Analysis & CommentaryTesco's Fresh & Easy Neighborhood Market has downscaled the quality and design of the advertising and promotional flyers it regularly mails out to residents of the neighborhoods around its 110 combination grocery and fresh foods stores in Southern California, Metro Las Vegas, Nevada and in the Phoenix, Arizona Metropolitan regional market.
The grocery chain's most recent promotional flyer (dates: January 14 -to- February 3, 2009), its regular every-three-weeks' piece, is a single page of inexpensive-grade white paper with 35 sale items printed in black ink, rather than the full or two-color flyer printed on quality paper Fresh & Easy has been distributing since it started direct-mailing it's promotional pieces in November, 2007, when the grocer's first batch of stores opened. Like all of its direct-mailed promotional flyers, the current single-page flyer includes one (sometimes the flyers have two and even three) of Fresh & Easy's deep-discount coupons -- in this case a coupon good for $6 off purchases of $30 or more.
The current flyer isn't the first one-pager on inexpensive-grade white paper the grocery and fresh foods chain has sent out either. Tesco's Fresh & Easy distributed a similar (printed on the same plain-grade white paper with the text in black ink) one-page supplemental flyer -- which is often something the grocer does in-between its once every three weeks' regular flyer mailings -- just about a week before it distributed the current January 14 -to- February 3 promotional piece. That flyer didn't contain any specific items with specific promotional prices, just some promotional text about items that have low prices on them in-store. Rather, the flyer seemed to be more of a vehicle for the deep-discount coupon, which was the grocer's $5 off purchases of $20 or more version.
Until now, Fresh & Easy's advertising flyers have been graphically (and thus visually) attractive, printed on high quality stock and featuring two or three colors, including its trademark green, as in the color of its "Fresh & Easy" logo. Additionally, the past flyers have been at least two pages in content (front-back with front-back insert inside) and at times more.
The January 14 -to-February 3, 2009 one-page flyer printed on inexpensive white paper has the following tag line at the top:
"These days we're all about scoring great deals," which is a good enough tag line in terms of the tie-in between touchdowns (Super Bowl) with scoring good deals (at the grocery store). The flyer's promotional item focus being of course on the upcoming Super Bowl and various related "game day" food and grocery items on sale.
There are eight feature items on the current ad flyer's front page. The items are: the fresh & easy assorted fresh meats grill pack, featured @5.99; 1 lb. package of beef franks @99 cents; Taurino beer @6.99 for an 18-pack; a 24-pack of Coke or Diet Coke @5.99; and Lays brand Ruffles or Tostitos Scoops snack chips (14-14.5 oz packages) @2.99. The flyer's front page also features Fresh & Easy's new "98 Cent Produce Packs" -- in this case a 2 lb whole table carrots pack, a 4-count navel orange pack, and a 2-count package of bell peppers, all at 98 cents.
All of those "front page" feature items are in-line price-wise with what other food and grocery retailers are currently promoting in California, Nevada and Arizona. None are what we would call "super hot." But none are way off-base either. But the Coke and Lays chips can be found on sale for less at a number of competing supermarket chains in the three markets. Nearly all competitor grocers also are offering comparable prices, and some even lower, on the other items. The fresh meat grill pack is a strong deal though. But if shoppers use the $6 off coupon in the flyer the added savings can be considerable, especially if they purchase just $30 (the coupon minimum) worth of the sale items.
In contrast, the back of the one-page advertising flyer printed on the inexpensive white paper contains 27 items, including prepared and frozen foods items, snacks, some basic grocery items, and a few household non-foods items.
The front of the flyer looks not too bad from a design standpoint. However, with 27 items printed on the back side of the page, it looks very cluttered, crowded and not extremely attractive in terms of the layout. If Fresh & Easy is going to stick to this one page flyer we suggest it go back to the design table in terms of the sparse look on the front compared to the overcrowded look on the back of the page. It's just not very visually appealing to the eye. And visual appeal is very important when it comes to direct mail advertising pieces, even if they are on inexpensive paper and minimalist in nature.
We understand what the grocer was trying to do in terms of putting just the eight items on the front page as "feature items," then all of the other (27) items on back as sub-feature and line-item ad items. But it doesn't work. There are simple layout changes that can be made though. For example, there's no need to crowd all 27 sub-feature and line ad items on the back of the one-sheet. Instead a mix can be used on both front and back, for example, so that the single-page flyer looks much more visually attractive. The flyer looks like it wasn't given any design thought at all.
From the look of the last two Fresh & Easy one page, black ink on cheap white paper flyers, it appears clear the grocer is attempting to cut its advertising costs. After all, the non-color single sheet costs significantly less across the board than Fresh & Easy's previous higher quality flyers do. Direct mailing a single page also is cheaper than bulk mailing a multiple page flyer.
But we are reminded of the old saying: "Penny Wise but pound foolish." The penny saved being the immediate cost savings, the pound foolish being the loss of impact of the now one-page, cheap white paper flyer.
Based on experience, we can tell readers that there is a cost savings for Tesco's Fresh & Easy in downscaling from its previous higher-quality, color flyer to the new one-pager on inexpensive white paper. But that savings isn't huge. And we question the cost-cutting in such a vital area (marketing-advertising communication) for the fledgling grocery chain.
Notice how nearly every other supermarket chain is maintaining its full-color, multi-page advertising circulars, nearly all of which are much larger and elaborate that Fresh & Easy's in the first place, despite the current economic recession?
The primary reason for their doing so is because in bad economic times like today, competition gets even hotter in the already highly-competitive food retailing business, especially when it comes to price promotions and ad circulars. Therefore these chains -- Safeway, Bashas, Ralphs, Fry's and most others in Southern California, Nevada and Arizona -- are maintaining the quality and size of their respective weekly advertising circulars (they all do weekly, Fresh & Easy does every three weeks) because of the intensification of this competition.
In fact, a number of chains like as Safeway, which operates about 400 stores in Southern California (Vons banner), Nevada (Vons in southern Nevada, Safeway in northern Nevada) and Arizona (Safeway banner) have expanded both the number of pages and items featured in their weekly ad circulars.
Tesco's Fresh & Easy is a new player in these three markets. Therefore it needs to get its advertising and promotional message out at least as much, and in reality more so ,than these established grocery chains do. But instead of doing so with more frequent and bigger ad flyers, it's cutting back to a one-pager. This doesn't make sense to us in terms of the highly competitive nature of the Southern California, Nevada and Arizona markets. It also doesn't make since to us because all of the major competitors are going full-steam ahead with their respective weekly ad circulars, and as we mentioned above, in some cases even increasing the size and depth of the promotional pieces. It also doesn't make sense because Fresh & Easy needs to get more shoppers in its stores. Ad circulars help to do that.
There are a number of places where Fresh & Easy could cut back on expenses. But its our analysis that doing so with its direct-mailed advertising piece at this time in the chain's development is a big mistake. Were the stores thriving, which they are not overall, maybe. But even then with market competition the way it is we believe Fresh & Easy's move just invites a loss of traffic to the stores.
Sure the grocer is still kicking out
its $5 off and $6 off coupons twice to three times each month via the direct mailed flyers. But such coupons aren't not the same thing from a marketing and merchandising standpoint as using weekly advertising pieces to help drive shoppers into stores -- and keep them coming back each week. Consumers compare rival grocers ads, even more so at present then ever before in recent history, then shop more than one store based on the prices.
The deep-discount coupons also come out of Fresh & Easy's hide -- its retail profit margins. In contrast, all of the items offered at discount in grocer's weekly ad circulars, except store brands and in some cases even those, are the result of promotional allowances given to the respective retailers by the manufacturers and marketers of those branded products in turn for the retailers promoting the given items. Manufacturers even pay the retailer's for the space in the weekly ad circulars. For example, Safeway gets a couple thousand dollars for just a mere line-item ad in its weekly circular; thousands more for a feature item. The weekly ad circulars are actually a profit center for chains like Safeway, Ralphs and others.
Tesco's Fresh & Easy gets these supplier deals as well for the items it advertises in its flyers. But since the majority of those items are its store brand, the deals aren't very significant overall for the grocery and fresh foods chain.
Regarding
the deep-discount coupons, when a shopper uses a $5 off Fresh & Easy coupon for a $20 purchase, which results in a 20% savings for the shopper, that 20% comes directly out of Fresh & Easy's profit margin on the items that comprise that $20 purchase. That's a tough nut because after that 20% there isn't much margin leftover.
By relying so much on the store coupons rather than item advertising and promotion, Fresh & Easy is hurting itself in two key ways, as we've suggested in
Fresh & Easy Buzz in past stories: It's building a shopper reliance on the coupons (the grocer has been distributing them regularly since the first store opened in the fall of 2007) and it's diminishing its profit margins because instead of infrequent (read promotional rather than regular) distribution, and thus infrequent shopper use of such
deep discount coupons, Fresh & Easy customers have them in-hand nearly always and use them regularly.
Just ask Fresh & Easy store employees how much grief (mostly polite grief though) they've been getting from customers in-store because the grocery chain is now trying to distribute the deep-discount coupons only via the direct mail flyers and periodically online at its Web site, instead of giving them away liberally in the stores, which is something the grocer did from November, 2007 until just a couple months ago. Some stores still are giving the coupons out in-store in a limited fashion. Most have stopped though, as directed by company management. Headquarters just doesn't send the stores any, in other words.
Numerous customers have told us, and have commented on various Web sites, including Fresh & Easy Neighborhood market's own Web site Blog and its site on Twitter.com, that they either are no longer shopping in the stores or doing so far less frequently because of the now more limited availability (read not by the handfuls in-store) of the $5 off and $6 off deep discount coupons.
It's our analysis that instead of downscaling to a one page, once every three weeks flyer printed on cheap white paper, Tesco's Fresh & Easy should move away from its reliance on these deep discount coupons to developing and implementing a regular advertising circular program -- a once a week ad circular similar to what Safeway, Ralphs, Bashas, Stater Bros., other chains and nearly even every single-store independent grocer does.
Fresh & Easy should then include the deep-discount store coupons far less frequently in the weekly advertising circulars, and offer them for far less periods of time.
Store coupon mini case study: Raley'sPerhaps the grocer should take a page from the Sacramento, California-based
Raley's supermarket chain which in October and November of 2008, and again earlier this month, offered two store coupon versions: A $10 off purchases of $50 or more and a $25 off purchases of $100 or more.
The Raley's deep-discount store coupons are good only for Friday, Saturday and Sunday -- key shopping days and thus days in which all grocers want to take business away from competitors, along with keeping regular customers from going to competitors' stores on. This strategy not only creates a promotional incentive for consumers (coupons good only for three days), it also limits a grocery chain's margin loss exposure to sales only on those three days. And remember they are key shopping days, so the supermarket chain really isn't hurt by limiting the coupon's shelf life to only three days.
In contrast, the Fresh & Easy deep-discount store coupons are good for two or more weeks at a time. Having such long expiration dates on these types of coupons reinforces the "regular" nature of their use. (I don't have to use them today, or tomorrow, or even next Monday since they are good for a couple weeks.)
Many consumers have been "trained" by the way Tesco's Fresh & Easy uses these coupons -- the regular rather than promotional nature of how they distribute them -- to believe the coupons are a regular way of doing business for Fresh & Easy instead of a limited nature promotional device. That's not a good thing for a grocer. And its why so many consumers are complaining about not being given one, two and even at times three of the deep-discount coupons after every Fresh & Easy store purchase, as was the case until a couple months ago.
The Fresh & Easy ad flyer - and store couponsIt's our analysis that if Fresh & Easy moved to a more frequent (weekly would be best) schedule with its advertising circular program, in addition to scrapping the new one-page flyer in favor of something more like what its competitors' are and have been successfully using for years (doesn't have to be the same, creative is good), it could eventually wean consumers (and its present coupon-focused retailing model) away from the regular deep- discount coupons, which we know the grocery chain wants (and needs) to do in a big way.
Fresh & Easy can still use a version of the deep-discount coupons but run them in what now would be the weekly advertising circular less frequently -- say every other week to start. The grocer could also limit the shelf-life of the coupons, say similar to what Raley's is doing with its "Good only Friday, Saturday, Sunday" store coupons. The Fresh & Easy weekly ad flyer could come out each Tuesday or Wednesday, like its competitors ad circulars do, and have the coupon kick-in starting Friday, running through Sunday, for example. The grocer also can experiment with which days the coupon is good for, as well as alternate such days and see what happens.
Doing this also would allow Fresh & Easy to play around more with the coupon "coupon value -to- purchase ratio." One of the key objectives of using such store coupons -- although few grocers use them at all and those like Raley's that use them do so only in a very limited way -- is to get shoppers to buy as much dollar value of groceries as a grocer can achieve if the customer is using the coupons. Doing so reduces the margin loss for the grocer. It also raises the market basket (average size of customer purchase) for the grocer. Achieving the latter is one of the few justifications actually of using such deep-discount coupons.
An example of reaching for the optimum " coupon value to purchase ratio" is: If Fresh & Easy Neighborhood Market store "Shopper A" uses the $5 off purchases of $20 or more coupon, and buys just $20 worth of groceries, that's a 20% savings for the customer -- and in Fresh & Easy's case it's 20% less than the grocer would have made on the purchase had the shopper not used the coupon. But if "Shopper B" uses that very same coupon but purchases $40 worth of groceries, that's a 10% savings for her -- and a loss of only 10% for Fresh & Easy had "Customer B" not used the coupon for her $40 purchase.
Conversely, creating a coupon that offers $10 off $50 or $25 off $100, like Raley's is doing at times, sets the purchase ratio higher by design, which in our analysis and experience is superior. You don't create a consumer reward ($5 off or $6 off) for merely spending $20 or $30 in the store, which is an OK amount for a convenience store but not a grocery market, but rather up the ante -- spend $50, get $10 off, spend $100 (which isn't much at the grocery store today), get $25 off.
Therefore two things are key for grocers in this regard if they use such deep-discount store coupons: That they find the best "coupon value -to- purchase ratio" combination for the coupons, and that they get more shoppers into the stores who's purchases exceed the coupon limit ($20 in the case of the F&E $5 off coupon).
This is why in Raley's case it's using the $10 off $50 and $25 off $100 store coupons. It wants to (1) limit its customer universe of coupon users to those who are willing to buy at least $50 worth of groceries at a single purchase and (2) get as many consumers as possible to use the $25 off $100 coupon (that's why it offers a higher percentage savings than the $10 off $50 version) because even though it features a savings of $5 more, the $100 purchase (double the $50) is worth it for Raley's because the added dollar volume offsets the additional $5 in shopper savings.
Also, the coupons are an infrequent and limited promotional tool for Raley's. It big media-oriented promotional tool is its about 12-page weekly, full-color advertising circular, which it distributes using a combination of direct mailing and insertion in the Tuesday editions of the major daily newspapers in its market regions, which include most all of Northern California and the northern Central Valley.
Raley's is a privately-held chain based in Sacramento, California. It operates 130 supermarkets and warehouse stores. The chain had annual sales of about $3.6 billion in 2008.
Fresh & (ad flyer) downscalingBut for now it appears Tesco's Fresh & Easy has decided to downscale its promotional outreach efforts to customers and potential customers by going to its new, one-page advertising flyer printed on inexpensive white paper.
We believe the move is a wrong one for the grocery chain at this time.
It's been a consistent practice among the vast majority of U.S. supermarket chains, and even independent grocers, beginning with the serious recession in the late 1970's, through the equally serious 1982 recession, and in the less serious but real recession in the early 90's and in the 2001-2002 recession, to not cutback in the areas of retail marketing, promotion and advertising, including downscaling the quality of their advertising circulars and other media in a dramatic way like Tesco's Fresh & Easy has done.
In fact, these have been, and are currently to date in the present serious recession, the last areas the vast majority of U.S. grocers cutback or downscaled in. Instead, grocers look to cut in other places, only doing so in retail marketing, promotion and advertising when most other areas are exhausted.
We shall observe closely when the new Fresh & Easy advertising flyer comes out next week (it begins after February 3) to see if the last two flyers are just an experiment in downscaling or if they are the new norm.
Minimalism is fine - but by designLastly, we aren't against minimalism, as long as it is done by design. The one page Fresh & Easy flyer doesn't look like there is much thought or strategy behind it. After all, it's one piece of inexpensive white paper with sale items printed on it in black ink.
If the thought is to go minimal -- which could be a great marketing strategy in this down economy -- why not go minimal by design and strategy?
For example, why not a four page ad flyer in just black and white? Use inexpensive newsprint and make the flyer look like a black and white newspaper. Well designed but minimalistic. Call it the
"Fresh & Easy Thrifty Flyer." Tout it as a minimal and simple advertising flyer for tough times. A potential tag line: "We made tor new flyer out of newsprint and are doing it in black and white because by doing so we can bring you even lower prices in our stores during these tough economic times." Use the media to help convey the message.
There are obviously better ideas than ours. It's merely an object lesson in what we mean by minimalism by design. Our point is minimalism by strategic design can be a very good (think about the old Volkswagon automobile ads) strategy and practice, but seldom is it so when its minimalism by default -- such as reverting to using a single page of white paper as a promotional and advertising flyer.
Marketing is everything a retailer does -- from its stores to its advertising flyers -- and more. Integration is key. We don't see any of those things in Fresh & Easy's new flyer: It's just a piece of white paper with the advertised items printed on it in black ink. Something is amiss.
{Tesco's Fresh & Easy also posts its advertising flyer online at its Web site. You can view the current online flyer here. Nearly all supermarket chains and many independents post their advertising circulars on their Web sites today. When the day comes when grocers can get the majority of consumers to go online regularly for thier ad circulars, that will be a day when all grocers are able to save a ton of money, eliminating the expense of laying out, printing and distributing the promotional pieces. And perhaps reflecting some of that savings to consumers by lowering prices in the stores? But we don't see that day coming in the immediate future.}
Tesco's Fresh & Easy Neighborhood Market distributed its third once-a-week frequency advertising flyer today. The promotional ad flyer, good from March 11-24, 2009, features the five fresh produce items (98-cent produce packs) above, along with other food and grocery items.
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