Joe’s label. Charles Shaw became known as Two Buck Chuck in the 1990s when some stores started selling it for $1.99 per bottle.

But a small group of those in the retail industry find working with Trader Joe’s to be frustrating. Some would-be suppliers say they would love to work out partnerships with the retailer, but can’t seem to get an audience with the company.

According to one supplier, Trader Joe’s has a closed-door policy to new vendors. Others argue that if such a policy existed, Trader Joe’s would never have new products, and would lack innovation completely. As Hertel says, if Trader Joe’s felt like this was a strategy that wasn’t working, the company would change it.

“It’s working for them now, and I can understand the frustration from suppliers, but so far so good. If it ain’t broke, don’t fix it. They’re probably in the mode where they feel like they’ve got the right formula,” Hertel contends.

Room to Grow

Even with our current rocky economy, where every company has to re-evaluate what it needs to do to stay viable, Trader Joe’s still is planning expansions and faces no shortage of communities eager to welcome a new store.

If its next 50 years look anything like the first 50, Trader Joe’s will definitely stick around.Trader Joe’s remains fairly mum about its current and future development plans, but Hertel says he is encouraged that the Aldi family of stores, of which Trader Joe’s is part, has been more forthcoming in recent months about its activities.

“I’ve seen a real opening up on the German Aldi side, in terms of talking about their plans and where they are heading, especially in the last six months,” he says.

“T.J.’s has been on a real hot streak for many years. It’s got a lot of space to grow geographically. When you’re on that kind of winning streak, you don’t need to tell everyone what you’re doing. When you’ve got a hot concept, there [are] a lot of opportunities,” he adds.

However, that hot streak is not without its weaknesses. Trader Joe’s could improve in some areas as it moves forward. Some weak spots are produce and fresh-prepared meals, a place where competitors such as Whole Foods shine. To some extent, those challenges are related to infrastructure and distribution.

Hertel says Trader Joe’s might be asking itself how to keep the rotational items fresh so it can surprise and delight its core shoppers.

“There certainly are not clouds on any horizon, but they’ve got some built-in limitations and fixtures,” Hertel notes.

One of those limitations is a universal problem for all retailer private label programs — how to compete with heavily marketed national brands when it comes to beverages, particularly carbonated soft drinks.

“Non-alcoholic beverages are a tough go for anyone in the private brand business,” Hertel observes. “From a development standpoint, they have opportunities there. But it’s hard.

You’ve got strength from the national players — such strong marketers and brands in the existing space.”Dornblaser agrees, but acknowledges that Trader Joe’s offers Italian sodas and sparkling lemonades that are very well done, and adds that they are getting better at coffee and tea as well.

Gogesch greatly admires individual Trader Joe’s products overall, but points to packaging as an area in which the retailer could really improve.

“Two areas that T.J.’s could pay more attention to are packaging and design. Because they’ve had such success with their quirky stores and positioning, and great products, consumers have given them lots of permission to not be a leader in offering great packaging or leading-edge design,” she says. “Ever try to open a bag of T.J. potato chips? You nearly need a chainsaw.”

Of course, no retailer can meet every demand perfectly, or afford to overhaul a department or marketing campaign every time something doesn’t work. But if Trader Joe’s continues to innovate like it has in recent years, it should do just fine. PLB

To Our Readers: Fresh & Easy Buzz Open Thread:

Readers: What do you think about Trader Joe's various store brand or private label food and grocery products? How the packaging looks and how the food products taste, for example? What about the Trader Joe's store brand non-foods products like cleaning products? How do they work compared to national brands?

Also, what do you think of the look of Tesco Fresh & Easy Neighborhood Market's fresh & easy store brand products, both the shelf-stable dry food and grocery items and the prepared foods items? How do you compare the packaging, especially the grocery products, to Trader Joe's various store brands? Also -- have you tasted both Trader Joe's private label branded food items and fresh & easy brand? Compare and contrast the two for your fellow readers.

Any and all other opinions are welcomed on the topic. Chime in. Just click the "comments" link below to voice your opinion.

Breaking News: Tesco's Fresh & Easy Considering Two Major Changes, One Physical the Other Design Oriented, to Increase Sales in its 100 Stores

Under a proposal it's considering, Tesco's Fresh & Easy Neighborhood Market would change the direction of the shelving in its stores from a verticle orientation, a shown in the photograph above, to a horizontal direction, changing the way the stores look and perhaps how they are shopped by customers.

Tesco's Fresh & Easy Neighborhood Market USA is considering making two major changes the retailer thinks will help to increase sales in its stores, along with boosting sales of its fresh & easy store brand grocery products.

The first change Fresh & Easy Neighborhood Market executives at the grocery chain's El Segundo, California corporate headquarters are considering is to completely change the direction and orientation of the grocery shelving gondola's in all of the retailer's 100 stores in Southern California, Nevada and Arizona, according to our sources, who Fresh & Easy headquarters employees have discussed the plans with.

The grocery shelving in all of the Fresh & Easy grocery and fresh foods markets is currently situated like is the case in the majority of U.S. supermarkets: the gondolas are oriented in a vertical way so that the end caps face the front and back of the stores and the grocery sections are shopped in a vertical or up and down way by shoppers.

Tesco's Fresh & Easy is considering flip flopping the grocery gondolas so that they would be oriented in the core of the store in a horizontal way, the compete opposite of how they currently are.

Instead of the vertical (or north-south) orientation with the end caps facing the front of the store, so to speak, the gondola's would face front, with the end caps to the sides. The grocery aisles would then take on a horizontal shopping modality rather than there current vertical orientation. The shelving in the Fresh & Easy stores is warehouse supermarket style. We use the term gondola in the broad sense to mean the entire shelving unit regardless of its particular style or look.

According to our sources, the primary reason Fresh & Easy is considering this major change, which not only would require lots of physical labor but a substantial cost as well, is because the retailer doesn't believe store customers are shopping the entire store. As a result of this the grocery chain believes shopper market basket sizes (total dollar purchases per shopping trip) are smaller than they should be.

At press time our sources said they believe Fresh & Easy is leaning towards making this major physical change in its stores, perhaps starting out with a couple stores first as a test and then seeing if it makes a difference in terms of encouraging shoppers to shop more of the store, and purchase more items, than currently is the case.

The discussion on the topic continues at Tesco's Fresh & Easy Neighborhood Market headquarters in El Segundo however, according to our sources, who said they haven't heard if the gondola change has been green lighted by CEO Tim Mason yet, as of today.

New fresh & easy store brand packaging design

The second major change Tesco's Fresh & Easy is working on is a redesign of its fresh & easy store brand grocery products line, according to supplier sources who have been informed of the possible or impending design and packaging change.

The packaging change doesn't include the grocery chain's fresh & easy brand ready-to-eat and ready-to-heat fresh, prepared foods lines, fresh produce or other store brand fresh foods, our sources said. Rather, the focus is on fresh & easy brand shelf-stable packaged goods items; those under the grocery department at the chain.

The first Fresh & Easy grocery market opened just a little bit more than one year ago in Hemet, California. About half of the current 100 Fresh & Easy stores have been open for less than five months. This means the current fresh & easy store brand grocery products packaging has been in the marketplace for a very short time. Therefore a packaging design change so soon has surprised many of the food and grocery companies that supply the products branded under the fresh & easy label to the grocer.

Many of these suppliers also aren't happy, especially if the design changes come soon. The reason for this is because the suppliers pay for the entire design process, printing and all related costs for the packaging of the products they supply to Tesco's Fresh & Easy under its fresh & easy store brand label.

The process essentially works like this: A Fresh & Easy Neighborhood Market product category manager works with two different packaging and art companies that Tesco uses, one for the retailer's fresh & easy brand fresh product lines and one for the shelf-stable fresh & easy brand lines. Tesco Fresh & Easy calls these ambient, preferring the British industry term shelf-stable, which tends to be used more commonly in the U.S.

The respective Tesco Fresh & Easy category manager and the contract packaging designer then come up with a suggested design and packaging after holding a series of meetings.

Once the design is decided upon by the category manager and approved by the director of grocery, the category manager goes back to the supplier and gives them the finished design and artwork that has been decided on for the product package. It is then up the supplier to execute the design using their own printer, materials and the like, paying for it as well.

Tesco does do all of the reproduction work though in-house, using a third party company it contracts with to do the work. The supplier pays for that cost as well though.

The suppliers have no direct input in terms of costing, sourcing and package design, except for the printer they utilize.

This system isn't unique to Tesco's Fresh & Easy in the U.S. But there are numerous variations done by other chains -- variations both in process and in costing.

For example, Trader Joe's, which has numerous store or private label brands, doesn't charge suppliers for the artwork. They also at times are more collaborative with suppliers in terms of the artwork design, letting them have major input. Suppliers have little or no input on the fresh & easy store brand labels, as is the case with other chains, while still others include the suppliers in the process.

The major reason many suppliers aren't looking forward to a redesign of the fresh & easy brand packaging anytime soon is because it's only been a short while ago that they paid for the design and related costs of the original packaging.

In most cases the short amount of time the stores have been open, along with the fact sales have been far less than what most of these suppliers were told they would be when they signed on with Tesco's Fresh & Easy, hasn't allowed for a payback or sufficient return on initial investment yet on the the original design and related costs.

Having to pay those design and related charges so soon again for a packaging redesign, especially in the midst of the current financial crisis and economic recession, isn't something these suppliers are looking forward to doing for obvious financial reasons.

According to our sources, the primary reason Tesco's Fresh & Easy wants to do the packaged goods category fresh & easy store brand packaging redesign, is a feeling among the retailer's new director of grocery merchandising that the packaging graphics and text need to be simpler and cleaner.

Two sources told us Fresh & Easy category managers have recently told them one of the objectives of the package redesign would be to make the new fresh & easy store brand packaging graphics and text look more basic, simpler and cleaner like it is on Trader Joe's various private label brands. The mention of Trader Joe's private label packaging isn't our usage, its from our sources' conversations with the Fresh & Easy category managers, according to those sources.

By changing the packaging Fresh & Easy hopes to gain increased sales of its fresh & easy store brand food and grocery packaged goods items, obviously.

However, depending on how the potentially new packaging graphics and text look, such a change also could be used from a positioning standpoint for the chain.

That's a tricky process though. And first Fresh & Easy needs to have a clear concept on what the stores' positioning actually is. That's not the case in our analysis.

For example, simple, basic and minimalistic yet attractive packaging graphics and text could be used to help position the stores more in the direction of value -- touting the value proposition, hammering it home daily, as we've suggested need be done.

On the other hand, too upscale of a look on the product packages could create a higher-end perception of the fresh & easy store brand in the minds of shoppers -- and thus create a higher-end perception of the stores. This is a perception the grocer does not want to create.

Such packaging also could further reinforce what we believe is a perception among many consumers that the Fresh & Easy stores are specialty foods stores rather than what Tesco wants them to be, neighborhood grocery markets with everyday low prices that consumers shop as their primary or at least secondary food and grocery shopping venue.

We don't know if a final decision has been made at Fresh & Easy headquarters to go forward with the store brand packaging redesign.

However, based on the number and qualitative discussions our sources say they have had with Fresh & Easy category managers, it appears highly probable the grocer is going forward with the redesign of its fresh & easy store brand packaged goods product lines across all of the shelf-stable categories.

Analysis: Hard Times at Fresh & Easy - Northern California Expansion to Be Postponed or Shelved Do to Economy; But its Only a Symptom Not the Cause

Tesco Fresh & Easy Neighborhood Market USA CEO Tim Mason told The Times of London (United Kingdom) newspaper in an interview published in today's edition the financial crisis and economic recession in the U.S. has resulted in a decision by Tesco to slowdown the rapid expansion plans of its Southern, California-based Fresh & Easy grocery and fresh foods chain.

Tesco's Fresh & Easy currently operates 100 small-format, convenience-oriented grocery and fresh foods markets in Southern California, Metropolitan Las Vegas, Nevada and in the Phoenix, Arizona Metropolitan region.

Fresh & Easy Neighborhood Market CEO Mason added in the published interview that plans for the chain to expand into Northern California could be put on hold because of the recession gripping the United States.

As Fresh & Easy Buzz has previously reported, Tesco is way behind its original schedule already to open its Fresh & Easy Neighborhood Market distribution center (in Stockton, California) and first stores in Northern California. The first Fresh & Easy markets in the San Francisco Bay Area and in the Sacramento/Vacaville region, for example, were to have opened earlier this year, according to Tesco's original Northern California market Fresh & Easy store rollout plan

But late last year Tesco's Fresh & Easy Neighborhood Market changed its original schedule, saying then the first Northern California stores would be open by the end of this year. Then earlier this year, the retailer said the first Northern California stores wouldn't start opening until early in 2009.

Meanwhile, the Northern California distribution center in Stockton was originally set to be open by now. However, based on our sources in the area, it is nowhere even near ready for a first quarter 2009 opening. In fact, work appears to be non-existent at the facility site.

In his interview with The Times, which was conducted yesterday and published today, Tim Mason said: "It was prudent to take a far more flexible approach towards the expansion of the business (Fresh & Easy); in describing the grocery chain's retrenchment.

Below (in italics) is the story based on the interview with Tim Mason from today's The Times. Following that is a Fresh & Easy Buzz analysis:

Meltdown puts the brakes on Tesco's US dream
The Times - United Kingdom
November 12, 2008
By Steve Hawkes in Los Angeles

One of Tesco's most senior executives has said that the meltdown in the American economy will force the supermarket giant to slow the rollout of its fledgling Fresh & Easy business on the West Coast of America.

Tim Mason, chief executive of Fresh & Easy, said yesterday that plans for the chain to expand into northern California could be put on hold because of the recession gripping the United States.

In an interview with The Times, he said that it was prudent to take a far more flexible approach towards the expansion of the business, which celebrates its first anniversary today by opening its 100th store, in Orange County, south of Los Angeles.

Tesco had hoped to have 200 Fresh & Easy stores, modelled on its Tesco Express format, operating across southern California, Arizona and Nevada by February next year. Mr Mason said that now he hoped to reach this target by next November.

The group has talked of having 1,000 stores on the West Coast, stretching from Seattle to San Diego. However, a move into northern California would require huge capital investment because of the need for a new distribution centre.

Mr Mason said: “The industry is in a very different place than when we came out and did the feasibility research three years ago. Then the US consumer confidence index was at the highest level it had ever been.

In October the US consumer confidence index was the lowest it has been since 1967, so it's a big change.

We will still open stores every week, but it's prudent to slow things down a bit.

“There's a big cost step for us when we open up northern California and we can be quite flexible about when we do that. As things get to a point that we like how it's all coming together, we like the way the stores are growing into the second year, then we can accelerate. If the economy takes a turn for the worst, it would be unwise to accelerate.”

The comments come two days after shares in Tesco had suffered their biggest one-day fall for a month after it emerged that the group's sales in South Korea, Tesco's largest market outside the UK, and China had slowed in the tougher economic climate.

Yesterday the group unveiled plans for spate of store openings in the eastern China provinces of Shandong and Fujian next year.

Tesco is spending $1.25billion over five years trying to break into the US. The move has been the subject of speculation since the first store opened near Los Angeles a year ago.

The company has only recently begun to reveal financial infomation about Fresh & Easy, stating that sales in the six months to August 23 were £76 million while trading losses reached £60 million due to start up costs.

Some analysts believe the sales performance is below initial expectations.

Mr. Mason put the store opening programme on hold in March for three months to evaluate what Fresh & Easy could do better.

It has since put far more emphasis on price promotions to emphasise its claim to be 20 per cent cheaper than traditional US supermarkets, such as Albertsons or Ralphs.

Mr Mason conceded yesterday that the chain had found it harder than expected to crack America, not only because of the more mature nature of the market - “we are not filling a vacuum” - but also because of the economic slowdown.

Fresh & Easy has been unable to open some stores in Phoenix and Las Vegas because property developers decided to shelve plans for certain sites.

“You only have to look at the pronouncements of retailers that have been here more than a year,” Mr. Mason said. “Starbucks and Costco, to pick but two, have said that California, Arizona and Nevada are among the most difficult places that they operating in. Tesco has stores all over the world and there have been one or two weeks where customers everywhere wake up on a Monday morning and say: ‘Oh dear.' Times are quite tough.”

However, Mr Mason insisted that critics doubting the potential of Fresh & Easy would be proved wrong, adding that to go from no stores to 100 in a year was an “exceptional” achievement.

“We are absolutely thrilled with the customer response from those loyalists that have got it, and really loved what we do,” he said. “What retailer has better staff, better product quality and delighted customers and doesn't make it?”

Fresh & Easy Buzz Analysis: It could be much fresher, it could be much easier:

First, we must say the fact Tesco Fresh & Easy Neighborhood Market CEO Tim Mason chose to give his exclusive interview about a U.S. grocery chain, Tesco's Fresh & Easy, to a United Kingdom newspaper, demonstrates once again one of our arguments -- that he just doesn't get it.

We mean no offense by this; it happens to the best of us. We think it's more of a cultural thing -- just like if an American went to the UK and used his obvious extensive experience in U.S. food and grocery retailing to launch a British grocery chain.

It's difficult for any good grocer steeped in one nation's (even one with lots of similarities) ways of food retailing to move to another country and not impose his country's model of supermarket retailing in that new country across the water. This is especially true when that new country and global market for Tesco is the U.S., which is a far more mature market, including being regional and local in nature, than Tesco's other international markets are.

It's even more difficult to do food retailing American style if that grocer doesn't at least have the majority of his key executives steeped in that country's (the Western U.S. specifically) food retailing tradition. If those key executives, like the CEO, also are steeped in the retailing practices of their native country (the UK), there's nobody around at the top to tell him or her different. As a result, group think becomes the norm. 'That's how we do it in the UK, so that's how we will do it in the U.S.' Sainsbury's and Marks & Spencer, great British retailers both, learned this the hard way -- by failing in their respective U.S. ventures.

Since starting up Fresh & Easy in Southern California, Mason and his executive team have tried to force a British food and grocery retailing model on headquarters employees and Western United States consumers.

Food and grocery retailing in America is regional and local. That's why the U.S., unlike Europe, has so many big, medium-sized and smaller successful regional and sub-regional chains, and thousands of successful multi and single-store independent grocers. Imposing a British model, let alone even a U.S. national retailing model, on a regional market like the Western U.S. is a sure prescription for failure, as we've argued in Fresh & Easy Buzz since the publication was started.

We believe this is what is at the heart of Fresh & Easy Neighborhood Market's real problems. Sure the financial crisis and recession are bad for business; for other grocery chains not just Fresh & Easy. But our analysis is that it is a symptom of Tesco's problem with Fresh & Easy and its need to retrench, rather than the cause.

Choosing to give an exclusive interview to an overseas newspaper even though Tesco is based in the UK, just further demonstrates the British-centric food and grocery retailing model Mason and company have imposed on what is supposed to be a grocery chain, Fresh & Easy, designed specifically for American consumers.

Tesco even went to great pains to leave Tesco out of both the corporate title of the company and from the store name. Nowhere is Tesco used in Fresh & Easy Neighborhood Market. The idea was to make it an American company. But it is that in name (or omission) only thus far. [Note: We aren't criticizing The Times for doing the interview. Our comments focus on Mr. mason's choice of a non-U.S. paper in which to do the interview, thereby continuing to reinforce the ethnocentric model of Fresh & Easy.)

This imposition of the British model onto Fresh & Easy Neighborhood Market USA is one of the reasons the grocery chain has lost at least 12 category managers and buyers in less than two years.

A number of those former employees, most with extensive experience in U.S. food retailing, have told Fresh & Easy Buzz sources and suppliers to Fresh & Easy they left because they felt Tim Mason and his top executives, all from the UK, just didn't get it -- that imposing a British food retailing model not only hasn't worked but has caused Fresh & Easy to miss opportunity after opportunity in the regional markets where its 100 stores are located.

Northern California

Regarding postponing going into Northern California, Fresh & Easy Buzz has talked with a number of Northern California commercial real estate agents and developers who've been dealing with the grocery chain for some time regarding its store sites in the region. Last week a number of these sources told us they believed such a move might be in the works because they've been receiving lots of questions from company officials about lease-related issues. We've also learned the retailer stopped negotiations on a number of new locations it had been close to closing on.

We've written often about how difficult Northern California will be for Tesco to crack, particularly because it's been unable to crack the three markets it's already in -- Southern California, Metropolitan Las Vegas, Nevada and the Phoenix, Arizona Metro region.

Northern California is a much more unique and multi-competitive market (chains, independents, alternative formats) than all three of these other regional food and grocery retailing markets are.

For example, Northern California, particularly the San Francisco Bay Area, is one of the most vibrant multi and single-store independent grocer markets in the United States. The region also is headquarters to Safeway Stores, Inc., which with about 250 supermarkets in the market is the market share leader. Safeway is strong, especially in the Bay Area, and plans to do all it can to prevent Tesco from being successful on its home turf, as we've written about before.

Wal-Mart also is making a major push into Central and Northern California. Then there's Save Mart, Inc.'s Lucky chain (number two in market share), Raley's and many others. And on the specialty side Whole Foods, Trader Joe's and numerous regional players are strong, as is Costco on the deep discount side, along with numerous other discount grocers. And that's just for starters.

Postponing its move, or putting it on the shelf completely, into Northern California -- which we define in terms of Tesco's Fresh & Easy as from the Northern San Joaquin Valley (Modesto-Stockton) into the Sacramento/Vacaville Market, San Francisco Bay Area and Monterey Coastal area -- will be expensive for Tesco.

We've identified 45 planned (locked and loaded)Fresh & Easy locations in Northern California to date. Of these, the retailer has confirmed 37 locations -- 19 in the Sacramento/Vacaville region and 18 in the Bay Area, for a total of 37.

The other eight locations we've confirmed through our reporting, which includes documenting that Fresh & Easy has applied for off sale beer and wine permits for those 11 stores, along with documenting agreements or signed leases for the buildings or done deals for empty lots in those cases where the stores are new buildings rather than the remodeling of vacant buildings.

Those additional eight stores are in Modesto (two stores), the Sacramento/Vacaville region -- one store in Suisun and one store in Fairfield -- the San Francisco Bay Area -- two stores in Vallejo and one in Pacifica -- and one store in Seaside, which is located near Monterey on Northern California's central coast.

Tesco holds leases on most if not all of these 45 Northern California locations, as well as being in various states of remodeling and building on many of them. Even if the retailer postpones opening these stores in 2009, until say 2010, it's likely it will have to continue paying the monthly rent on nearly all of them, since according to a number of commercial real estate agents involved with Tesco we've talked with there doesn't appear to be escape clauses in most of the leases.

Additionally, with many of these 45 stores in various stages of being remodeled or built, there are contractor fees to pay and such even if Tesco ultimately decides to not move into the Northern California market. In other words, either postponing or pulling out completely will be costly.

Of course, based on what CEO Tim Mason told The Times, the grocery chain doesn't appear to have the confidence to move forward into Northern California. So based on that lack of confidence, pulling out would be much cheaper than going in, since doing so with less than 100% confidence is no way to enter a market as tough and competitive as Northern California.

But one would then have to ask, if not Northern California, where else? Certainly going into the Chicago Metropolitan market, Florida and New York, all strategic U.S. markets Tesco has identified as potentials, would be a big mistake if conditions are such that the grocery chain would not move into Northern California at all, the market it identified through what it has said was extensive research the next most logical market after Southern California, Nevada and Arizona.

Postponing or putting Northern California completely on the shelf also changes Tesco's sales forecasts and profit targets for Fresh & Easy completely. Merely opening more new Fresh & Easy stores in its three current markets isn't going to get Tesco to those sales and profit targets because they are based on entering a new market, with all the criteria doing so implies.

A part of Tesco's strategy with Fresh and easy has been to literally grown the chain to profitability by rapidly opening new stores and entering new markets like Northern California. By postponing its march into Northern California -- or killing it completely -- Tesco will now have to dramatically increase sales at its existing stores in order to stem its losses. Without 40-plus new stores opening starting in early 2009 in Northern California, existing store sales will be much more important to Tesco's Fresh & Easy and Tesco plc.

We believe, as we've written about previously, that moving into Northern California now would be a financial disaster for Tesco's Fresh & Easy. But not for the reasons given by CEO Tim Mason -- the financial crisis and recession.

We first wrote many months ago that Fresh & Easy was ill prepared to enter the highly-competitive Northern California market. That it needed to prove itself in Southern California, Nevada and Arizona first, if for no other reason than for the sake of Tesco plc stockholders and Fresh & Easy store employees.

This argument was essentially laughed off though in interviews by CEO Mason and other Fresh & Easy executives. We leave it for you to decide.

We also wrote about how much stronger of a union region Northern California, particularly the San Francisco Bay Area, is compared to Southern California -- and particularly compared to Nevada and Arizona. This includes unionization of Tesco's Fresh & Easy distribution center proposed for Stockton, as well as the stores.

Every supermarket chain-owned distribution center in Northern California, as well as the region's two major grocery wholesale companies, Unified Grocers and C&S Wholesale Grocers, Inc., is union, even the Winco supermarketdistrbution chain facility in Modesto, California, despite the fact Winco is a non-union supermarket chain.

All of the supermarket chains and nearly every independent grocer of note, even most of the larger single-store independents, are union shops in Northern California.

Wal-Mart, Costco, Whole Foods Market and Trader Joe's are non-union -- but they aren't supermarket chains. They are classified as specialty grocers (Whole Foods and Trader Joe's) and mass merchandisers (Wal-Mart and Costco.) And in the case of Wal-Mart and Costco, food and grocery retailing is only a portion of their merchandising format. Fresh & Easy on the other hand is 100% food and grocery retailing. And since it is not positioned like a specialty grocer like Trader Joe's and Whole Foods are, that makes it easier for the UFCw union to classify it as a supermarket.

Winco, as we mentioned, is a non-union supermarket chain. But its the exception. And to date only has a handfulful of supermarkets in Northern California. The Idaho-based chain also is employee-owned, which makes it a further exception to the union norm for supermarket chains in the region.

Fresh & Easy (theoretically) should be strong in a recession

It's ironic Tesco is choosing to scale back it expansion of Fresh & Easy Neighborhood Market at this time actually. After all, based on the Fresh & Easy format (at least as stated by Tesco), -- which is a neighborhood food and grocery store offering basic groceries and fresh foods at the lowest available prices, the stores should be doing well in a recessionary economy. Tesco also claims its everyday prices at Fresh & Easy are 15% -to- 20% lower than the everyday prices of its supermarket competitors. Isn't that what shoppers are looking for in a recession -- savings?

For example, discount food and grocery retailers like Wal-Mart and Aldi are doing well in the down economy, taking business away from conventional supermarket chains in particular.

Costco also is doing well, although it had a 1% earnings loss reported this week. But that's in large part because of a significant drop in consumer spending across the board on non essential food and grocery items. A major portion of Costco store revenue comes from selling household goods, electronics, books and other general merchandise items. In fact were it not for Costco's strong food and grocery category sales in the quarter just ended, that loss would have been much greater, according to analysts.

But the problem with Fresh & Easy is that its been merchandising and marketing its stores more like they are specialty markets rather than as low overhead, small-format discount food and grocery stores.

Look at Fresh & Easy's last promotion, for example, for election day 2008. Instead of promoting basics and essentials like milk, eggs, bread, fresh chicken, hamburger, lettuce, laundry detergent, bathroom tissue and other core food and grocery items at super low prices befitting a recessionary economy (a potential theme: "Basic grocery items at basic prices for basic Americans on election day") and consumers' pinched pocketbooks, Fresh & Easy promoted specialty foods like fancy cheeses and smoothie drinks. Such a promotion is one a grocer would run to target yuppies in an up economy rather than average consumers who across the board are having a tough time making ends meet.

These types of promotions, which the grocery chain seems to do more often than value-based ones on food and grocery essentials, also cretes an impression the Fresh & Easy store brand (and format) is a specialty one rather than an everyday neighborhood grocery market format and store.

If you don't believe our analysis do a simple research experiment which we've done many times, asking at least 200 Fresh & Easy customers to date outside of various markets. Ask this simple questioin of them: Is Fresh & Easy a specialty grocery store more like Trader Joe's or is it more of a basic supermarket, one where people do most of their shopping, like Vons, Ralphs, Bashas or Stater Bros.?

About 65% of those we've asked thus far said it's a specialty store similar to Trader Joe's. Close to 25% said they had no idea. Five percent just walked away. Only five percent said they thought Fresh & Easy was a basic supermarket where people do most of their food and grocery shopping.

While we don't suggest this is a scientific survey, although it actually is in part, nor is it a perfect sample size, it is very illustrative -- especially when combined with other research we've conducted -- of consumer perception of what the Fresh & Easy stores are, and who they are for.

In other words, either Fresh & Easy has done a great job positioning its stores as specialty markets similar to Trader Joe's -- which they aren't according to the Tesco Fresh & Easy -- or they have failed thus far to position Fresh & Easy as what they say it is: A combination basic grocery and fresh foods store, with a convenience-orientation, that's for everybody -- a store to do ones primary food and grocery shopping at.

When we saw the Fresh & Easy election day promotion the week of November 4, we collectively scratched our heads. It's not that the promotion was bad. Not at all. It was a good promotion for a specialty grocery chain. But that isn't what Tesco's Fresh & Easy is. Further, based on what Tesco says Fresh & Easy is, a low-price food and grocery store for the masses, any election day promotion for such a retailer should have taken advantage of the occassion to tout its value proposition big time, as we suggested earlier more specifically.

In our analysis about 70% the time Fresh & Easy's corporate merchandising and marketing looks more like Whole Foods Market or Trader Joe's than what it says it is, a neighborhood food and grocery market offering basic groceries and fresh foods at everyday low prices; a store for everybody.

Maybe Fresh & Easy should go all the way, become a fully and clearly stated specialty grocer like Trader Joe's and refocus the business on a selective market, national retailing strategy like Trader Joe's does.

After all, Trader Joe's has about 312 stores in the U.S., just slightly 200 more than Fresh & Easy currently has, and has annual sales of about $6.5 billion. Tesco's Fresh & Easy on the another hand has 100 stores and current sales of about $400 million. You can do the math. But at its currrent sales rate, with 212 more stores (equal to Trader Joe's current 312) Fresh & Easy would theoretically have annual sales of $1.2 billion, compared to Trader Joe's $6.5 billion with 312 stores.

Could Fresh & Easy really grow its way organically to $6.5 billion with 312 stores in five years, ten years, 15 years? You be the judge.

Of course Trader Joe's has been around for about two decades now -- but for only about 10 years outside of the Western U.S. That obviously gives it an advantage.

On the other hand, Trader Joe's only sells specialty and natural products; niche products. This means it isn't even the primary shopping venue for the majority of consumers. Grossing $6.5 billion a year for 312 stores, 10,000 -to- 13,000 square foot stores at that, would be considered excellent even for a similar chain that sold everyday items along with the natural and specialty products.

But unlike Trader Joe's, Tesco's Fresh & Easy has the benefit of having a merchandising mix that includes at least a 50% or 60% ratio of basic, essential food and grocery items -- conventional packaged goods and perishables, household items like basic laundry detergents and paper towels and the like -- which means its sales per square foot should be much higher on average than currently is the case. It also means it should be more of a primary shopping venue than Trader Joe's is -- but it isn't in the markets where Fresh & Easy stores and Trader Joe's stores are located.

We suggest the major difference between Trader Joe's and Fresh & Easy though is Trader Joe's positioning as a specialty grocer is clear -- and thus in part its merchandising and marketing, based on that clear identity and positioning is excellent.

Tesco's Fresh & Easy though is a format muddle, a chain with an identity crisis self imposed. Its part basic grocery store, part upscale retailer, part specialty food store and part prepared foods market. The retailer has thus far failed to make the sum of all its parts equal a whole. In fact it's parts are greater than its whole.

And its merchandising and marketing reflects this identity crisis. However, from that perspective its positioned itself far more as a specilty grocer chain than as a neighborhood grocer for everybody -- its stated positioning. As a result, the merchandising and marketing to date has communicated this identity crisis. Until Tesco developes a clear format concept for Fresh & Easy, and then positions and brands the stores to that format, it will not find success, in our analysis.

Fresh & Easy also has done such a poor marketing and merchandising job by using it deep discount coupons so regularly (chronically is a better term) since the first store opened last October that it has virtually trained shoppers to believe that without the $5 off purchases of $20 or more coupons or $6 off purchases of $30 or more (the current coupon version) coupons the stores are expensive. What happened to the everyday low price premise and positioning? The answer: it was never executed. Fresh & Easy has literally created a new consumer species with those coupons: "Couponous Freshneasynous" -- The Fresh & Easy deep discount coupon addict.

We've talked to scores of shoppers, received dozens of emails from readers, and read scores more comments on Blogs and Web sites (including comments on Fresh & Easy Neighborhood Marketing marketing director Simon Uwins' own corporate marketing Blog) in which shoppers said without the coupons, which the grocer has unsuccessfully trying to limit, there weren't likely to buy much if anything at Fresh & Easy stores.

Deep discount coupons should be used for two primary reasons: (1) to generate new customer trail in the stores and (2) to increase shopper market basket (overall total purchase dollar amount per shopping trip) sizes. Its also commonly called "average ring" in U.S. food retailing.

Fresh & Easy has failed on both counts by the way its chronically used the deep discount coupons in our analysis. In order to be successful, the coupons need to be used infrequently (that's what you do with promotional tools) and have higher minimum purchase requirements. For example, a $10 off purchases of $50 or more and a $25 off purchases of $100 or more coupon set would be a good idea. Used promotionally though, not chronically.

The current deep disount coupons have become a part of everyday business and shopping at Fresh & Easy stores because they've been always available. It's very difficult for "Couponous Freshneasyous" to stop using the coupons cold turkey after all.

Coupons in this value range -- the $10 off $50 and $25 off $100 -- do the job of generating new customer trail as well as motivating and increasing shopper market basket size.

Fresh & Easy's current $6 off purchases of $30 or more coupon for example demonstrates to us the grocer is having a big problem increasing its average market basket above $30, for example. If not, why would a retailer reward a shopper with a 20% discount for spending merely $30 at a grocery store? A $30 purchase might be good at a traditional convenience store but its poor for a supermarket.

Consumer-centric, not retailer-centric

In terms of our argument that Tesco Fresh & Easy CEO Tim Mason and his top executives just don't get it, that imposing the British food retailing model is failing, we suggest you read this quote from his interview with The Times' reporter:

"We are absolutely thrilled with the customer response from those loyalists that have got it, and really loved what we do,” he said. “What retailer has better staff, better product quality and delighted customers and doesn't make it?"

It isn't the job of consumers to "get" a food and grocery retailer's format, positioning and way of selling groceries. Rather, it's the retailer's job to design a retailing format and merchandising and marketing program, and position and operate in such a way that it creates as many regular customers as it can, which means success. It's called "consumer-centric" retailing; it's what grocers do if they want to be successful. Mr. Mason's comment suggests what we call "retailer-centric" retailing. In other words, if you build it, they will come. Doesn't work.

We also find the loyalist comment interesting. And there are a number of Fresh & Easy loyalist customers out there, without a doubt. And for some good reasons. However, there aren't enough loyalists to make a business.

We also can't help remembering what happened to the British military a couple hundred and thirty two or so years ago when it relied on what it called British loyalists, British nationals living in the then colony of Britain called America, to help it win the war of independence waged by a rag tag bunch of Americans, many of whom were former British nationals who fled their country for the new world. The so called loyalists stop being loyal to Queen and country once they thought the Americans, which they finally figured out they too were, had a chance of winning the war. And as they say -- the rest is now history.

Supermarket loyalists can do the very same thing. After all, weren't today's Fresh & Easy loyalist likely loyalists of another grocery chain a little over a year ago, before the first Fresh & Easy store opened, and even less than a year ago in many cases, before the current Fresh & Easy store in their respective neighborhood opened.

Also ask Whole Foods Market about loyalists. No food retailer in the U.S. has had a more loyal following over the last 15 or so years than Whole Foods has. A cult of loyalists even. But beginning earlier this year, as the economy starting getting really bad and food prices began to soar, many of those Whole Foods loyalists shed their pledges of loyalty and went searching for grocers offering lower prices. And even more loyalists have fled Whole Foods over the last three months as the economy has worsened, so much so that Whole Foods reported a 40% drop in earnings for last quarter and its common stock is as of today 70% lower than it was just one year ago.

We've heard many versions of Mr. Mason's comment in the quote from The Times: "Shoppers who get it" (what Fresh & Easy is), numerous times in the last year from Tim Mason and a number of his top executives. So many times in fact it sounds more like they are conducting a treasure hunt rather than positioning a supermarket chain. Frankly it also comes off as a self-congradulating pat on the back. 'See, we must be on to something because there's a core group of loyalists that get it.' We can't help but wondering how that would go over say in a meeting with Tesco plc's ten largest shareholders.

It is a comment that's completely foreign to successful American grocers. They see their job as constantly coming up with ways to appeal to consumers rather than hoping a certain segment "gets" what they are doing, and being appreciative of it And when not enough consumers "get" what those retailers are doing, which is the case with Fresh & Easy, those retailer's change, adapt. That's what Mr. Mason and company should be focusing on, along with dropping that "those who get it" language. It makes them look like they...well, don't get it. Notice not one mention in the published interview about what Fresh & Easy plans to do better?

We do agree with Tim Mason's comment about Fresh & Easy store-level employees though. In our observation they are the grocery chain's number one asset.

In fact it is to a large extent because of these excellent store level employees, and their being able to keep their jobs if they want them, we suggest Tesco plc CEO Sir Terry Leahy, who we think is one of the most talented food and grocery retailing executives around, needs to take a very close look at Fresh & Easy Neighborhood Market and how it is being run. Sir Terry, Fresh & Easy looks nothing like you said it would be. After a year of operations, aren't you concerned why that is the case?

For example, in this recessionary economy, Fresh & Easy should daily be hammering home its value proposition. Something like this: "Fresh & Easy markets are basic, smaller neighborhood discount grocery stores (a minimalistic and even nostalgic message). This allows us to keep our prices low. In tough times, when you (consumers) are having to cut back and live a simplier life, isn't it good to know you have a simplier, lower priced alternative, Fresh & Easy." This message then has to be constantly and consistantly hammered home with integrated merchandising, marketing and communications. Walking the talk as well as talking it.

Instead of promoting berry flavored gourmet cheese and Spanish sparkling wines, Fresh & Easy needs to focus on the basics: Essential food and grocery items at the lowest possible prices. We have just three words for it: value proposition, value proposition, value proposition. All other merchandising, marketing and promotion -- specialty, envoronmental and the like -- should be secondary and tertiary to the value message focus and positioning.

This is something Fresh & Easy should have starting doing at the first signs of a recession -- say in March-April, 2008. But its November, 2008, the economy is in the tank, and Fresh & Easy has yet to create a solid value proposition-based marketing and merchandising program. Wal-Mart has. Safeway has. Kroger has.

Is it time for Sir Terry to sit in the front seat instead of the back?

Tesco's problems with Fresh & Easy go far beyond postponing or even killing completely its plans to enter the Northern California market. We've discussed a number of those problems in this piece.

Our suggestion to Tesco plc CEO Sir Terry Leahy is, if you want to succeed with Fresh & Easy in America, its probably time to get out of the back seat, jump in the front seat, and even put your hands on the steering wheel a bit. Do a complete evaluation of the operation, from the top on down, in terms of apprach, strategy implementation and headquarters operations. Changes geared to success are needed.

It's been a year since the first Fresh & Easy store opened and well over two years since Tim Mason and his top executives began what amounts to attempting to run a British grocery chain, using British food retailing systems, in the Western U.S. states of California, Nevada and Arizona, which just happen to be among the most "American" of American food and grocery retailing markets. You know, the wild west and all that.

We don't argue the current financial crisis and recession make it difficult for any grocery chain to launch a major expansion such as Fresh & Easy's into Northern California. Others are cutting back as well. But they aren't start ups who've said all along plans called for investing lots of capital.

But we do argue that despite the serious economic mess the U.S. is in -- it is far from the only or even primary cause of the current state of Fresh & Easy.

Things could be far fresher and far more easier though for Tesco with its Fresh & Easy Neighborhood Market USA.

But until it stops trying to impose a British food and grocery retailing model and strategy at Fresh & Easy and changes to a Western U.S. regional retailing focus and strategy -- along with implementing a localized merchandising, marketing and operational approach in its current three market regions -- and couples this new model with a focus on the value proposition -- it's our analysis Tesco's small-format, convenience-oriented Fresh & Easy Neighborhood Market food and grocery retailing venture has little chance of suceeding beyond mere survival, if that, despite the fact it has the potential to be successful.

The opportunity still exists for Tesco's Fresh & Easy to be a success in America. Of course CEO Mason argues in the interview, as well as elsewhere publicly, the only problem facing the grocer is external -- the current financial crisis and recession. We respecfully disagree.

It's our analysis that in order for Fresh & Easy Neighborhood Market to succeed, especially on the terms Tesco has set for its success, Tesco will have to make serious changes, including the ones we've outlined in this piece. We will explore more of those potential changes in upcoming pieces in Fresh & Easy Buzz.