Showing posts with label Fresh and Easy Northern California. Show all posts
Showing posts with label Fresh and Easy Northern California. Show all posts

Monday, March 5, 2012

First Look at One of the Two Fresh & Easy Stores Opening In Sacramento Wednesday



Sacramento Bound

Pictured above is the Fresh & Easy grocery market at Watt Avenue & El Camino Avenue in Sacramento, which opens March 7. The photos were taken last week - the one at top during the day, the one above at night - as workers prepared the store for Wednesday's opening. [Photo credit: Fresh & Easy Buzz.]

Wednesday morning Tesco's Fresh & Easy Neighborhood Market will make its long-awaited - and long-postponed - launch in metropolitan Sacramento, California, opening two stores, at Watt Avenue & El Camino Avenue and Mack Road and Franklin Boulevard, in Sacramento.

The following Wednesday, March 14, Fresh & Easy will open three stores in three Sacramento-area cities - Folsom (East Natoma Street and Blue Ravine Road), Elk Grove (Elk Grove Florin Road and Calvine Road) and Lincoln (Lincoln and Sterling Road.)

In November 2011 Fresh & Easy Neighborhood Market said it would open a sixth store in the region, at 34th Street and Broadway in Sacramento's Oak Park neighborhood, before the end of March. Fresh & Easy hasn't announced an opening date for that store yet.

Fresh & Easy's Sacramento market region launch is long-awaited, as well as long-postponed, because it was in February 2008 when the fresh food and grocery chain announced its plans to enter the market, listing 19 store locations it said it would start out with.

United Kingdom-based Tesco originally planned to start opening Fresh & Easy stores in metro Sacramento as early as mid-to-late 2009, as part of a planned launch into Northern California. However it postponed the Northern California launch because of Fresh & Easy's poor performance.

Tesco and Fresh & Easy Neighborhood Market also decided not to launch into Northern California in 2010, again because of the chain's poor performance and numerous problems.

Finally, in March 2011, Fresh & Easy launched into Northern California. To date there are 19 stores in Northern California - 16 in the San Francisco Bay Area and one each in Fairfield, which is on the outer border of the Bay Area; Vacaville, which is about midway between Sacramento and the Bay Area; and Modesto, which is about an hour's drive from both Sacramento and the East Bay Area.

The opening of the first two stores in Sacramento on Wednesday, including the unit at Watt Avenue and El Camino Avenue pictured at top, comes a year and five days after Fresh & Easy opened the first two stores in Northern, in San Jose and Danville, as we reported here on March 2, 2011: Fresh & Easy Neighborhood Market Opens First Two Stores in Northern California Today.

Coming this week

We'll have a piece in the blog later this week offering analysis on Tesco's move into the metro Sacramento market, along with a competitive analysis of the key food and grocery retailing players in the region.

Suggested reading below: A primer on Tesco's Fresh & Easy in the Sacramento metropolitan market region

February 9, 2012: Confirmed: First 2 Fresh & Easy Stores Open in Sacramento March 7; 3 in Metro-Area March 14

January 18, 2012: Fast-Growing The Fresh Market Chain On Track to Launch in California This Year

August 3, 2011: Fast-Growing Specialty Grocer The Fresh Market Targeting Mid-2012 For First California Store

August 31, 2011: Tesco Says Sayonara to Japan, Good Morning to Sacramento

August 29, 2011: Meaningful Move or Too Little Too Late? Fresh & Easy Neighborhood Market Planning Early 2012 Metro Sacramento Market Launch

January 12, 2011: First Northern California Fresh & Easy Neighborhood Market Stores Opening March 2; Nine More to Follow March-April

January 10, 2011: Sprouts Farmers Market to Open Second Northern California Store in Roseville No Later Than Mid-April

December 5, 2011: Dollar General Jump-Starts California Launch: Taking Over 5 Centro Mart Supermarkets For Early 2012 Openings

November 22, 2010: Tesco's Fresh & Easy Neighborhood Market Plans Five New Stores in Northern California's Sacramento Region

September 26, 2010: While Tesco's Fresh & Easy Neighborhood Market Postponed, Target Opened 42 'P-Fresh' Fresh Food and Grocery Markets in Northern California

August 17, 2010: Henry's Farmers Market 'Beats' Fresh & Easy Neighborhood Market to Northern California Despite Multi-Year Head Start; Elk Grove Store Opens Tomorrow [Henry's is now part of Sprouts Farmers Market. The Elk Grove store has been rebranded as Sprouts Farmers Market. Details here]

July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store [Walmart is going to start opening Neighborhood Market stores in Northern California this year. More here.]

October 8, 2008: Putting the 'Neighborhood' in Neighborhood Market: 'Localism' and Tesco's Proposed Fresh & Easy Neighborhood Market in Sacramento's Oak Park

February 28, 2008: News & Analysis: Tesco's Fresh & Easy Confirms 19 Store Locations for the Sacramento-Vacaville Region in Northern California

See these links - , , , ,  - for additional background reading.

Thursday, February 9, 2012

Confirmed: First 2 Fresh & Easy Stores Open in Sacramento March 7; 3 in Metro-Area March 14


Tesco's Fresh & Easy Neighborhood Market today announced the opening dates for its first five stores in Northern California's Sacramento metropolitan region.

Fresh & Easy first announced its plans to enter the metro Sacramento market in early 2008, where it said it would open an initial 19 stores. (See here for details and a list of the numerous other planned stores we've uncovered in the region.)

It planned to start opening the first of those 19 stores beginning around late 2009 and no later than mid-2010. Those plans were postponed until now.


The grocer's announcement today confirms the opening dates for the first batch of stores in the Sacramento region we've had listed on our F&E Store Openings Q1 2012 link at the top of the blog.

Below are the locations and opening dates of the first five stores Fresh & Easy Neighborhood Market plans to open in the Sacramento metro-region:

>Sacramento
Watt Avenue & El Camino Avenue
Opens March 7, 2012

>Sacramento
Mack Road and Franklin Boulevard
Opens March 7, 2012

>Lincoln
Lincoln and Sterling Road
Opens March 14, 2012

>Elk Grove
Elk Grove Florin Road and Calvine Road
Opens March 14, 2012

>Folsom
East Natoma Street and Blue Ravine Road
Opens March 14, 2012

Northern California - one year on

The opening of the first stores in metropolitan Sacramento, Tesco's newest market region with its Fresh & Easy chain, comes one year after the grocery chain began opening its first stores in Northern California.

There are 18 Fresh & Easy stores now open in Northern California - 15 units in the San Francisco Bay Area; one store in Fairfield, which is on the outskirts of the Bay Area off Interstate-80; one Fresh & Easy grocery market in Vacaville, which is about midway between the Bay Area and the Sacramento region; and a store in Modesto, which is in the Northern Central Valley.

There are 182 Fresh & Easy stores in California (138), Nevada (20 units), and Arizona (24 units). Of the 138 stores in California (the grocer opened two units in the Golden State yesterday), 106 units are in Southern California, seven stores are in the Bakersfield and Fresno regions in the mid and southern Central Valley, and 18 units are in Northern California.

Region's 'Big Three' (and unionized) grocery chains

Fresh & Easy's launch into the Sacramento-area market comes at a time when the region's three leading grocers - West Sacramento-based Raley's, Modesto-based Save Mart/Lucky and Pleasanton, California-based Safeway Stores, Inc. are in negotiations with the United Food and Commercial Workers (UFCW) union over a new three-year labor contract.

The three supermarket chains are numbers one (Safeway), two (Save Mart) and three (Raley's) respectively in terms of market share in Northern California. In the metro-Sacramento market, Raley's is number one, followed by Save Mart and Safeway.

The old contract expired in October 2011, and the union locals and the "Big Three" Northern California grocery chains have been extending the dates since then. The negotiations continue.

Raley's and Save Mart/Lucky are family-owned, privately-held companies. Safeway Stores, Inc. is publicly-held.

The three chains negotiate with the union locals. Once a deal is made, the smaller unionized grocers in the region then generally accept whatever contract deal is cut and voted on and ratified by UFCW members.

There are about 52,000 unionized grocery clerks in Northern California, according to a spokesperson for Local 5. There are numerous other chains and independents in Northern California that are unionized and operating under the extended contracts.

Last week Raley's, which operates 131 stores in Northern California under the Raley's (superstores), Bel-Air Markets, Nob Hill Foods (supermarkets) and Food Source (discount warehouse) banners, broke out of the joint-talks with Save Mart/Lucky and Safeway, and is now negotiating independently with the union locals.

Raley's, which has been struggling financially and going through a reorganization since 2010, is asking the union for various concessions in the health and welfare benefit and pension areas.

Raley's CEO Michael Teel, who's family owns the privately-held chain, says the grocer needed to go out on its own in the negotiations because it wants a deal, with concessions, fast. Teel also says Raley's would not have had to close two stores recently, one in Modesto and the other in the Sacramento region, had the UFCW accepted its proposal. He also said additional store closures are possible if Raley's can't get the concessions its asking the union for.

An official of one of the Northern California UFCW locals told us recently that the concessions Raley's wants as currently stated "won't fly with our membership." As a result, the union and the chain have yet to reach an agreement that the union can take to its members for a vote, he says.

The contract extensions with all three chains run out before the end of this month.

Non-union grocers on the move

Meanwhile, Tesco's Fresh & Easy is just one of many non-union food and grocery retailers opening stores at a fast pace in Northern California in general and in the Sacramento region specifically. Others include Whole Foods Market, Sprouts Farmers Market and Sunflower Farmers Market. All three have new stores set to open in metro Sacramento this year.

Over the last year Tesco has been repositioning Fresh & Easy to be more of a specialty grocery store. All three of the chains mentioned above, and Fresh Market mentioned below, plus Trader Joe's, which has stores in the Sacramento region, are direct competition in that niche.

Safeway and Raley's, which both put a major focus on fresh foods and specialty as well as on the basics, are also direct competition for Fresh & Easy, including in the fresh-prepared foods category. Both chains offer extensive ready-to-eat and ready-to-heat fresh foods, as do Whole Foods, Sprouts and Sunflower. Save Mart/Lucky does as well, but to a lessor degree than the others.

Costco, which has customer demographics that cut across all income levels, is also a major food and grocery retailing force in the Sacramento metro-market, as are a number of smaller chains and independents, such as Woodland-based (about 12 miles from Sacramento) Nugget Markets, which has a number of stores in the region.

Additionally, as we previously reported, Walmart Stores, Inc. is locking up numerous locations for its smaller-format (26,000-to-45,000 square-foot) Neighborhood Market supermarkets in the Sacramento region, along with proposing a few new supercenters, and adding fresh food and groceries (hybrid supercenters) to some existing discount format stores.

Discount chain Target, which is non-union like all the others mentioned above, has been and continues to add its "P-Fresh" fresh food and grocery markets inside many of its existing target discount format stores in the region.

Another non-union grocery chain, North Carolina-based The Fresh Market, also has plans to start opening stores in Northern California - the Bay Area and Sacramento region is its focus - this year, as we've previously reported in Fresh & Easy Buzz.

Bottom line: Not only are all these non-union grocers, which are adding stores rapidly, added competition for the Sacramento region's "Big Three" unionized supermarket chain's - Raley's, Save Mart/Lucky and Safeway - they also will make Tesco's launch of Fresh & Easy in the region less than a month from today much more difficult and competitive (and expensive) than it would have been had the retailer started opening its stores back in 2009-2010 as it originally planned to so.

Why: The level of competition was much less then that it is now - and it's going to get even more competitive in the metro-Sacramento market over the next year and beyond, particularly as Walmart starts opening its smaller format Walmart Neighborhood Market supermarkets in the region, many of which - for example a Walmart Neighborhood Market is slated for Lincoln, California - are located not far from future Fresh & Easy locations in the Sacramento metropolitan region, along with in other parts of Northern California.

Suggested Reading

August 29, 2011: Meaningful Move or Too Little Too Late? Fresh & Easy Neighborhood Market Planning Early 2012 Metro Sacramento Market Launch

August 31, 2011: Tesco Says Sayonara to Japan, Good Morning to Sacramento

January 18, 2012: Fast-Growing The Fresh Market Chain On Track to Launch in California This Year

January 8, 2012: Tesco to Close Up to 12 Fresh & Easy Stores

January 9, 2012: Exclusive: Tesco's Fresh & Easy Closing 12 Stores; We Have the Locations

December 5, 2011: Dollar General Jump-Starts California Launch: Taking Over 5 Centro Mart Supermarkets For Early 2012 Openings

July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store

February 1, 2012: Tesco's Fresh & Easy By the Numbers ... In Case You Want to Keep Score at Home or in the Office

Wednesday, January 18, 2012

Fast-Growing The Fresh Market Chain On Track to Launch in California This Year

California here they come: The Fresh Market opened the store pictured above, at 421 North State of Franklin Road in Johnson City, Tennessee, on January 4, 2012. Yesterday the grocery chain opened a new store on the east coast, in Scarsdale, New York. Another new Fresh Market store opens next week, on January 25th, in Rockville, Maryland. Many more stores are set to open this year.

On August 3, 2011 we reported in this story: [Fast-Growing Specialty Grocer The Fresh Market Targeting Mid-2012 For First California Store] that North Carolina-based specialty grocery chain The Fresh Market planned to open its first store in California, most likely in Palo Alto in the north, in mid-2012.

Since we published our story in August 2011, the fast-growing 112-store grocery chain has been focusing on achieving just that goal. And while it might come a bit later in the year than mid-2012, The Fresh Market plans to open its first one or two stores in Northern California's San Francisco Bay Area and metro-Sacramento region before the year is out, according to our sources.

One of the first Fresh Market stores to open - in addition to the Palo Alto store we reported on in the story linked above - could be in a vacant approximately 25,000 square-foot Borders Books store at Rocky Ridge Drive and Douglas Boulevard in Roseville, near Sacramento, a city that's seen a spate of new grocery store openings over the last couple years, including units opened by other recent entrants to the region, like Sprouts Farmers Market and Sunflower Farmers Market, both of which have additional new stores set to open this year in the Sacramento region and elsewhere in Northern California.

Publicly-held The Fresh Market, which has been turning in solid comparable-store-sales growth and profits over the last couple years, is also looking for additional store locations in Sacramento and the metro region, including Elk Grove and Folsom, where Tesco's Fresh & Easy plans to open stores in March of this year, along with in the San Francisco Bay Area.

Fresh & Easy Neighborhood Market opened two new stores in Northern California's Bay Area last week, on January 11, giving it 18 units in the northern part of the state. The two stores are in Brentwood in the East Bay and Mountain View, which is in Silicon Valley, in the South Bay region.

As we reported on August 3, 2011 [Fast-Growing Specialty Grocer The Fresh Market Targeting Mid-2012 For First California Store], The Fresh Market has been in negotiations with the developer of the Edgewood Plaza shopping center in Palo Alto, California to locate a store in a vacant building at 2800 Channing Avenue in the center. Those negotiations continue, and progress is being made toward a deal, according to our sources, who tell us they expect a lease to be signed by the developer and The Fresh Market in the first quarter of this year.

In addition to offering national, regional and local product brands in its stores, The Fresh Market has its own private brand items in the basic grocery, specialty and natural-organic categories. One of the private brand lines in the natural-organic category is TFM Live Leaner Cereal, which includes the Honey Almond Flax variety pictured above.

The Fresh Market is also looking to open a distribution facility in Northern California, according to our sources, particularly for distribution of its extensive fresh foods offerings, which include produce, fresh meats, deli and ready-to-eat and ready-to-heat fresh-prepared foods. The grocer likes to source locally and plans to take advantage of the fact that so much fresh produce and other fresh foods are grown and produced in Northern California.

Our sources tell us The Fresh Market - which isn't commenting on its specific plans in California at this point, although we expect an announcement about those plans from the grocery chain soon - wants to have its first couple stores open in Northern California by mid-to-late 2012, to be followed by additional store openings in 2013.

The fast-growing - it opened its newest store yesterday in Scarsdale, New York and one in Johnson City, Tennessee (pictured at top) January 4 - North Carolina-based specialty grocer is a serious player in its current markets, competing strongly against both Trader Joe's and Whole Foods Market, for example, in the fresh and specialty grocery niche.

The Fresh Market now plans to take its brand and style of food retailing (see our August 2011 story for details) to what is arguably the mecca of specialty grocery store competition, Northern California. And, based on what we've learned since August 2011, it plans to do so in a significant way - opening numerous stores in the Golden State over the next few years.

Related Stories

August 3, 2011: Fast-Growing Specialty Grocer The Fresh Market Targeting Mid-2012 For First California Store

June 12, 2008: Upcoming New Markets Special Report: Upscale Palo Alto, California is Laying Out the Welcoming Mat to Grocers: Will Fresh & Easy Knock On the Door?

October 15, 2008: Tesco to Locate Fresh & Easy Store in Palo Alto, California; it's First in the City and SF Bay Area Store Number 22 By Our Reporting

December 5, 2011: Dollar General Jump-Starts California Launch: Taking Over 5 Centro Mart Supermarkets For Early 2012 Openings

November 30, 2011: Fresh & Easy Neighborhood Market, Others Eyeing Closing Andronico's Store on Telegraph Avenue in Berkeley, California

January 8, 2012: Tesco to Close Up to 12 Fresh & Easy Stores

January 9, 2012: Exclusive: Tesco's Fresh & Easy Closing 12 Stores; We Have the Locations

Wednesday, November 30, 2011

Fresh & Easy Neighborhood Market, Others Eyeing Closing Andronico's Store on Telegraph Avenue in Berkeley, California

Cars fill the parking lot of the Androncio's supermarket on Telegraph Avenue in Berkeley. The grocer is liquidating all of the merchandise in the store at deep-discounts prior to closing the store, most likely by the end of the month. Click on the photo above to enlarge it. Note the "store closing" sign on the store. [Photo credit: Fresh & Easy Buzz.]

Northern California Market Region Report
News/Analysis

On November 25, 2011 Renovco Capital, the new owner of Community Markets, announced it will close the store at 2655 Telegraph Avenue in Berkeley, California as part of its strategy to turn the once 14-store food and grocery retailer around, leaving it with just five stores in Northern California's San Francisco Bay Area.

[Read our 'The Insider' columnist's November 26 column: Andronico's to Close Another Store in Berkeley as Part of 'Comeback' Strategy for details. Also see what he wrote about Tesco's Fresh & Easy and Andronico's in this May 30, 2011 column: May 30, 2011: 82-Year-Old Grocer Andronico's Needs A Sugar Daddy of Sorts: 'The Insider' Suggest Tesco and its Fresh & Easy Neighborhood Market Might Fit the Bill.]

The Telegraph Avenue store is the second unit Andronico's has closed in Berkeley in as many months.

It's the third store the grocer has closed since July of this year.

Last month Andronico's closed a store on University Avenue in Berkeley. In July the retailer closed a store in Palo Alto.

Andronico's Community Markets started 2011 of with eight stores, down from a high of 14 units less than a decade ago. It now has five supermarkets - two stores in Berkeley and one unit each in San Francisco, Los Altos (South Bay Area) and San Anselmo (Marin County).

Renovco Capital bought 82-year-old Andronico's out of bankruptcy court of $16 million. (See the stories linked at the end of this piece for details.)

The closing of the Telegraph Avenue Andronico's supermarket, which has been a fixture at the location in Berkeley for many decades, offers a second store site opportunity for Tesco's Fresh & Easy Neighborhood Market in the Easy Bay Area University city (Cal Berkeley), where it's been looking for locations for some time.

In October Andronico's closed a store on University Avenue in Berkeley, and as we reported on October 18, 2011 here - Look for Fresh & Easy Neighborhood Market to Grab Closing University Avenue Andronico's Supermarket in Berkeley CA ... If it Can - Fresh & Easy is interested in the location.

In addition to Fresh & Easy Neighborhood Market, a couple other retailers, including a dollar store chain, are interested in the now vacant University Avenue Andronico's site, according to our sources.

Those same sources told us yesterday that Fresh & Easy's real estate folks have already expressed an interest in the closing Telegraph Avenue Andronico's store.

Additionally, we're told a natural foods chain and CVS Pharmacy, in addition to Tesco's Fresh & Easy, are also interested in the Telegraph Avenue location, which our 'The Insider' columnist reported on November 26 will likely close by the end of the year.

Andronico's is already holding a merchandise liquidation sale at the Telegraph Avenue store, offering products for deep discounts, which is what it did when it closed the University Avenue supermarket. It took the grocer just a couple weeks to liquidate most everything at the University Avenue location.

Our commercial real estate and other sources say one possible scenario involving Tesco's Fresh & Easy and CVS Pharmacy in the Andronico's Telegraph Avenue location would be for the two chains to divide the building in half, putting a Fresh & Easy fresh food and grocery market on one side and a CVS drug store on the other.

Fresh & Easy Neighborhood Market and CVS did just that in a former Albertsons supermarket location at 32nd and Clement Street in San Francisco's Outer Richmond District.

The Fresh & Easy store at 32nd Avenue and Clement Street opened June 22, as we reported that same day in this story: Tesco's Fresh & Easy Neighborhood Market Opens First Store in San Francisco - in Outer Richmond District.

The CVS drug store, which shares the building with the Fresh & Easy grocery market (view the floor plan here) opened about a month later.

The Telegraph Avenue Andronico's store in Berkeley has about 20,000 square-feet of selling space, based on our estimation. That would be enough room to put both a standard version (10,000 square-feet of selling space) Fresh & Easy store and a CVS drug store that's about the same size (or slightly smaller) as the unit at 32nd and Clement in San Francisco.

As an alternative, Tesco could put one of its Fresh & Easy Express stores (3,000 square-feet of selling space inside a 4,000 square-foot exterior) in the Telegraph Avenue Andronico's building, although going with a standard sized Fresh & Easy market makes much better sense, in our analysis.

But it's still early. And we suspect additional food retailers will be interested in the Telegraph location.

No deal has been done between the landlord and any retailer yet, according to our sources.

Of the two locations, the vacant Andronico's on University Avenue and the soon-to-be vacant unit on Telegraph,  the Telegraph Avenue location would be the better of the two for Tesco's Fresh & Easy if the grocer were to take just one of the sites, if it can, in our estimation and analysis.

The main reason for this is because a Fresh & Easy (or any other) store at the location would benefit greatly from the heavy pedestrian and auto traffic on Telegraph Avenue.

Additionally, the Telegraph Avenue location is closer to the University of California at Berkeley campus than the University Avenue site is, which is another big plus, because our research and reporting over the last 4-plus years shows that the Fresh & Easy format tends to be most popular among the millennial consumer segment, as well as college and university students.

Both the University and Telegraph Avenue locations offer excellent potential for Tesco's Fresh & Easy however. And commercial real estate buildings that can house grocery stores doesn't open up all that often in Berkeley.

Additionally, the Telegraph Avenue location, to a greater extend, and the vacant Andronico's building on University Avenue to a lessor but significant extent, both also have the potential to be excellent locations for the two farmers market format chains - Sprouts and Sunflower - both of which are putting a major emphasis on opening new stores in Northern California, including in the San Francisco Bay Area.

Berkeley is the ideal demographic for both farmers market style grocery chains, and as noted, grocery store (even smaller format) commercial real estate doesn't become available all that frequently in Berkeley.

Related Stories

November 26, 2011: Andronico's to Close Another Store in Berkeley as Part of 'Comeback' Strategy

October 30, 2011: 'The Insider' Offers Some Advice He Suggests the New Owners of Northern California's Andronico's Markets Should Take Post-Haste

October 18, 2011: May-to-October at 82-Year-Old Andronico's Markets: New Owner, 2 Stores Closed ... Now What?

May 30, 2011: 82-Year-Old Grocer Andronico's Needs A Sugar Daddy of Sorts: 'The Insider' Suggest Tesco and its Fresh & Easy Neighborhood Market Might Fit the Bill

See these links -  Fresh and Easy Northern California and  - for additional related stories.

Sunday, October 30, 2011

'The Insider' Offers Some Advice He Suggests the New Owners of Northern California's Andronico's Markets Should Take Post-Haste

All six of the stores still have signs saying Andronico's Market, like on the San Francisco store above, despite the fact the grocer changed the name to Andronico's Community Markets over a year ago. For 'The Insider' this is a blessing in disguise because he says the new ownership needs to bag the Andronico's Community Markets name and return to Andronico's Markets, with an emphasis on Andronico's, similar to how it's depicted on the sign above.

The Insider - Heard on the Street

In my October 18 column - May-to-October at 82-Year-Old Andronico's Markets: New Owner, 2 Stores Closed ... Now What? - I reported that an investment fund led by Renovo Capital and created by it and Rosewood Private Investments got the green light from the Oakland, California division of the U.S. Bankruptcy Court to acquire 82-year-old grocer Andronico's Markets, which has its headquarters next to and above its store in San Francisco and operates six stores in the Bay Area region, down from a high of 14 units less than a decade ago and two stores shy of the eight it operated until closing two units this year - one grocery market in Palo Alto, California, closed in July, and the store on University Avenue in Berkeley, closed yesterday.

Three of the existing Andronico's stores are in Berkeley - on Shattuck Avenue, Solano Avenue and Telegraph Avenue. The other two units are in Los Altos, in the South Bay Area, and San Anselmo, which is in Marin County in the North Bay.

On Friday, October 28, the day before the closing of the University Avenue store in Berkeley - the university city that's been home base for Andronico's since it was founded in 1929 by Greek Immigrant Frank Andronico - Renovo Capital partner Scott Lavie and Andronico's CEO, Bill Andronico, who is Frank's grandson and has been running the chain since the 1980's, publicly announced the closing of the deal and sale of Andronico's to the investment firms and their fund, following the approval by the bankruptcy court, as I reported on in my October 18 column.

The purchase price, as I noted on October 18, was $16 million.

Renovo Capital has already invested about $5 million in Andronico's in the form of secured debtor-in-possession financing, which was part of its strategy to keep Andronico's alive financially and operationally until it could complete the acquisition through the court proceedings, which began in August.

The closing of the University Avenue store in Berkeley was also a part of the deal worked out with the court.

The store's about 20 employees have been told by the new owners that they can apply for jobs at the remaining six Andronico's stores. However, that's more theoretical than a reality for all or most of the workers because the last thing the new ownership wants and needs to do is add to rather than reduce Andronico's labor costs, considering the small chain's debts of $10-$15 million are about equal to its assets, according to the Chapter 11 filing.

Renovo's Lavie and Bill Andronico, who is staying on for now to continue running the 82-year-old chain that bares his family's name, said Friday, as they've said previously, that the new ownership plans to invest cash to improve the stores and the small chain's operations.

Here's what Bill Andronico said on Friday: "I want to thank our loyal customers, our committed employees and our faithful vendors who have worked with us through this difficult chapter in the company's history. I am pleased that Renovo Capital's purchase will allow us to improve our standing in the market and build on the strong brand my family has built over three generations."

Bill Andronico is the third generation of the Andronico family to run the grocery chain, having taken over for his father John in the 1980's. John Andronico took over from his father, Frank Andronico, who in 1929 founded Andronico's with a small grocery store on Solano Avenue in Berkeley, the site of one of the three existing stores in the city.

Here's what Scott Lavie, a Renovo Capital partner who's been heading up the Andronico's deal said as part of the same announcement on Friday: "Andronico's will continue to operate six locations: three stores in Berkeley and markets in San Francisco, San Anselmo and Los Altos. Renovo is committed to investing into the store's physical infrastructure to update the facilities and ensure that the stores continue to improve the quality of service for which they have historically been known. As part of this effort, key members of Andronico's executive management team will be retained to manage the company and its operations."

Lavie added this in the announcement: "We are excited about the opportunity for improvement in Andronico's stores to better serve our customers." The acquisition of the Andronico's brand was based on its market cache, and in combination with Renovo's ability to invest in the stores and employees, we want to ensure that Andronico's continues its commitment to excellence and delivering value to our customers for generations to come."

According to the August bankruptcy filing, Andronico's was doing about $120-$130 million in annual sales at the time, which is considerably less than half the annual sales the chain was doing at its 14-store peak, based on sales figures I'm aware of from the early-to-mid 2000's.

In my October 18 column I offered some analysis and informed opinion on what I think the future might hold for Andronico's under the new ownership, if you care to take a look, here.

The "key members" of Andronico's executive management team that Scott Lavie says in the quote above will be retained by the new ownership potentially include, in addition to Bill Andronico: Steve Epidendio, Justin Jackson and Anthony Gilmore.

Last year Bill Andronico brought the three men, all former Whole Foods Market guys, along with another Whole Foods' alum, John Clougher, into the then family-owned chain to help him raise financial capital and turn the chain around.

Claughter, who has been the president and COO of Andronico's since then, reporting to Bill Andronico, is leaving to become the CEO of A.G. Ferrari Foods, a small specialty grocery chain that Renovo Capital and Rosewood also recently bought out of bankruptcy. (See my October 18 column for details).

Claughter, who is leaving to head A.G. Ferrari Foods as noted above is the former president of Whole Foods Market's Pacific Northwest Region, which includes Oregon and Washington State.

Jackson, who's held the title of executive vice president at Andronico's since last year, was the first Whole Foods Market alum Bill Andronico recruited last year. Most recently prior to that he was vice president of purchasing for Whole Foods' Pacific Northwest division.

Epidenio, who managed one of the Andronico's stores for about nine years, from the 1980's-to-early 1990's, later went on to become vice president of retail operations for Whole Foods Market's Northern California division. His position at Andronico's since last year has been as the grocer's vice president of operations.

Lastly, Anthony Gilmore, who was president of Whole Foods' Northern California region from 2004-2007 and worked for the natural-organic foods' chain from 1996-2007 before leaving in 2007 to take a job titled vice president of corporate lifestyle, new concept development and corporate perishables, at Pleasanton, California-based Safeway Stores, Inc., has since last year been Andronico's chief strategist and chief administrative officer.

From 2007-2010 at Safeway Stores' headquarters in the San Francisco Bay Area city of Pleasanton, Gilmore worked on, among other projects, the development of the grocer's "The Market" small-format fresh food and grocery chain.

Safeway opened its first "The Market" store in Long Beach, California in 2008, followed by a second unit in San Jose in 2009.

Safeway's CEO, Steve Burd, decided not to go forward with the small-format stores, which are very similar in format to Tesco's Fresh & Easy Neighborhood Market, as Fresh & Easy Buzz has reported. Not long after that decision by Burd, Gilmore, who worked for Safeway as a retail clerk and store manager for 19 years before joining Whole Foods Market, left the Pleasanton-based chain to join his fellow Whole Foods' alums at Andronico's.

There are additional details about the industry backgrounds of the former Whole Foods Market alums in my May 30, 2011 column about Andronico's  - 82-Year-Old Grocer Andronico's Needs A Sugar Daddy of Sorts: 'The Insider' Suggest Tesco and its Fresh & Easy Neighborhood Market Might Fit the Bill - if you're interested.

The executive management team - Bill Andronico, Epidenio, Jackson and Gilmore - is deep with experience in food and grocery retailing, including in Northern California's San Francisco Bay Area. But it also might be a bit to collectively expensive for the new ownership and for Andronico's balance sheet, even though there will be some savings on the expense side with John Claughter's move over to nine-store A.G. Ferrari Foods, which Renove bought out of bankruptcy for less than $2 million dollars.

Assuming all or most of the executive team is retained, based on the extensive experience and individual talents of each of the members, they have a shot at turning Andronico's around, assuming they do some out of the box thinking and implementation - no wholesale Whole Foods Market format cloning, for example - and are able to strike a fine balance between creating a strategic blueprint for going forward that combines the best elements of Andronico's successful food and grocery retailing history with much needed changes in how the chain has been operating for the last decade.


Andronico's knows merchandising - and executes it extremely well. As an example, take a look at the produce department merchandising pictured in the photographs above and below. The photos were taken November 27, 2009, at one of the six remaining stores. [Photo credit: Willo O'Brien.]


I'm not the foremost expert on Andronico's, if such a thing exists. But I've been a close observer of the grocer and the markets it operates its stores in for nearly three decades.

Therefore, I'm going to offer a list of five key action steps the new ownership needs to have the executive team start and focus on post-haste (immediately), as in beginning on Tuesday. On Monday they all need to go out in the stores, interact with shoppers, and give away free treats to kids in the stores for Halloween - along with an action timeline, if its serious about saving the six-store chain - and eventually growing it.

There are additional things to focus on - but this is a list to get busy on starting Tuesday morning.

Here goes:

1. Dump the Andronico's Community Markets name and go back to Andronico's Markets, which has been the grocer's name since it changed it from Andronico's Park & Shop in the 1980's.

Adding "Community" to the name of the stores add zero-value to Andronico's, its marketing position or operations, in my analysis. In fact, it's a determent. I see it as added word baggage and meaningless semantic clutter.

Customers and residents of the San Francisco Bay Area call the chain "Andronico's," and have done so for decades. Even before the family changed the name of the stores from Andronico's Park & Shop to Andronico'sAndronico's." In fact, that's one reason the grocer dropped "Park & Shop" from the name.

The name "Andronico's" (not Andronico's Community Markets) has brand equity with shoppers in the Bay Area, which is one reason Renovo says they bought the grocer out of bankruptcy. Why mess that up?

Further, the exterior signs on the six stores still say Andronico's Markets. Dropping "Community" from the name will not only fit with what shoppers already call the stores, it will save a ton of cash because it will eliminate the need to buy and install new store signage, which is an expensive proposition, particularly for a fledgling small grocery chain. It's money that should be put to better and higher uses by the new ownership.

Conversely, keeping the Andronico's Community Markets name but keeping the Andronico's Markets signs on the stores, which has been the case for over a year since the name change, creates brand dissonance among consumers. It's also extremely poor marketing and branding.

Additionally, if these two reasons aren't enough - and they are - dumping the Andronico's Community Markets name, which the new executive team created and changed the name of the company and stores to last year, apparently in an attempt to tell shoppers that the grocery chain that's been family-owned and community-based for 82-years was now really community-based, gives the new ownership a great press release headline story.

My press release story headline would read something like this: "Back to the future at Andronico's: New owner takes back the Andronico's Markets' name because it's meant 'community grocer' for eight decades."

Timeline: Launch by Friday, November 4.

2. Evaluate each of the stores ... using a metaphorical microscope.

The San Francisco store (Inner Sunset District) is an excellent location. The new owners need to nurture it.

The Shattuck Avenue Andronico's unit in Berkeley is a good location. The store on Solano Avenue (Berkeley) is decent-to-fair. The Telegraph Avenue (Berkeley) unit is mediocre - but has potential to improve.

The benefit in Berkeley is the three stores give Andronico's brand, advertising and promotional synergy and reach. But the stores have to perform on their own, and do so against major and increasing competition, in order to justify keeping all three open.

Regarding the stores in San Anselmo and Los Altos, unless they're performing better than I'm told (neither has ever been a sales barn-burner by the way), I would put them under the microscope closely. I would be asking 'Would closing one or both of these stores and using the savings to grow business at the remaining stores (and possibly adding a new location) be a better alternative than keeping them open?'

Were I crafting the strategy for Andronico's, there's a scenario I would look at closely.

Here it is: There's a potentially good location available to Andronico's in San Francisco, which is the vacant Delano's IGA Market store (about 15,000 square-feet) in the city's Richmond District. The store, at 6333 Geary Boulevard (at 27th Avenue), has been has been vacant since last year, when owner Harley Delano closed it, along with four other units, because of financial struggles. (see here for details.)

Tesco opened one of its Fresh & Easy markets not far away (at 32nd and Clement) in June of this year. That store has been doing fairly well since opening four months ago.

However, in my analysis the highly populated Richmond District could support a grocery store in the former Delano's building, particularly one that offers a strong mix of everyday grocery items, along with specialty and fresh foods offerings.

One problem with the Fresh & Easy stores is they only offer about $5,500 SKUs in the 10,000 square-feet of selling space. About 65% of those items are the chain's private brands. And of the remaining 35%, about half the items are nationally branded packaged food and grocery items. As a result, most shoppers can't get all they desire at a Fresh & Easy store, particularly when it comes to their favorite national grocery brands.

The former Richmond District Delano's location is just across Golden Gate Park from Andronico's supermarket in the Inner Sunset District. But the distance is such that few if any residents who live in the Richmond District cross the park to shop at the Andronico's, instead shopping at a Safeway supermarket in the neighborhood, along with another unit not far away on La Playa at Ocean Beach, and at the now-opened Fresh & Easy store.

What I would seriously look at would be potentially closing one of both of the two worse-performing (taking into consideration the future performance potential the stores have) Andronico's stores (which could easily be the San Anselmo and Los Altos units or the Telegraph store in Berkeley as I've noted previously) and then putting a new store in the vacant Richmond District Delano's building, assuming the costs of doing so were within reason. A decent monthly lease and the like. (I have no affiliation with the landlord of the building.)

Doing so would give the new ownership five or six stores - three units in Berkeley and two in San Francisco, under the two-store closing scenario, with one additional unit (total of six) under the one-store closing scenario.

Depending on relative performance, keeping the San Anselmo store in Marin County (the one-store closing strategy), which is much closer to San Francisco and Berkeley geographically than the Los Altos store is, would make the best sense from a synergy perspective because the six units would all be located in fairly close geographical proximity.

Berkeley, San Francisco and San Anselmo are all clustered fairly close together. Los Altos is farther out in the South Bay Area, next door to Palo Alto where Andronico's closed the store in July.

The type of store I envision for Andronico's in the former Delano's building is a smaller version (with some differences) of its Inner Sunset-San Francisco supermarket, which is nearly 30,000 square-feet.

The Richmond District-San Francisco Andronico's would carry at least 20,000 SKUs, with a mix of basic groceries, specialty-natural-organic products and fresh prepared foods.

Mollie Stone's Markets, which took over one of the former five Delano's stores, the unit in San Francisco's Castro District, offers that many SKUs in the store, which only has 9,000 square-feet of selling space. The former Delano's in the Richmond District has at least 12,000 square-feet of selling space, based on my estimate.

I would go stronger proportionately on the basic grocery category and item mix (essentials) in the hypothetical Richmond District Andronico's store than Mollie Stone's has done with its store in the Castro District (which has a good mix for the neighborhood) because the Richmond isn't as strong demographically for specialty-natural organic and fresh-prepared foods, a specialty of both Mollie Stone's and Andronico's, as the Castro District neighborhood is.

Were I directing strategy at Andronico's I would use the Castro Mollie Stone's store, along with an edited version of the Inner Sunset Andronico's supermarket, as the basis of my blueprint for the Richmond District Andronico's new unit. The Richmond District neighborhood also has a substantial Asian-American population (primarily Chinese but also others), so I would make sure to focus on the Asian foods category across all of the store's departments, particularly dry grocery, produce and fresh meat.

The hypothetical Richmond District Andronico's in my plan would be very much a basic grocery store - rather than a specialty grocery store with a selection of everyday products - with a major focus on fresh produce and meats, a lot of everyday food and grocery essentials, and a decent selection of specialty-natural-organic items, along with a small but very comprehensive ready-to-eat and ready-to-heat fresh-prepared foods offering, which historically is a category Andronico's has been a pioneer of in the Bay Area and even nationally in the U.S.

Timeline: Start the analysis now. Make a decision fast.

3. Conduct the category and pricing reviews next week. Make changes rapidly.

The new ownership needs to focus more than Andronico's has in the recent past on customizing the store's product mix to location. For example, with the opening last year of the Whole Foods Market store nearby in the Haigh-Ashbury District, Andronico's should beef-up its everyday grocery product offerings at its store in San Francisco's Inner Sunset District. Whole Foods doesn't carry everyday groceries - Tide, Charmin, Kelloggs, Coke and the like - and doing so is a competitive advantage Andronico's should better capitalize on in the store, which is its best-performing unit out of the six grocery markets.

The new ownership needs to look at each of the six stores in this way. Localize, localize, localize, when it comes to product categories and merchandise mix.

Timeline: Begin next week. Implement before year-end.

4. Go back to a weekly advertising circular. Add substance back.

One of the major cutbacks Andronico's made was to reduce its once very substantial weekly advertising circular to one that's a fraction of the former flyer. Its also reduced the promotional frequency of the circular from weekly to about one every three weeks. That won't cut it in the very competitive Bay Area markets where its stores are located.

Therefore, one of the first things I would do is bring back the substantial, weekly circular. However, I would put an equal focus on distributing digital, non-paper versions of the weekly ad - company website, Facebook, ect. - as I would paper versions, which are generally direct-mailed to households our included in Tuesday or Wednesday editions of local newspapers.

Timeline: Break the new, expanded ad for the Thanksgiving holiday sales week. That's about two weeks from today.

5. Hold a "Thanksgiving" community celebration at each store, thanking shoppers for sticking with Andronico's through tough times - and letting them know better days are coming soon.

Timeline: A week before the Thanksgiving Holiday. It is a "thanksgiving" celebration, after all.

This is just a start. But the five action items are good ones for the new ownership to put on the "to do" list, to be tackled starting Tuesday morning. I'll take a look at Andronico's, and my list, again before the end of the year.

Note: In my first column about Andronico's financial difficulties, on May 30, 2011, I strongly suggested to president Bill Andronico and his senior management team that they start using social media, particularly Facebook and Twitter, post-haste, as a low-cost, potentially high-impact way to talk to customers and shoppers specifically about what's going on with the company and generally as a way to communicate about and promote the stores.

Three weeks later, on June 20, Andronico's became active with a Facebook page, and over the last few weeks has been posting a variety of information on it on a regular basis - and doing a good job of it.

Additionally, on July 29 Andronico's set up and account on Twitter - @andronicos1 -  and has benn regularly posting tweets as a way to talk to customers and promote the stores.

I haven't (intentionally) has any direct communication with the members of the Andronico's senior management team, but the timing of the launch on Facebook and Twitter is definitely interesting, based on the playbook I've been suggesting for the grocer.

It's also something the senior management team should have been doing a long time ago. But, as a wise man (or it could have been women) once said ... Better to be late to the party than to have never attended. Social media offers a lot of potential for Andronico's if used regularly and in a creative way.

Related Stories

October 18, 2011: Look for Fresh & Easy Neighborhood Market to Grab Closing University Avenue Andronico's Supermarket in Berkeley CA ... If it Can

October 18, 2011: May-to-October at 82-Year-Old Andronico's Markets: New Owner, 2 Stores Closed ... Now What?

May 30, 2011: 82-Year-Old Grocer Andronico's Needs A Sugar Daddy of Sorts: 'The Insider' Suggest Tesco and its Fresh & Easy Neighborhood Market Might Fit the Bill

>Also see the following links - ,  - for additional related stories.

>You can read all of our 'The Insider' columns at this link -  - along with all past coverage about Andronico's here.

Tuesday, October 18, 2011

Look for Fresh & Easy Neighborhood Market to Grab Closing University Avenue Andronico's Supermarket in Berkeley CA ... If it Can

Breaking Buzz

Companion Story - October 18, 2011: May-to-October at 82-Year-Old Andronico's Markets: New Owner, 2 Stores Closed ... Now What?

Look for Tesco's Fresh & Easy Neighborhood Market to grab the lease on the Andronico's grocery store on University Avenue in Berkeley, California that the new owners of the six-store supermarket chain announced yesterday it will be closing soon, if it can strike a deal to it and the landlord's liking before another grocer does.

Investment firms Renovo Capital and Rosewood Investment Capital, which last Thursday acquired 82-year-old family-owned Andronico's through its $50 million Renwood Opportunity Fund partnership for about $16 million, said yesterday they're closing the University Avenue store, which is one of four Andronico's grocery markets in Berkeley. The closing will leave Andronico's with six stores, three in Berkeley, and one each in San Francisco, San Anselmo and Los Altos.

Andronico's filed for Chapter 11 bankruptcy protection in August, listing debts of $10-$50 million, with assets of about the same amount. Renovco Capital, which among other things provides financing to financially struggling companies, has kept Andronico's operating since August by providing it with about $5 million of asset-secured debtor-in-possession financing.

Fresh & Easy Neighborhood Market has been looking for store locations in Berkeley for some time as part of its launch into Northern California early this year.

So far the fresh food and grocery chain has opened 14 stores in the region, 12 of which are in the San Francisco Bay Area. Berkeley is in the East Bay Area, where almost half of those 14 Fresh & Easy stores are located. Fresh & Easy has no planned locations to date for Berkeley, where space for new grocery stores is difficult to find.

We happen to know from sources internal to and that work closely with Tesco's Fresh & Easy that the University Avenue Andronico's store in Berkeley has been on the El Segundo, (Southern) California 182-store fresh food and grocery chain's radar screen, should it be closed.

Now that Andronico's new owners have announced the closure of the University Avenue store (something our 'The Insider' columnist said in a May column was likely and wrote about in his column today, linked at the top), new owners or not, we're told Fresh & Easy wants the location if it can get it can strike a deal. In fact, according to our sources, both the building's landlord and representatives of the City of Berkeley's economic development department plan to talk to representatives of the grocery chain about the soon-to-be-vacant grocery store as early as this week.

The City of Berkeley's economic development team also plans to reach out to other grocers about taking over the University Avenue Andronico's store, a member of the staff told us yesterday.

In our analysis the location has the potential to be a good one for Tesco's Fresh & Easy.

Iconic grocer Trader Joe's recently opened a new store on University Avenue, not far from the Andronico's location. The Trader Joe's has taken considerable business from the store. However, in our observation and analysis, it was Andronico's overall financial problems that hurt the University Avenue store's sales performance over the last couple years more so that the opening of the Trader Joe's, although it's opening was significant.

In terms of other grocers, the Andronico's location is sort of a mixed bag, depending on the food retailing format. For example, we don't see the Bay Area's three leading grocery chains - Safeway Stores, Save Mart/Lucky or Raley's - being interested in the University Avenue store, which is under 20,000 square-feet.

However, the University avenue location is a potentially good one for natural-organic foods chains like Sprouts Farmers Market, Sunflower Farmers Market and Whole Foods Market. At one time natural foods chain Wild Oats, which was acquired a few years ago by Whole Foods, had a small store (about 5,000 square-feet) on University Avenue near the Andronico's market. But the store was closed over a decade ago as part of then Wild Oats' decision to close what were a handful of stores it operated in Northern California.

The Andronico's location also offers potentially good opportunity for local Bay Area independent grocery chains like Mollie Stone's Markets and Lunardi's, both which operate supermarkets that offer both mainstream groceries and specialty selections.

Both Sprouts and Sunflower Farmers Market have big plans for Northern California, focusing on the Bay Area and Sacramento region. We expect both grocers to look at the site, assuming Fresh & Easy Neighborhood Market doesn't grab the lease this week.

Wednesday, August 31, 2011

Tesco Says Sayonara to Japan, Good Morning to Sacramento



News & Analysis

United Kingdom-based Tesco, which operates 5,400-plus stores in 14 countries, announced today it plans to eliminate its operations in one of those nations - Japan - while expanding its geographic reach across the Pacific Ocean in the Western United States by launching its Fresh & Easy Neighborhood Market chain into the Sacramento, California metropolitan region next year, as we reported it would do in this story on Monday (August 29): Meaningful Move or Too Little Too Late? Fresh & Easy Neighborhood Market Planning Early 2012 Metro Sacramento Market Launch.

The announcement today in the United Kingdom by CEO Philip Clarke, who took over in March of this year from Terry Leahy who during his 14-year term as Tesco's chief executive launched the global retailer into the largest (United States) and third-largest (Japan) countries in terms of total dollar sales of food and groceries (China is second), that Tesco would put its 129 small-format stores in Japan up for sale and exit the market overshadowed the announcement made today by Tim Mason, Tesco deputy CEO and CEO of Fresh & Easy Neighborhood Market, that the 177-store Fresh & Easy chain would enter the metro Sacramento, California market next year, beginning with the opening of six stores.

Tesco's Fresh & Easy Neighborhood Market currently operates as far south in California as the San Diego region, throughout Southern California, in the Bakersfield, Fresno and Modesto metro regions in the Central Valley, in the San Francisco Bay Area and in Vacaville, which is about midway between Sacramento and the Bay Area, along with operating stores in the Las Vegas, Nevada and Phoenix, Arizona metropolitan regions. There are 128 stores in California; 28 units in Arizona; and 21 Fresh & Easy markets in Nevada. (See here, here and here for detailed information.)

Mason, who is based at Fresh & Easy Neighborhood Market's headquarters in El Segundo (Southern), California where he remains CEO of the venture as well as serving as group deputy CEO of Tesco's global operations, a position he was appointed to in March 2011, made the announcement today at a groundbreaking ceremony held on a vacant lot at the future Fresh & Easy store at 34th Street and Broadway in Sacramento's Oak Park neighborhood.

At Mason's side was former NBA basketball star and current Mayor of Sacramento, Kevin Johnson, who's development company sold the parcel of land the store will sit on to Tesco in 2008. Johnson, who is a native of Sacramento and returned home when he retired from the NBA a few years ago, was raised in Sacramento's Oak Park Neighborhood. (See the story linked at top for more information.)

"I'm excited to welcome Fresh & Easy to our neighborhood," Mayor Johnson said at the ceremony today. "Fresh & Easy is not only bringing more good jobs to Sacramento, but also high-quality, healthy food at affordable prices to neighborhoods that don’t always have access to such foods."

CEO Philip Clarke's announcement today across the pond in the UK though is the one that generated the most interest from Tesco's investors and competitors - and the most ink from the press on both sides of the pond. In fact, little if any of the coverage we've seen so far today even mentions the announcement made today by Mason about Fresh & Easy's launch into the metro Sacramento market next year, which we wrote about Monday before the plans were publicly announced by the grocer.

A number of British publications are using Tesco's exit from Japan as a logical news hook however, asking and suggesting that Philip Clarke's next move might be to pull the plug on Fresh & Easy before the year is out.

That's not going to happen, based on our reporting and information, although the exit from the country on the other side of the Pacific Ocean will draw much closer attention from investors and the media to Tesco's U.S. operations than has been the case - expect here at Fresh & Easy Buzz - at least for the next week or so.

Clark said in a statement today Tesco is exiting Japan because the retailer has determined it's unable to build a business in the country of sufficient scale to make a profit.

"We have reviewed our portfolio in Asia and the performance of our business in Japan. Having made considerable efforts in Japan, we have concluded that we cannot build a sufficiently scalable business," he said.  

"We have decided to sell our operations there and focus on our larger businesses in the region, in line with our priority of driving growth and improving returns. I want to thank our colleagues in Japan for their continued dedication to the business. With good stores in good locations across Greater Tokyo, we will be undertaking a formal sale process over the coming months and the business will continue to trade as usual in the meantime."

Tesco has been in Japan for eight years and has lost about £250 million  on the venture.

Unlike in the U.S. where Tesco started up Fresh & Easy Neighborhood Market from scratch, the retailer entered Japan in 2003 by acquiring the C2 Network, which ran stores under the Tsurakame name.

Its 129 stores in Japan are all small-format and trade under the Tsurakame, Tesco and Tesco Express banners.

Annual sales for the 129-store operation are £500 million ($812 million), making it the retailer's smallest operation out of the 14 (soon to be 13) nations it's in. Tesco reported sales of about $818 million for Fresh & Easy in its most recent fiscal year ended February 2011.

Tesco said today about half of its 129 stores in Japan are profitable.

Tesco's about $406 million loss over eight years in Japan pales in comparison to what it's lost in the three years and 10 months its 177-store Fresh & Easy Neighborhood market chain has been in operation in California (128 stores), Nevada (21 units) and Arizona (28 stores). That amount is about double the Japan lose and in less than half as many years. For example, Tesco lost $300 million on Fresh & Easy in its most recent fiscal year ended February 2011.

Meanwhile across the pond at the future store at 34th Street and Broadway in Sacramento's Oak Park neighborhood, Tim Mason announced the first six Fresh & Easy stores the grocer plans to open in the metro Sacramento region in 2012. The locations of those stores are:

>34th Street and Broadway, Sacramento
>Watt Avenue & El Camino Avenue, Sacramento
>Mack Road and Franklin Boulevard, Sacramento
>Lincoln and Sterling Road, Lincoln
>Elk Grove Florin Road and Calvine Road, Elk Grove
>East Natoma Street and Blue Ravine Road, Folsom

As we reported Monday, Fresh & Easy Neighborhood Market is currently targeting early 2012 for the opening of the first one or more of the six stores. Based on our current information, the three units in Sacramento proper are likely to be the first units opened next year. That could change of course.

Five of the six stores are among the first batch of 19 future locations Tesco's Fresh & Easy Neighborhood Market announced in February 2008 it planned to open in the Sacramento/Vacaville region. Of those 19 stores, one unit has been opened so far, the store at Elmira & Nut Tree in Vacaville, which was opened earlier this year.

The Vacaville store is one of 13 Fresh & Easy units in Northern California Tesco has opened this year. Eleven of the stores are in the San Francisco Bay Area. Besides the Vacaville store, the one other unit outside the Bay Area is the store in Modesto.

Interestingly, the unit at East Natoma and Blue Ravine in Folsom, which is a suburb of Sacramento, isn't one of the 19 stores announced in February 2008. There is a store in Folsom on that list, which you can view here, but it's at Greenback & Madison.

The East Natoma and Blue Ravine location was acquired by Tesco's Fresh & Easy post 2008, as were a number of future store sites in the Sacramento area, which we've identified here and here.

On the other side of the Pacific, Tesco said today its putting its 129 small-format stores up for sale.

Based on the division's small market share of less than one half of one percent - which is about the same market share percentage Tesco has with Fresh & Easy in California, metro Las Vegas, Nevada and metro Phoenix, Arizona - and the not so great performance level of the stores (half profitable), we expect the UK-based global retailer to take a fairly serious haircut on any sale it agrees to. Japan's post-earthquake economy, which was so great before the quake and tsunami, also makes buying the stores a less attractive proposition, in our analysis.

Across the pond in the UK today Tesco CEO Clarke took great pains in a conference call with members of the press to downplay any comparisons between the retailer's decision to bow out of Japan and the potential for doing the same with Fresh & Easy in the United States anytime in the near future. He essentially said the two operations are very different in kind and by degree.

There's truth in that statement. But also some spin.

The central reason Tesco gave today for saying sayonara to Japan - that it doesn't see being able to build a business of proper scale and thus become profitable in the country - is a key factor in evaluating Fresh & Easy Neighborhood Market because Clarke, like CEO Terry Leahy before him, along with Tim Mason, all say the key to breaking even and then making a profit with the U.S. chain is to get acheive the proper "scalability" needed to achieve that objective.

That optimum "scale" started out in 2006 under Leahy as being about 1,000 Fresh & Easy stores over five or six years. later Leahy and Tesco amended that amount to around 500 stores during the same period of time.

Earlier this year Clarke said it would take 400 Fresh & Easy stores by the end of Tesco's 2012/13 fiscal year for it to break even with the chain. A couple months later Clarke said Tesco will break even by February 2013 with 300 stores, saying that's what's needed to achieve "scalability."

There are currently 177 Fresh & Easy stores, which is 123 units away from that 300-store magic number. Tesco's fiscal 2011/12 half-year just ended. The retailer will report half-year revenue and the profit/loss at Fresh & Easy in October. It will be interesting to see what the loss is in terms of it being a benchmark to what Clarke and Mason say will be break-even in 18 months, when the 2012/13 fiscal year end in February 2013.

Tesco attempted to achieve "scalability" for eight years in Japan. It's pulling out, having given as the key reason it's inability to achieve it.

Philip Clarke and Tim Mason are on the record as saying the key strategy to breaking even and eventually making a profit with Fresh & Easy Neighborhood market is to achieve proper "scalability." They've now defined that "scale" as 300 stores in operation by February 2013, at which time the two men say Fresh & Easy will break even.

Terry Leahy, considered Britain's wizard of retailing by his peers and most analysts, was wrong about achieving proper "scalability" in Japan, and that was after eight years rather than the five it will be in February 2013 for Fresh & Easy. It was up to Clarke to pull the plug on Japan, which in the greater scheme of things for Tesco globally was the correct move to make in our analysis.

But Leahy is gone and now it's Clarke's turn. And he needs to think long and hard about whether he, like Leahy was about Japan, is wrong about what it's going to take to get Fresh & Easy Neighborhood Market to break even in 18 months, not to mention become a viable business and start making a profit. In our analysis it is, after all, more than a "scalability" issue.

Monday, August 29, 2011

Meaningful Move or Too Little Too Late? Fresh & Easy Neighborhood Market Planning Early 2012 Metro Sacramento Market Launch



News/Analysis/Commentary

Tesco's El Segundo, California-based Fresh & Easy Neighborhood Market is planning to open its first stores in the Sacramento metropolitan region in Northern California early next year, according to our sources, and has recently posted advertisements for store managers on the Internet in advance of its entering what will be a new market region for the 177-store small-format fresh food and grocery chain in 2012.

On Wednesday (August 31) Fresh & Easy Neighborhood Market will hold a ground breaking at the site of what will be one of its first Sacramento-area stores to open next year, at 34th and Broadway in Sacramento's Oak Park Neighborhood. Joining Tesco group deputy CEO Tim Mason, who's also the CEO of Fresh & Easy, and other senior executives at Wednesday's ground breaking will be Ex-NBA basketball star and Mayor of Sacramento Kevin Johnson, who once owned the site of the future Fresh & Easy store in the Oak Park neighborhood where he was raised, along with members of the City Council.

Mayor Johnson's neighborhood

It should come as no surprise to regular readers of Fresh & Easy Buzz that Tesco's Fresh & Easy will kick off it plans to enter the metro Sacramento market with a ground breaking at the Oak Park-Sacramento location Wednesday - or that Mayor Johnson will be attending the event. It's Mayor Johnson's neighborhood after all.

In 2008 Johnson's then Kynship Development Company sold the Oak Park parcel to Fresh & Easy Neighborhood Market for $1.12 million. In December 2008 that deal held up the incoming mayor's swearing-in ceremony for a couple hours, as we reported here - December 3, 2008: Swearing-In of New Sacramento, CA Mayor Kevin Johnson Delayed A Few Hours Over A $2.2 Million Tesco Fresh & Easy Agenda Item.

Johnson was sworn-in though that same day and has gone on to become a very popular mayor in Sacramento, along with drawing national attention. He's also one-half of what is a major political power couple in the making: He will soon get married to Michelle Rhee, the former chancellor of the Washington D.C. Public school system, who is considered a leader, if not the leader, in public school educational reform in America. Rhee's Student's First organization has as its ambitious mission nothing less than the transform of public education in the U.S.

The mayor also has a background in public school education reform. After retiring from the NBA he returned to his hometown of Sacramento and went into business as a developer. He also set up the non-profit St. Hope organization. Among the numerous programs the foundation started a few years ago was a charter school that replaced the then-failing Sacramento High School into what has become a much more successful school than it previously was.

Johnson has focused much of his work with the non-profit St. Hope organization on the low-income Oak Park neighborhood where he was raised. After taking office as mayor in 2008 he severed his day-to-day ties with St. Hope.

He also focused much of his for-profit real estate acquisition and development efforts in the neighborhood prior to becoming Mayor of Sacramento. For example, in March 2008 when the then 42-year old Sacramento native announced he was running for mayor, Johnson owned about 37 properties in Oak Park, as we noted in this piece on March 7, 2008: Former NBA All-Star and Sacramento Native Kevin Johnson is the Driving Force Behind a Fresh & Easy Market in Sacramento's Oak Park Neighborhood. Notice what we said in the very last sentence in the story linked above.

It was in February 2008 that United Kingdom-based Tesco announced its plans to enter the metro Sacramento market region, saying it would open 19 Fresh & Easy stores, including seven units in the city of Sacramento.

The grocer's initial plans were to open the first stores in the Sacramento area in late 2008-to-early 2009. But Tesco's financial struggles with Fresh & Easy Neighborhood Market have resulted in what will end up being an about four year delay of those original plans when the first stores open in the Sacramento market next year if all goes according to current plans.

In early March 2008 Fresh & Easy Neighborhood Market CEO Tim Mason and Sacramento's then-Mayor Heather Fargo, who Johnson defeated in the local election, held a press conference in front the the very same future Fresh & Easy store in the city's Oak Park neighborhood to announce the Tesco-owned grocer's plans to open stores in the city and region.

Tesco's Fresh & Easy finally opened its first Fresh & Easy stores in Northern California in March of this year. It has opened 13 units in the region to date.

Sacramento bound, locations waiting in the wings

The retailer has opened one of those 19 stores, the unit at Elmira & Nut Tree in Vacaville. Vacaville isn't in the Sacramento metropolitan region however. The city is located about midway between Sacramento and the San Francisco Bay Area. It's about a 45 minute drive from Sacramento on Interstate 80.

Besides the original 19 stores publicly announced by the retailer, we've identified five additional future Fresh & Easy store locations the grocer has acquired in the Sacramento metro region since 2008. Those sites are in the following cities: Carmichael (5025 Marconi Avenue); North Highlands (3525 Elkhorn Boulevard); Gold River (2210 Sunrise Boulevard); Granite Bay (8701-8705 Auburn Folsom Road); and Placerville (Missouri Flat Road & Forni Road).

We've also identified three additional future Fresh & Easy store locations in the greater Sacramento region. Those future stores are: Oroville (Butte County), at Goldtown Plaza Center; Sutter Creek (Amador County), Sutter Creek Crossroads at Hwy 104 and Hwy 49 (see here); and Clearlake (Lake County), Hwy 53 and Dam Road. (see here); along with a location in Suisun City (Sunset Center at Sunset and State Highway 12), which is in the Sacramento/Vacaville region.

Tesco's Fresh & Easy Neighborhood Market hasn't publicly announced or confirmed any of these additional locations. However, we've identified them using multiple sources, including filings by Fresh & Easy with the state of California for alcoholic beverage permits and licenses for future stores at each of the locations.

According to our sources, the Oak Park location will be one of the first two or three Fresh & Easy stores to open early next year in the Sacramento region. The Oak Park neighborhood, like San Francisco's Bayview-Hunter's Point where Fresh & Easy opened its newest store in the 5800 Third Street development last week, is underserved by grocery stores offering fresh food and groceries at affordable prices. Such areas have become commonly referred to as "food deserts."

Oak Park is also home to an extremely strong neighborhood organization. In 2008 Dustin Littrell of the Oak Park Neighborhood Association filed an appeal with the City of Sacramento against Fresh & Easy Neighborhood Market's design plan for the store in the neighborhood. Littrell, who's a designer by profession, included in the appeal a number of detailed proposed design changes for the future store at the location, including site changes he says would have improved traffic flow at and around the store.

The grocer fought the appeal for a time. But after the City of Sacramento Design Review Board agreed with most of the neighborhood group's proposed design changes for the store, Tesco's Fresh & Easy made a deal with Littrell and other neighborhood association leaders, agreeing to incorporate the majority of their proposed design changes in its plan; changes that were mandated by the city anyway. Fresh & Easy then closed escrow on the parcel, which it bought from Kevin Johnson's development company. [See - November 17, 2008: Sacramento City Design Board Agrees With Oak Park Group on Design Changes For Proposed Fresh & Easy Store; Escrow Closed on $1.1 Million Parcel.]

We covered and wrote about the Oak Park Neighborhood Association vs. Fresh & Easy Neighborhood Market store design issue extensively. You can read our stories at the following links: , , , .

Why Sacramento now?

Tesco plans to enter the Sacramento metro region with its Fresh & Easy chain early next year comes in a year in which the retailer has been focusing all of its new store growth in California.

Thus far this year it has opened 23 new Fresh & Easy stores, all in California. Of those stores 13 units are in Northern California - 11 of which are in in the San Francisco Bay Area. The other two stores are the unit in Vacaville and a store in Modesto, which is in the Northern San Joaquin Valley. Modesto is about 70 miles from Sacramento. Vacaville is about a 30 minute drive from the capital city.

Fresh & Easy Neighborhood Market also plans to continue to focus its new store growth in the Golden State for the remainder of the year. According to our sources, all the currently planned new store openings for the remainder of this year are in California.

Its been over a year since Tesco has opened any new Fresh & Easy stores in metropolitan Las Vegas, Nevada, where is has 21 units, and metro Phoenix, Arizona, where there are 28 Fresh & Easy markets. In fact, the retailer closed six stores each in the two market regions in November 2010, along with one store in Southern California, for a total of 13 units. (See here for details.)

Our sources also tell us that Tesco's focus in 2012 in terms of new store growth will be almost exclusively in California, where it has numerous future locations in both Northern California (over 50 sites in the area alone), Southern California and the Central Coast, along with a few in the Central Valley.

Entering the Sacramento market though will cost Tesco some money in terms of ongoing marketing and promotional costs, in addition to the nornal operational expenses involved in starting up. The region, where the dominant grocery chains currently are locally-based Raley's (133 stores and about $3.3 billion in annual sales), Modesto-based Save Mart (249 stores and about $5 billion in annual sales) with its Lucky banner supermarkets and Food Maxx discount warehouse stores, and Safeway Stores, Inc. (the fourth-largest food retailer in the U.S. and the overall market share leader in Northern California where it's headquartered in Pleasanton), is becoming increasingly competitive.

[See the numerous stories and analysis at this link -  - for a good primer on just how competitive Sacramento and all of Northern California is fast-becoming.

For example, Sprouts Farmers Market and Sunflower Farmers Market are both focusing on opening numerous stores in the Sacramento region next year. Sprouts currently has two stores in the region, one unit in Roseville and another in nearby El Grove. Sunflower Farmers Market opened its first store in Northern California earlier this year. That store is also in Roseville.

Additionally, discount chain Target has added its "P-Fresh" fresh food and grocery sections to a number of its discount format stores in the Sacramento region and has plans to add more next year.

And Walmart Stores, Inc., the world's largest retailer and leading seller of food and groceries in the U.S., is putting a major focus on the Sacramento metro region with its smaller-format (30,000-60,000 square-foot) Walmart Market stores, having thus far acquired a number of sites for the stores in the region, with plans for more. Walmart also has plans for more supercenters in the Sacramento area.

We expect Walmart to open its first Walmart Market unit in the Sacramento region in early 2012. That first store - or at least one of the first units - will likely be the location at Highway 65 and Second Street  in Lincoln, which is near Sacramento, where Tesco has had a future Fresh & Easy store site (at Lincoln and Sterling) since early 2008. [For more details see - January 10, 2011: Walmart 'Gets Real' With Smaller-Format Grocery Store Initiative in California; First Stores On Tap; and July 6, 2010 story - Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store.

A Fresh & Easy Buzz correspondent recently saw workers inside the vacant former Rainbow Market store in Lincoln tearing out interior materials and loading them into a Walmart Stores truck trailor parked in the parking lot, signaling work has began on turning the building into a Walmart Market grocery store.

A number of other Walmart Market grocery stores - which at their smallest (about 30,000 square-feet as is the case with the Lincoln unit) have three times the selling space as Tesco's 10,000 square-foot Fresh & Easy stores, carry four-to-five times the number of SKUs as Fresh & Easy (which offers about 5,000 SKUS), and offer a full selection of produce, meats and fresh-prepared foods plus in most cases an in-store pharmacy - will be located near the current planned Fresh & Easy Neighborhood Market locations in the Sacramento region.

Sacramento: Continue to pay or start to play

Last year as part of a nearly year-long special report on food and grocery retailing in Northern California we wrote a series of stories about whether or not Tesco would launch Fresh & Easy into Northern California in 2011 (which it ultimately did, opening the first stores in March of this year), starting with this report - April 19, 2010: Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait.

We followed the April 2010 report up with this story - June 26, 2010: Tesco Planning to Announce in July When First Northern California Fresh & Easy Neighborhood Market Stores to Open . Three weeks later on July 18 our 'The Inside' columnist wrote this: July 18, 2010: When it Comes to Northern California - its Competitors are Rome Burning and Tesco's Fresh & Easy Neighborhood Market is Nero Playing the Fiddle.

On July 29, 2010 we reported in this story - July 29, 2010: Tesco's Fresh & Easy Neighborhood Market Putting Together List of Managers Interested in Transferring to Northern California - that the wheels were in motion at Fresh & Easy regarding a Northern California launch.

On August 19, 2010, less than three months after we started reporting and writing about the retailer and Northern California, Tesco's Fresh & Easy announced in a press release it planned to open its first eight stores in the region in March 2011, as we wrote about here: Tesco Will Open its First Eight Fresh & Easy Neighborhood Market Stores in Northern California in 'Early 2011.'

Our analysis throughout 2010 (and long before that) was that Tesco should focus first in Northern California on opening the numerous locations it has in the San Francisco Bay Area. It's done just that - as noted earlier 11 of the 13 stores opened in the region so far are in the Bay Area.

We also said (best described in the July 18 column by 'The Insider') that by waiting to launch into Northern California in 2011 rather than doing so earlier, like in mid-to-late 2009 or even 2010, Tesco was late to the party for a number of reasons, including timing its entry two years late when the region's competitive profile had increased considerably compared to 2009.

But our analysis remains that from a strategic perspective, despite being extremely late to the party it was the right move for Tesco to launch in Northern California, with a focus on the Bay Area, rather than continuing to postpone, which among other things would have meant continuing to pay monthly rents on even more vacant building, plus its mothballed distribution center in Stockton, that it currently is. At least 13 of the more than 50 locations the grocer has in Northern California are open and operating.

This brings us to the metro Sacramento market and 2012.

Basically Tesco is left with two choices: Either start opening its numerous locations in the market region next year or continue to keep them vacant and pay for the privilege. It's chosen to do the former rather than the latter, despite the fact the Sacramento and San Francisco Bay Area regions are very different and distinct markets, although they are geographically close and have some similarities.

More expenses, continued price and margin pressures

Tesco CEO Philip Clarke has said the world's third-largest retailer will break even with Fresh & Easy by the end of its 2012/13 fiscal year, which is just 18 months away. The 2012/13 fiscal year ends in February 2013.

But in our analysis it isn't going to happen for a variety of reasons. First off, on the expense side of the ledger Tesco is spending a considerable amount of money on a variety of changes it's making to its existing Fresh & Easy stores, all of which we were the first publication to report on beginning early this year. Tesco and Fresh & Easy have since publicly confirmed all of the changes we reported on.

The major changes Tesco is in the process of making to its Fresh & Easy stores include: remodeling the store bakery sections and adding small in-store bakeries with ovens; moving the floral departments to the front of the stores; and replacing the reach-in style frozen food cases with more modern and energy-efficient upright frozen food display cases with glass door fronts. (You can see photos of the in-store bakery and upright frozen food cases here.)

Other changes include: resetting the health and personal care sections in the stores; removing the fixed location Kitchen Table in-store food sampling stations and replacing them with mobile units; and adding high-quality faux wood floors to some of the units, such as the store in Manhattan Beach, California, which is the first store to get the floors. According to a source in a position to know, the wood floors cost $75,000-$100,000 per-store.

The source says Fresh & Easy plans to install the floors over the existing cement floors in up to one third of its 177 stores, which if it does will cost a few million dollars. That's a wasteful and non-sales generating expense (even if the floors are only added to 10 stores) for a chain losing so much money - $300 million in Tesco's most recent fiscal year ended in February 2011 - not only our analysis but in our experience in the industry as well.

The wood floor, which we've seen at the Manhattan Beach store and is without a doubt of a high quality, actually looks out of place with the rest of the Fresh & Easy interior package, which is spartan and includes warehouse-style shelving and other more minimal design features. When it comes to grocery store interior design, the whole is always greater than the the sum of its parts, even if those parts are high quality and expensive like the wood floors are.

The numerous changes to the existing stores will cost Tesco many millions of dollars at a time when it needs to control rather than increase its expenses on Fresh & Easy Neighborhood Market.

On top of these fresh expenses Tesco continues to pay monthly rent on at least a score of future store locations in California, Nevada and Arizona which it has yet to open, along with its mothballed Northern California distribution center, which sits empty in Stockton except for the security guard out front who keeps watch on the vacant building every day.

In terms of sales and operations, the markets Tesco has its 177 Fresh & Easy stores in are among the most competitive in the United States - and they're getting even more competitive as new grocers enter them - Winco Foods is coming to metro Phoenix, Arizona in 2012, for example - and existing players open new stores - Walmart's major focus in California with its supercenters and Walmart Market, for example - along with the continued growth of Target, Costco, Safeway Stores, Trader Joe's, Whole Foods Market, Sprouts, Sunflower Farmers Market and a couple other grocers in California - for example.

Add in the continuing poor economy - California, where 128 of the 177 Fresh & Easy stores are located has the second-highest unemployment rate (a bit over 12%) in the U.S. after Nevada, for example, and Arizona isn't much better - along with a state government that's broke.

Analysts don't see the state's economy improving much in 2012, although some areas like the San Francisco Bay Area and coastal portions of Southern California are doing better than the state as a whole is.

As a result, the continuing poor economy - particularly in California where all but 49 of the 177 Fresh & Easy stores are but also in Nevada where the grocer has 21 units and Arizona (28 stores) - combined with the heavy competition in those markets means continued pricing pressure, which in turn means Tesco isn't going to be able to raise retail prices on the products it sells in its Fresh & Easy stores significantly enough to add the much needed margin growth required to break-even with Fresh & Easy by the end of the 2012/13 fiscal year end.

Tesco reported a negative 38% margin for Fresh & Easy for its most recent fiscal year ended February 2011. In contrast, to serve as a comparitive illustration Whole Foods Market recently reported a plus-36% margin for its most recently-ended fiscal year. Whole Foods' has about the highest margin of any grocer. But few if any grocery chains can make a profit with a margin under 20%.

This intense competitive environment also makes it difficult for Tesco to reduce or eliminate the regular use of its deep-discount store coupons which offer shoppers up to 20%-25% off their total grocery purchases. Fresh & Easy has most recently tried to reduce the heavy frequency in which it issues the coupons both online and via direct mail pieces to shoppers homes. However when the grocer does so, the stores see a reduction in sales, which is why, based on our monitoring of the coupon distribution, we've recently seen an increase in the frequency in which the grocer is once again issuing the coupons.

Launching in the Sacramento region in early 2012 - a new market with all the expected an unexpected costs such a launch can bring, particularly to a chain like Fresh & Easy which needs numerous stores in a region to open based on its strategic plan - is only going to add to the cost side for Tesco in terms of its attempt to break even in the next 18 months. Therefore, the launch, coupled with the other factors we've noted above, will in our analysis prevent Tesco from breaking even with its U.S. venture by fiscal 2012/13-end.

No break-even in 18 months

In fact, we will offer a prediction. The prediction is between now and the end of fiscal 2012/13, Tesco CEO Philip Clarke will say publicly that the retailer will not meet its goal of breaking-even with Fresh & Easy by fiscal 2012/13-end, perhaps offering as the "primary reasons" Tesco's decision to make the major changes noted in this piece, along with the continuing poor economic conditions in California, Nevada and Arizona.

Such an announcement, if we are correct, could come as early as October of this year, when Tesco announces its first-half fiscal year financial results. The first half of Tesco's 2011/12 fiscal year end this month. Much more likely though - October 2011 is too early in our assessment - if such an announcement comes, it will come in mid-2012 when Tesco announces the results of the current fiscal year which ends in February of next year.

Of course we could be wrong in our analysis. Tesco could break-even with Fresh & Easy as Clarke says it will 18 months from now. If so we will be the first publication to offer our congratulations and say our prediction is wrong.

Can Tesco make a viable business out of Fresh & Easy?

Meanwhile Tesco will launch into the metro Sacramento region at about the same time next year as when Walmart Stores begins opening the first of what it plans to be numerous Walmart Market smaller-format grocery stores.

At the groundbreaking ceremony on Wednesday at the site of the future Fresh & Easy store in Sacramento's Oak Park neighborhood, Tim Mason, Tesco group deputy CEO and CEO of Fresh & Easy Neighborhood Market, will perhaps announce the locations of one or more additional of Fresh & Easy stores it plans to open first in the Sacramento area, along with the Oak Park unit. (We are working on finding out ourselves.)

Mayor Johnson will be there - the popular former NBA all star who sold that very same parcel of land that will house the Oak park Fresh & Easy store to Tesco - and he and the members of the Sacramento City Council will welcome Tesco to their city with open arms.

Members of the Oak Park Neighborhood Association will also be at the ceremony on August 31. They will celebrate the coming of a store they thought would open at least two years ago, along with celebrating the fact they first began trying to lure a grocer to the neighborhood a number of years before Tesco agreed to come with Fresh & Easy in late 2007-early 2008.

Like was the case in San Francisco's Bayview Hunters-Point, where all the local chains like Safeway Stores and others said no, so to did Raley's, Safeway, Save Mart and others say no thanks to putting a store in Oak Park. Tesco said yes. And in our analysis the location is going to be a good one for Fresh & Easy Neighborhood Market, just as we've said Bayview-Hunters Point will be an excellent location for the grocery chain.

But hanging over Wednesday's ceremony and formal announcement by Tesco's Fresh & Easy that's it's headed to California's capital city of Sacramento will be that most important question, which is can Tesco break-even with Fresh & Easy Neighborhood Market by early 2013, and even if it does can the United Kingdom-based retailer go beyond that most basic metric and eventually turn Fresh & Easy into a viable and profitable food and grocery retailing enterprise for the company in America, having invested about $1.5 billion in it so far and sustaining an operating loss since the first stores were opened in November 2007 that's approaching $1 billion?

We've offered our analysis on the first part of the question, predicting Tesco will not break-even with Fresh & Easy by the end of its 2012/13 fiscal year. The jury remains out for Tesco as to the second part of the question, whether or not it can ever make something viable and profitable out of Fresh & Easy.

But if our prediction about Tesco failing to reach break-even by the end of its 2012/13 fiscal year with Fresh & Easy is correct, Clarke will have to address the second part of the question before then. His decision and that of Tesco's board will be: If Fresh & Easy Neighborhood Market isn't at or very close to break-even by then, does it make financial sense to keep on going or will it be time to pull the plug on Fresh & Easy and stop the losses, instead investing the money back home in the UK, in Central Europe (another growth region) or in Asia, which is where Tesco is putting its most major growth focus on over the next few years?