Tim Ashdown Named CEO at Tesco's Fresh & Easy

Breaking News ... Plus Analysis

Tim Ashdown, the former CEO of United Kingdom-based Tesco's Asia operations, who's essentially been running Fresh & Easy Neighborhood Market as its chief operating officer since arriving in May of this year, has been named CEO of the El Segundo, California-headquartered chain, replacing Tim Mason who departed Fresh & Easy and Tesco, where he was deputy CEO and chief marketing officer in addition to being CEO at Fresh & Easy, this week as part of Tesco CEO Philip Clarke's decision to exit the U.S. by either selling the 200-store grocery chain as a whole or in pieces, or if that fails, closing its doors.

Ashdown, who is responsible for the various changes (like testing full-service checkout in two stores) and workforce reduction measures at Fresh & Easy over the last eight months, was named CEO yesterday. The announcement was made to employees at Fresh & Easy's corporate office in El Segundo. Tesco's CEO, Philip Clarke, has been in Southern California this week.

Ashdown's key task as CEO, in our analysis, is to keep Fresh & Easy on life support until Clarke and Tesco's board can, the hope, find a buyer for the chain, which opened the doors of its first store in November 2007. That first store, in Hemet, California, has since been closed, along with 23 other Fresh & Easy units , because it failed to come even close to meeting the weekly sales numbers needed to continue in operation.

Tesco, which truth be known has no idea what to do with Fresh & Easy - and hasn't for a number of years -  has hired the Greenhill investment firm to find a buyer for the chain. Failing to do that, Greenhill, which is also the firm trying to find a buyer for Supervalu, Inc., has been charged by Tesco to come up with other alternatives, which include selling the stores and the massive Riverside, California distribution center (and related campus properties) piecemeal.

Greenhill, which actually has been working on the project for some time, is going to have a difficult time of it. For example, only about 20% (30-40 units) of Fresh & Easy's 200-store base are in the black - and not by much. Additionally, many of those money-losing remaining 150-plus stores are bleeding tons of red ink, so much so that Tesco reduced the operating hours of 30-plus stores earlier this year, as we reported exclusively in Fresh & Easy Buzz.

Ask yourself this: Would you buy a grocery chain with only 30-40 of its 200 stores in the black?

Selling the stores piecemeal will be no easy task either. Only a few of the 200 units have sales of $150,000 or more per-week, for example. A few more are doing around $100,000 in average weekly sales. Still others, the bottom tier, aren't even close to approaching weekly sales of $100,000.

The 850,000 square-foot distribution center in Riverside is also a white elephant, which continues to bleed red ink for Tesco. The campus was built for a chain of 1,000 stores doing at least $3 billion a year in annual sales - and with a profit. There are 200 Fresh & Easy stores. Annual sales is a bit over $1 billion.

The facility is also custom-built for the "Fresh & Easy" way of doing business, logistics and distribution. It should eventually sell, but at a very low price, in our analysis.

Tesco of course wants to sell Fresh & Easy as a whole. Good luck.

As we've reported exclusively, discount grocer Aldi (we're still looking for another publication to do some reporting on what is a major development) plans to enter California in 2013. Aldi has an interest in some Fresh & Easy stores and the distribution center, according to our multiple sources. However we would be stunned were they to buy the entire Fresh & Easy operation, unless they get it at a fire sale price, which is possible.

Discounter Dollar General, which is opening numerous dollar stores and Dollar General Market grocery stores throughout California, Nevada and Arizona - the three states where Fresh & Easy does business - also has an interest in the chain. Again we would be stunned if Dollar General were to acquire Fresh & Easy as a whole. Dollar General has been acquiring vacant buildings for its stores in the three states on the cheap. The discounter also has a distribution center in Bakersfield, so doesn't need the Riverside facility.

Bottom line: We predict Tesco will have no choice but to sell Fresh & Easy off piecemeal; groups of stores and single stores, along with marketing the distribution center individually, or perhaps as a package along with a group of stores.

Tesco also has more than a score of Fresh & Easy locations sitting fallow; some with completed but empty stores, others undeveloped locations. It's nightmare; so many leases for so many fallow properties are out there we suspect many landlords are not getting all that much sleep this week.

There is interest out there for some of the Fresh & Easy stores. For example, more than one commercial real estate agent specializing in retail properties has contacted Fresh & Easy Buzz, seeking information about the chain and its stores. Our take from these interactions is that many retailers out there think they can get some stores for a huge bargain.

We've also been asked questions - looking for an informed and objective third party we take it - from representatives a couple retail chains, who are gleaning information about individual Fresh & Easy stores.

We also know of one party that has proposed a joint-venture of sorts with Tesco. In our analysis, it wouldn't fly.

But back at the ranch in El Segundo, Fresh & Easy's new CEO, Tim Ashdown, who's had a trial by fire since arriving in sunny and recently rain-soaked California in May - we reported his being moved from Asia to California exclusively here [ May 2, 2012: Reshuffling at the Top at Tesco: Retail Chief Adams Leaving Fresh & Easy For Turkey; China CEO Ashdown to Replace Him; Richie to Head China Operations] - has plenty more fire to wade through. We suggest a truckload of own brand, perhaps "Tesco's Finest," fire extinguishers might be a good idea.

Ashdown's biggest task, as we've said, is going to be keeping Fresh & Easy on life support between now and about March-April 2013, which is the time CEO Clark and the Tesco board hope to be able to dispose of Fresh & Easy - one way or the other.

Related Stories

December 4, 2012: The End is Here For Fresh & Easy: Mason Out as CEO; Tesco To Figure Out How to Exit U.S.

December 4, 2012: The End For Tesco's Fresh & Easy is Here

August 8, 2012: Fear & Loathing in the Aisles: Reduction in Hours and Selected Firings Begin Today at 33 Fresh & Easy Stores

July 28, 2012: Fresh & Easy Neighborhood Market Planning Major Renovations at Two California Stores

July 28, 2012: Fresh & Easy Neighborhood Market to Test Full-Service Checkout at Two California Stores

July 26, 2012: Fear and Loathing in El Segundo: Mass Firings, Reduction in Store Hours at 33 Fresh & Easy Stores ... and More

June 4, 2012: West Coast Bound - Aldi USA Headed to Southern California; First Stores to Open in 2013

April 10, 2012: Dollar General's California Dream Becoming Reality

Fear & Loathing in the Aisles: Reduction in Hours and Selected Firings Begin Today at 33 Fresh & Easy Stores

The Insider - Heard on the Street

Tesco's Fresh & Easy Neighborhood Market began terminating selected store-level employees, mostly but not exclusively regular grocery clerks called Customer Assistants, today at 33 of its 199 grocery markets in California, Nevada and Arizona.

I learned this while visiting a number of Fresh & Easy stores in two states yesterday and today.

I also verified it with a number of store-level Fresh & Easy Neighborhood Market employees, including two who were fired today.

In this July 26, 2012 piece, Fear and Loathing in El Segundo: Mass Firings, Reduction in Store Hours at 33 Fresh & Easy Stores ... and More, I reported exclusively that Fresh & Easy Neighborhood Market planned to reduce the operating hours at 33 of its stores from the retailer's normal 8 a.m.-10 p.m. hours to 9 a.m-8 pm, beginning soon.

That day is here: I also learned during my store visits yesterday and today that the reduced hours at the 33 stores are effective today. Instead of the previous 8 a.m.-10 p.m. operating hours, the doors to these 33 Fresh & Easy markets now officially open at 9 a.m, and close at 8 a.m.

I'm not aware of one grocery chain (read competitor to Tesco's Fresh & Easy) in California, Nevada and Arizona. In fact, many stores operated by the leading chains in the three states, such as Safeway, Kroger Co., Supervalu, Save Mart, Albertson's LLC, Stater Bros. and others, keep many of their respective stores open 24-hours. The stores not open 24-hours close generally at 11 p.m or midnight and open at 7 a.m.

Grocery stores that are doing well don't close at 8 p.m., unless they're doing so well that opening them any later would prove to be an embarrassment of riches to a modest grocery retailer. And grocers who want their stores to do well don't close them at 8 p.m.

Additionally, for those not experienced in the food and grocery retailing business, if a grocer decides to close a bunch of stores, like 33 of its 199 units, at 8 p.m. rather than the previous 10 p.m., you can take it to the bank the company CEO has very little if any faith in the future potential of those stores. If that's not the case, then he just doesn't understand the grocery business.

The selected store-level layoffs are a part of the reduction in hours program at the 33 Fresh & Easy stores.

Since the stores are opening one hour later and closing two hours earlier, less employees are needed.

Some of the workers at the affected stores are getting transfers to other Fresh & Easy markets.

Other employees at the 33 stores are getting their hours cut, in many cases down to 20 hours a week, which is the minimum they are required to work in order for the grocery chain to pay the 70-75% employer contribution for the workers health insurance policies.

Over the last five years of its operation (the first stores opened in November 2007) most Fresh & Easy Customer Assistants, who are hired part time and guaranteed 20 hours a week at the time of hire, have worked more than the minimum guaranteed hours at the request of either store management or themselves. Few employees have worked just 20 hours a week over the last five years Fresh &Easy has been in operation.

Cost-cutting strategy

The reduction in store operating hours and related reduction in store employee hours, along with the layoffs of the Customer Assistants and others I'm telling readers about today, is all about reducing labor and related costs for Tesco's Fresh & Easy.

The store-level cuts go hand-in-hand with the termination of about 50 employees in one day at Fresh & Easy Neighborhood Market's corporate headquarters in El Segundo, California, which I wrote about here on July 26.

Battles and wars

The cost-cutting comes now, in my analysis and opinion, because Tesco's fiscal half-year ends in about a month. Tesco must show its making at least a minimum reduction in its losses, $245 million for the most-recently-ended fiscal year (ended February 2012), when it reports its fiscal half-year results this fall.

Prior to making the cuts at its corporate headquarters in late July and the store-reductions I'm describing in this piece, Fresh & Easy Neighborhood Market was not on track to show any significant improvement in its half-year performance over the previous half-year, based on my reporting and analysis.

Since the cuts come so near the end of the half-year, I don't expect Tesco to report a major reduction in losses for the half-year in relation to the $245 million it lost in its most-recently ended fiscal year. It will be interesting to see - and more cuts are coming - what Tesco does report as a loss for Fresh & Easy for the half-year.

Breaking even with Fresh & Easy, which Tesco says it will do so by the end of its 2014 fiscal year, which is less than two years away, is only part of the story for Tesco - it's the battle but not the war. And it's the war that truly matters. Despite winning many battles a war can still be lost.

For Tesco, continuing my battle vs. war analogy, the war boils down to this question: Does Fresh & Easy have a future as a viable and profitable grocery chain?

That's a question I will be addressing in one of my next columns.

-The Insider

[Editor's Note: 'The Insider' isn't a literal or descriptiive title for our columnist. Fresh & Easy Buzz is an independent Blog, and is not affiliated with Tesco, Tesco's Fresh & Easy Neighborhood Market, or any of its competitors. No member of the Fresh & Easy Buzz editorial team has ever or currently works for Tesco or its Fresh & Easy Neighborhood Market chain.]

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

Breaking Buzz & Analysis

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

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

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

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

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

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

Analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[Editor's Note: Fresh & Easy Buzz is an independent Blog, and is not affiliated with Tesco, Tesco's Fresh & Easy Neighborhood Market, or any of its competitors. No member of the Fresh & Easy Buzz editorial team has ever or currently works for Tesco or its Fresh & Easy Neighborhood Market chain.]

Fear and Loathing in El Segundo: Mass Firings, Reduction in Store Hours at 33 Fresh & Easy Stores ... and More

The Insider - Heard On the Street

Regular followers (and if you aren't one, you should be) of our Fresh & Easy Buzz Twitter Feed are aware that for the last couple months we've been reporting there in real time on numerous interesting developments at Fresh & Easy Neighborhood Market's corporate headquarters in El Segundo, California - near-daily closed-door meetings in the offices of the CEO and retail operations chief, and the increasing use of interns to staff various positions, for example.

These developments, and two big ones announced to employees at yesterday's weekly staff meeting, are all about Tesco's struggle to stop the financial bleeding at now five-year-old Fresh & Easy, and its attempt to make good on the promise made by CEO Philip Clarke that the United Kingdom-based retailer will break even with Fresh & Easy Neighborhood Market by February 2014.

Clarke, a Tesco lifer (he started as a teenager stocking shelves) who became CEO of the global retailer in March 2011, said shortly after assuming the corner office from Terry Leahy that Tesco would break even with Fresh & Easy by February 2013. However, he added a year to his promise earlier this year, after Tesco reported a $249 million fiscal year loss at Fresh & Easy, which was a mere $4 million less than it lost on the grocery chain two years prior.

Mass Firings
Yesterday Fresh & Easy issued pink slips to between 40-50 employees at its corporate headquarters in El Segundo. The firings are designed to help Tesco cut its way to break-even with what former CEO Terry Leahy hoped and insisted (he still says it will be a success) would be the global retailer's American dream - Fresh & Easy.

But in the five years since Tesco launched Fresh & Easy it has invested around $2.3 billion and lost about $1.5 billion on the fresh food and grocery chain. The losses continue to the tune of nearly $5 million a week.

Tesco's original plan was to have at least 500-600 Fresh & Easy stores operating by now, on the way to 1,000 units in six to seven years from the November 2007 launch. Five years on there are 199 Fresh & Easy stores in California, Nevada and Arizona.

The firings yesterday were across the board rather than focused primarily on the real estate department as Tesco and Fresh & Easy's public relations representatives told various publications who reported it that way. There is a focus on real estate and construction but employees let go span the departments, from IT and operations to commercial.

Reducing Hours at 33 Stores

In a second attempt at cost-cutting - and this is the first time it's being reported anywhere - Fresh & Easy plans to reduce the store hours at 33 stores beginning soon. At present plans call for opening those stores at 9 a.m. instead of 8 a.m., and closing the poor-performing grocery markets at 8 p.m. instead of 10 p.m. Currently the standard hours for all stores is 8 a.m. (a few units open at 7 a.m.) to 10 p.m.

As part of this move, there will be some store-level firings and reductions in worker-hours at the 33 Fresh & Easy stores. Fresh & Easy Neighborhood Market, which hires all its store-level non-management workers on a part-time basis, has already been reducing hours of store employees chain-wide as part of its cost-reduction program designed to help it stop the bleeding at the fledgling grocery chain.

I'm also told by sources in positions to know such things that Fresh & Easy plans to cut some store-level jobs in existing units (besides the 33 stores) that have workers who came on board from the nearly 30 Fresh & Easy units that have been closed over the last couple years. Fresh & Easy absorbed these employees from the closed stores, which added to its labor costs.

And More

An additional move - what I call tinkering around the edges in terms of cost-cutting - Fresh & Easy also plans to eliminate the "Kitchen Table" food sampling stations in the few stores where they remain. (The grocery chain started a program to eliminate these stations in 2011 and replace them with mobile carts but still has some stores with the fixed food sampling kiosks.) The "Kitchen Table" fixed-kiosks are staffed full-time by an employee, hence their elimination in stores where they remain.

The headquarters firings have been a long time coming. Why? Not because the workers didn't do their jobs but because, as we've been saying regularly for years in the blog, the Fresh & Easy model and business just doesn't, in its present incarnation and management, have the legs to achieve break-even in any other way but by making massive operational expense cuts -- and that's what Tesco has essentially concluded. Fresh & Easy has also from the beginning been overloaded with senior and middle management for a chain its size.

Meanwhile, moral at Fresh & Easy's corporate office in El Segundo is lower than it's ever been, according to numerous employees who work there, despite whatever spin its CEO and public relations staff may put on it. I know of numerous employees there looking for new jobs. Some have even created a saying, "The interns are taking over," reflecting Fresh & Easy's growing use of the college students and recent graduates throughout the headquarters operation.

Moral is down at store-level as well. For example, I know of a group of top managers who, frustrated by Fresh & Easy senior managements inability to improve the chain's performance, have been meeting to talk about whether or not they have a future at the grocery chain.

Here's what one store manager told me today, in fact: "Having talked to many store managers today, the feelings are not good.  Most of the talk is around what we should do. Stick it out or get out now?  The consensus was it's time to start seriously looking. A few people are hoping to be bought by someone else."

The firings at corporate headquarters and other changes detailed in my piece are just the beginning at Tesco's Fresh & Easy. More cost-cutting is coming, as are other changes.

The cost-cutting is all about Tesco being able to show some progress in terms of reporting less of a loss (than last half year) for the upcoming fiscal half year. If it achieves that, Tesco can tell the many investment firm analysts who follow it, who will then report it to their investor-clients, that progress is being made. CEO Clarke needs this because it's crunch time - he can't remain credible if he were to change the break-even date for Fresh & Easy once again, say to February 2015 instead of February 2014, for example.

But CEO's are supposed to be big picture, policy guys - that vision thing, as former U.S. President George H.W. Bush liked to call it - not bean counters. Therefore, Philip Clarke should be asking himself one central question, which is: 'What is my vision for Fresh & Easy Neighborhood Market in America and how can Tesco achieve it?' But what, in my opinion, Clarke is probably asking himself is this: 'Can I get Fresh & Easy to break-even by February 2014, as I've publicly said I would, and then find a buyer for it?'

-The Insider

[Editor's Note: Fresh & Easy Buzz is an independent Blog, and is not affiliated with Tesco, Tesco's Fresh & Easy Neighborhood Market, or any of its competitors. No member of the Fresh & Easy Buzz editorial team has ever or currently works for Tesco or its Fresh & Easy Neighborhood Market chain.]

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

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

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

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

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

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

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

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

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

Green light for Fresh & Easy Express

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

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

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

Los Angeles County: Fresh & Easy Express' ground zero

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

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

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

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

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

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

Related Stories

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

Reader Resources

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

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

Breaking Buzz

Yesterday we broke the news that Tesco will close up to 12 of its 184 Fresh & Easy Neighborhood Market grocery stores in California, Nevada and Arizona. [Read the story here - January 8, 2012: Tesco to Close Up to 12 Fresh & Easy Stores.]

Today we can report that Tesco's Fresh & Easy Neighborhood Market plans to close 12 underperforming stores - seven units in California, four grocery markets in metro Phoenix, Arizona and one store in metro Las Vegas, Nevada.

Below are the addresses of the 12 Fresh & Easy stores to be closed:

California

>Fresno: Cedar and Shields
>Bakersfield: H and Planz
>Hemet: Florida and Lyon
>Anaheim: Lincoln and Western
>Baldwin Park: Francisquito and Puente
>Fountain Valley: Harbor and Edinger
>Ontario: Riverside and Archibald

All the stores, except for the Fresno and Bakersfield locations, which are in the Central Valley, are in Southern California

Arizona

>Phoenix: 7th Street and Thunderbird
>Phoenix: 19th Avenue and Glendale
>Phoenix: Camelback Road and 83rd Avenue
>Phoenix: 32nd Street and Greenway

Nevada

>Las Vegas: Ann and Decatur

The store closures were announced to employees of Fresh & Easy Neighborhood Market by CEO Tim Mason today.

In making the announcement Mason said this: " Like any retailer, we are always evaluating our store portfolio and we have decided to temporarily close twelve underperforming stores. At this time, there is simply not enough growth in sales and customers to keep these stores open. Many have been open for several years and are trading in areas where the network of Fresh & Easy stores will be able to absorb most of the existing customer base. We have taken significant steps to minimize the impact these temporary closures will have on you, including making sure we are able to offer all impacted employees a position at another nearby store."

As you can see in the paragraph above, Mason calls the store closures "temporary." He used that word because Fresh & Easy plans to "mothball" the 12 stores like it did with the 13 units it closed in November 2010. All 13 of those stores remain closed and are vacant.

Mason also told employees in today's announcement that although the retailer is closing the 12 stores, Fresh & Easy plans to "open more than two dozen through March, including seven new Fresh & Easy Express stores in Los Angeles and Orange counties and our first five stores in the Sacramento market."

The first batch of those two dozen-plus new stores are set to open on Wednesday.

Neither Tesco or its Fresh & Easy Neighborhood Market chain has publicly announced the closure of the 12 stores listed above.

Tesco has now closed 25 Fresh & Easy stores since it launched its El Segundo, California-based small-format fresh food and grocery chain in November 2007, when the first batch of stores were opened.

Six of the 13 Fresh & Easy stores Tesco closed in November 2010 were in metro Phoenix, Arizona and metro Las Vegas, Nevada respectively. One store was in Southern California.

With the closing of the four Fresh & Easy units in Phoenix, Tesco will have just 24 stores in Arizona, down from a high of 34 units in October 2010, before the six stores were closed in November of that year.

There are currently 135 Fresh 7 Easy stores in California. Closing the seven stores will reduce the grocer's store count in the state to 128 units, but only until Wednesday when Fresh & Easy Neighborhood Market will begin opening the first batch of what will be a couple dozen new stores in California over the next few months. See our exclusive list of those stores here.

The closing of the single store in Las Vegas, at Ann and Decatur, will give Fresh & Easy Neighborhood Market 20 units in Nevada, down from the current 21 stores. The retailer plans to open a couple new stores in the metro Las Vegas region this year, so that store count number will rise once those units open.

Fresh & Easy Neighborhood Market didn't open any new stores in Arizona or Nevada in calendar year 2011, although it has a number of locations in both states it's been sitting on in both states for a considerable amount of time. Instead, all 29 of the new stores it opened in 2011 are in California, which is where all but a handful of the new stores set to be opened in 2012 will be located.

We'll be offering some analysis on the latest round of Fresh & Easy store closings in an upcoming piece. Stay tuned.

Related Stories

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

December 26, 2011: Solid Performance Gives Tesco 'Fresh & Easy' Wiggle Room - But CEO Clarke Shouldn't Sleep Soundly Every Night

December 8, 2011: Tesco Reports 11.9% Q3 Comp Store Sales Gain for Fresh & Easy ... But On Heavy Discounting

November 10, 2011: Chief Marketing Officer Uwins Out in Top-Level Reshuffling at Tesco's Fresh & Easy Neighborhood Market

October 10, 2011: Gov. Signs AB 183: End of Self-Service Checkout Only in California For Fresh & Easy Neighborhood Market if Stores to Still Sell Alcohol

November 2, 2010: Closure of 13 Stores Brings Fresh & Easy Neighborhood Market's Store-Count to 155 Units

October 24, 2010: Tesco's Fresh & Easy Neighborhood Market On Track to Close 13 Stores By November 2, 2010

October 5, 2010: Philip Clarke's Early Welcome to America: Tesco Logs $151 Million Half-Year Loss For Fresh & Easy Neighborhood Market

Tesco to Close Up to 12 Fresh & Easy Stores

Tesco closed 13 Fresh & Easy Neighborhood Market stores in November 2010, including the unit at 858 South Greenfield Road in Gilbert, Arizona pictured above. The 13 stores remain closed and vacant. Tesco's Fresh & Easy retains the financial responsibility for the store leases. [Photo credit: Fresh & Easy Buzz.]

Breaking Buzz


Tesco plans to close up to 12 underperforming Fresh & Easy stores as part of its strategy to break even financially with its fledgling Southern California-based fresh food and grocery chain by the end of its 2012/13 fiscal year, which begins in late February and runs through February 2013, Fresh & Easy Buzz has learned.

El Segundo, California-based Fresh & Easy Neighborhood Market could announce the latest round of store closures as early as Wednesday, January 11, according to our sources.

The store closure announcement could come as early as Wednesday because Tesco is opening a number of new Fresh & Easy stores, its first for the new year, on January 11. Timing the store closure announcement on the same day a number of new stores are being opened could serve to blunt some of the justifiably negative press that will come from the announcement, according to the thinking of some at Fresh & Easy Neighborhood Market, our sources tell us.

From a public relations perspective such spin could go something like this: 'Yes we are closing some stores but we also opened numerous new stores today,' followed by a comment or two on the continuing poor economy in the places where the stores are being closed, or something similar.

Fresh & Easy Buzz is the first publication to report this development. Neither Tesco or its Fresh & Easy chain have announced any plans to close any stores.

There are currently 184 Fresh & Easy stores in California (135 units), Nevada (21 units) and Arizona (28 units).


Tesco closed 13 Fresh & Easy stores in November 2010 but didn't get around to "mothballing" some of the units until much later. Pictured above is the closed grocery market at 3232 East Guadalupe Road in Gilbert, Arizona. A Fresh & Easy Buzz correspondent took the photograph above on March 23, 2011, which is when the crew took down the signs and "mothballed" the store, which was closed five months earlier. [Photo credit: Fresh & Easy Buzz.]

Tesco closed 13 underperforming Fresh & Easy grocery markets in November 2010 - six units each in Nevada and Arizona and one store in Southern California. Fresh & Easy's CEO, Tim Mason, said at the time the stores would be "mothballed," and possibly re-opened in the future. The grocer still holds the leases on the 13 closed stores. See here and here for details.


Inside a "mothballed Fresh & Easy store: The unit at 858 South Greenfield Road in Gilbert, Arizona, which was closed along with 12 other stores in November 2010. [Photo credit: Fresh & Easy Buzz.]

If Tesco closes all 12 underperforming Fresh & Easy units currently under consideration, which our sources tell us is probable, that will make for 23 Fresh & Easy stores it's closed since launching the Southern California-based chain in November 2007.

Additionally, Tesco has held back from opening numerous Fresh & Easy locations, some of which has been sitting in various states of completion since 2008-2009. These includes store sites in Arizona, Nevada and California.

That Tesco will close more Fresh & Easy stores comes as no surprise to Fresh & Easy Buzz, since we said in the blog in 2011 that it is one of the things the United Kingdom-based retailer will have to do if it hopes to come close to breaking even with Fresh & Easy over the next 14 months.

This year is a crucial one for Tesco with Fresh & Easy because for all practical purposes it has until the end of December to get to break-even with Fresh & Easy Neighborhood Market because the month of January and partial month of February 2013, when the 2012/13 fiscal year ends, is insignificant. If it doesn't happen by Christmas 2012, it isn't going to happen at all because the month of January 2013 and a few weeks in February aren't enough to make a difference, in our analysis.

Because 2012 is a "make or break" year for Tesco with Fresh & Easy, expect to see other significant changes being made, in addition to the latest round of store closures.

On October 5, 2011 Tesco reported a fiscal half-year loss for Fresh & Easy of $112 million on sales of $470 million. The second-half fiscal year began at the end of August 2011 and runs until the end of February 2012. Tesco will report how much it lost on Fresh & Easy for its full fiscal 2011/12 year in April.

The half-year loss amount is 23% less than Tesco lost on Fresh & Easy in the same period the year before. However, there's no guarantee this trend will continue into the second half of the fiscal year.

Tesco plans to open numerous new Fresh & Easy stores this year. Opening new stores requires start up expenses and adds to labor costs. Sales from new stores lag behind paying for those start up and new labor costs, which makes breaking even with Fresh & Easy while opening numerous new stores an even more difficult task for Tesco.

Related Stories

December 26, 2011: Solid Performance Gives Tesco 'Fresh & Easy' Wiggle Room - But CEO Clarke Shouldn't Sleep Soundly Every Night

December 8, 2011: Tesco Reports 11.9% Q3 Comp Store Sales Gain for Fresh & Easy ... But On Heavy Discounting

November 10, 2011: Chief Marketing Officer Uwins Out in Top-Level Reshuffling at Tesco's Fresh & Easy Neighborhood Market

October 10, 2011: Gov. Signs AB 183: End of Self-Service Checkout Only in California For Fresh & Easy Neighborhood Market if Stores to Still Sell Alcohol

November 2, 2010: Closure of 13 Stores Brings Fresh & Easy Neighborhood Market's Store-Count to 155 Units

October 24, 2010: Tesco's Fresh & Easy Neighborhood Market On Track to Close 13 Stores By November 2, 2010

October 5, 2010: Philip Clarke's Early Welcome to America: Tesco Logs $151 Million Half-Year Loss For Fresh & Easy Neighborhood Market

Solid Performance Gives Tesco 'Fresh & Easy' Wiggle Room - But CEO Clarke Shouldn't Sleep Soundly Every Night

The Insider - Heard on the Street

United Kingdom-based global retailer Tesco has lost nearly $1 billion since it launched its El Segundo, California-headquartered Fresh & Easy Neighborhood Market grocery chain in November 2007.

That's a whole lot of money to lose on a food retailing venture, even for the world's third-largest retailer. Walmart is the largest by annual revenue. France's Carrefour is number two globally, followed by Tesco.

But despite its big loss with Fresh & Easy from 2008-2011, Tesco has performed superbly over the last four years.

For example, over its fiscal 2008-2011 period Tesco, which holds an about 30% market share in the United Kingdom and has operations in 14 countries, has grown its group revenue by a very healthy 31%.

In contrast, Walmart Stores, Inc. grew its revenue during the same time period by about 11%, which is far from bad for the mega-retailer from Bentonville, Arkansas, considering it has five times' the annual revenue as Tesco does.

Even more impressive, Tesco has grown its profits by 35% over the last four years, despite racking up hundreds of millions of dollars of annual losses from 2008-2011 with Fresh & Easy.

Additionally, despite continuing to have a negative overall profit margin at Fresh & Easy of around -35%, Tesco has averaged a very impressive profit margin of around 4% over the last four years.

That's more than double the profit margin Kroger Co., the leading supermarket chain in the U.S. and the number two retailer of food and groceries in America after Walmart has turned in over the last four years, for example. Kroger's annual revenue, all of which is generated in the U.S., is fairly close to, although less than, Tesco's.

On top of the impressive metrics detailed above, Tesco has averaged a very healthy return on equity of about 15% over the last decade, which has satisfied all but the most aggressive of its major investors.

It's this impressive performance that, in my analysis and opinion, is why Wall Street and The City (the UK's Wall Street) have been so patient with Tesco and its continuing struggles with and substantial financial losses at Fresh & Easy Neighborhood Market.

It's also why these big institutional investors, like Warren Buffett in the U.S. who owns about 4% of Tesco, will make some noise if Tesco doesn't break-even with Fresh & Easy Neighborhood Market by the end of its 2012/13 fiscal year, which begins February 2012 and ends in February 2013, as CEO Philip Clarke has said will happen, but will give the retailer more time to achieve the goal as long as Clarke and company continue to reduce the loss percentage, as was the case in Tesco's 2011/12 fiscal-half year, when it reported a loss of 23% less ($112 million) for Fresh & Easy than it did for the same period the year before.

Tesco reports the financial results for its 2011/12 fiscal year, which ends in February 2012, in April 2012.

If come April 2012 Tesco posts a 2012/13 fiscal-year reduction in losses at Fresh & Easy similar to what it reported in October 2011 for the half-year, it will get near-unanimous praise from the financial community for its efforts, thus giving Clarke plenty of wiggle room over the next year, in my analysis.

Tesco won't break-even with Fresh & Easy by the end of its 2012/2013 fiscal year though, in my analysis and opinion. But I'm not ready to put any specific numbers to my prediction this far out.

By the way, a loss of say $50-$100 million isn't break-even, as it's been publicly defined by CEO Philip Clarke. It's breaking even. Therefore, I do hope the goal posts aren't changed at Tesco, with a spokesperson next year perhaps suggesting something like, "Well, we didn't mean 'literally' breaking even by the end of fiscal 2012/13."

Conversely, if Tesco posts a loss of say $10-$15 million for Fresh & Easy at the end of fiscal 2012/2013, I will consider that break-even. Perhaps the holiday season has me in the giving mood?

The upcoming year, 2012, is a crucial one for Tesco with Fresh & Easy.

California (south, central and north), metro Las Vegas, Nevada and metro Phoenix, Arizona, where Tesco's 184 Fresh & Easy grocery markets are located, are among the most competitive food retailing market regions in the U.S. The competition in all three states will only get more intense in 2012.

For example, Walmart plans to open its first Walmart Neighborhood Market stores in California next year.

Mega-dollar store chain Dollar General will open its first Dollar General Market small-format grocery stores in California, starting in the north, in 2012. Dollar General opened five of the grocery markets in metro Las Vegas this year, with more units planned for the region.

The coming year will also find Boise, Idaho-based discount grocer WinCo Foods opening its first one or two stores in metro Phoenix. Fast-growing WinCo, which operates mega-stores averaging about 90,000 square-feet, is a competitive force wherever it goes. Metro Phoenix will be no exception, in my analysis.

Tesco has said it plans to open about 50 new Fresh & Easy stores in 2012. Nearly all of those stores will be in California, according to Fresh & Easy Buzz's research and reporting.

Tesco's ace in the whole in terms of its stellar performance over the last few years is its mega-market share at home in the UK, where it has over 2,700 stores and generates about 70% of its annual revenue.

Tesco controls about 30% of the UK market, which is nearly as much as its two leading competitors - Walmart-owned Asda and Sainsbury's - combined.

Asda has an about 17% share. Sainsbury's is very close behind with about 16.3%. Morrisons, the fourth-largest food and grocery retailer in the UK, has an about 12.4% market share. These "Big Four" chains, as they're called in the UK, account for nearly 75% of all food and grocery sales in the nation, according to the data from market research firm Kantar.

I don't see Tesco losing much market share at home in the UK over the next couple years despite the heavy competition there from Asda, Sainsbury's and Morrisons, along with Waitrose at the more up-market end and the hard discounters Aldi and Lidl on the other end. Tesco is a mid-range food retailer in the UK, as are Asda and Morrisons.

Therefore, I also expect Tesco to perform at or near the same levels it has over the last four years, despite continuing losses at Fresh & Easy in America.

As long as this is the case, Tesco CEO Philip Clarke will continue to get his wiggle room for Fresh & Easy from investors until early 2013, when the retailer reports its fiscal 2012/13 results, which if Clarke is right will include breaking even with what then will be a five-year-old and some change Fresh & Easy Neighborhood Market chain in America.

What I describe though is only the midfield game for Clarke and Tesco when it comes to Fresh & Easy. In other words, getting to break-even by fiscal 012/13 end and doing so without experiencing the wrath of investors is merely job one.

The bigger picture, which is if Fresh & Easy Neighborhood Market is actually a viable food and grocery retailing model and business for Tesco in the U.S., is what Clarke must also be thinking very seriously about. I don't know about him - but it would keep me up at least one night out of each week.

I'm not going to address that mega-question today. But it is a central question I will be addressing in this space throughout 2012.

I will say this today though, although I've seen some considerably promising improvements at Fresh & Easy since Philip Clarke took over as CEO of Tesco in March of this year, the jury is still out on the central question I posed above, which is if Fresh & Easy Neighborhood Market is a viable - defined as something that can make money and be grown beyond its current three state geographical area - business for Tesco in America.

Stay tuned for that discussion in 2012. See you next year.

- The Insider

Related Stories

December 8, 2011: Tesco Reports 11.9% Q3 Comp Store Sales Gain for Fresh & Easy ... But On Heavy Discounting

November 10, 2011: Chief Marketing Officer Uwins Out in Top-Level Reshuffling at Tesco's Fresh & Easy Neighborhood Market

October 10, 2011: Gov. Signs AB 183: End of Self-Service Checkout Only in California For Fresh & Easy Neighborhood Market if Stores to Still Sell Alcohol

July 1, 2011: Tesco Shareholders Meet: Board Says Yes to Pay Plan, No to Investigation of Fresh & Easy Neighborhood Market; Pig Farmers Say it's Impossible to Bring Home the Bacon

May 11, 2011: CEO Philip Clarke Launches A New 'Vision and Strategy' For Tesco

February 28, 2011: Changing of the Guard: Clarke Takes Over the Reins as Tesco CEO Wednesday

February 23, 2011: 'The Insider' - Incoming Tesco CEO Philip Clarke Visits America - And Fresh & Easy Neighborhood Market

January 27, 2011: Incoming Tesco CEO Philip Clarke Names Expanded Corporate Executive Committee

October 8, 2010: 'The Insider' - Incoming Tesco CEO Philip Clarke Needs to 'Imagine' When it Comes to Fresh & Easy Neighborhood Market USA

October 5, 2010: Philip Clarke's Early Welcome to America: Tesco Logs $151 Million Half-Year Loss For Fresh & Easy Neighborhood Market

October 4, 2010: Tuesday's Tesco Interim Report Offers A Road Map of Sorts For the Future of Fresh & Easy Neighborhood Market

September 13, 2010: 'The Insider' - Reading Philip Clarke's Tea Leaves: Might A Mixed Corporate/Franchise Model Be in Fresh & Easy Neighborhood Market's Future?

June 12, 2010: 'The Insider' - Will Phil Clarke Shake Things up at Fresh & Easy Neighborhood Market USA When He Becomes Tesco CEO in 2011?

June 8, 2010: Tesco CEO Terry Leahy Retiring; Philip Clarke New CEO; Tim Mason Named Deputy CEO But Will Remain Fresh & Easy Neighborhood Market Chief in U.S.

[Readers: Click here to read past columns by 'The Insider.'

Tesco Reports 11.9% Q3 Comp Store Sales Gain for Fresh & Easy ... But On Heavy Discounting

News & Analysis

United Kingdom-based Tesco said today comparable-store-sales (called like-for-like in the UK) for its El Segundo, California-based Fresh & Easy Neighborhood Market chain increased by 11.9% for its 2011/12 fiscal year third quarter, which ended November 26, 2011.

The 11.9% comparable-store-sales gain is slightly less than the 12.4% Tesco reported for Fresh & Easy for its fiscal second quarter, which ended August 27.

Comparable or same-store-sales is a key indicator for retailers because the metric only includes stores open a year or more.

In contrast, overall sales growth as a metric includes new stores opened during a given quarter. Tesco reported a 29.2% overall growth rate for the third quarter for Fresh & Easy Neighborhood Market.

When looking at Fresh & Easy Neighborhood Market, comparable store sales are what's key because the numerous new Fresh & Easy stores Tesco opens tends to make the overall sales number meaningless when it comes to gaining any real understanding of the 184-store U.S. grocery chain's sales performance.

The 11.9% comparable sales growth number is a good one for Tesco's Fresh & Easy. It also continues a solid comparable sales growth trend for the grocery chain, which has turned in double-digit comparable sales increases over the last few quarters.

However, a considerable percentage of that double-digit comparable sales growth is due to heavy discounting by the chain during the third quarter, which included distributing numerous 20% off discount store coupons, along with the discounts offered customers with the new Fresh & Easy "Friends" reward card which was launched in early October, in our analysis.

Fresh & Easy's loyalty/rewards card gives customers points for certain purchases which they can redeem for cash discounts. For example, 500 points equals five dollars off any given total purchase. Fresh & Easy gave (and is still offering as an intro) shoppers 500 free points or $5 on their cards just for signing up.

Philip Clarke, Tesco's CEO, said today U.S. like-for-like revenue rose almost 30% in the "week around Thanksgiving," which "demonstrates the business is really gaining traction with customers."

What Clark didn't mention though - and what you aren't likely to read elsewhere because we track such things closely at Fresh & Easy Buzz - is that from November 2 through the week leading up to Thanksgiving, Fresh & Easy Neighborhood Market distributed five of its 20% off - $10 off purchases of $50 or more, 6 off $30, $5 off $25 - store coupons via its "friends of fresh & easy" e-mail-based flyer. The coupons are also easily available online by simply typing "fresh & easy coupons" into Google or one of the other search engines.

Fresh & Easy distributed the 20% off store coupons online on the following dates leading up to Thanksgiving on November 24: November 2, 9, 16, 18 and 22.

Fresh & Easy Neighborhood Market also distributed the coupons in its weekly advertising circulars, which are direct mailed to consumers homes.

Employees at a number of Fresh & Easy stores we visited in the three weeks before Thanksgiving were also handing out store coupons to shoppers. Additionally, a number of our correspondents reported in the same thing.

Such discounting, which has helped Tesco achieve double-digit same-store sales with Fresh & Easy for a number of quarters now, does little to help the U.S. chain's trading margin, which Tesco must increase significantly if, as CEO Philip Clarke says will happen, it's going to break-even with Fresh & Easy Neighborhood Market by the end of its 2012/13 fiscal year, which ends in February 2013.

As noted earlier, the 11.9% comparable-store-sales metric for Fresh & Easy is a good one.

The big question though is - at what cost (as in margin)?

Tesco doesn't report metrics like margin - or even sales and profit/loss - for Fresh & Easy for its third quarter.

Therefore, we can't know what that cost might be. For example, did Tesco improve its poor trading margin (negative 35% at fiscal half year) with Fresh & Easy during the fiscal third quarter? Conversely, Did the heavy discounting make that poor trading margin even worse? Did it stay the same?

We won't know any meaningful about whether or not the retailer improving its trading margin and is decreasing its loss with Fresh & Easy until Tesco reports its fiscal 2011/12 full year financials in April 2012. The fiscal year is over at the end of February 2012.

On October 5 of this year Tesco reported a fiscal 2011/12 half-year loss of $112 million for Fresh & Easy, on sales of $470 million. The loss is 21-23% (depending on how recorded) lower than the one iy reported for Fresh & Easy for the same period in the previous fiscal year.

Meanwhile, Tesco today reported its fourth-straight quarter of sales declines at home in the UK, which accounts for nearly 70% of the global retailer's revenue. Tesco has operations in 14 countries.

Sales at Tesco's UK stores open at least a year dropped 0.9 percent, excluding fuel and value-added tax, in the fiscal third quarter ended Nov. 26, the retailer reported today.

But despite the decline in sales at home, Tesco reported an overall increase in corporate revenue of 7.2%, including fuel (7.3% at constant exchange rates). and 5.4%, excluding fuel (5.5% at constant exchange rates) for its fiscal third quarter.

[You can view Tesco's fiscal 2011/12 third quarter reporting here.]

The fiscal fourth quarter, which ends in February, is a crucial period for Tesco with its Fresh & Easy chain, which is something we'll be offering analysis on in upcoming stories.

Related Stories

November 27, 2011: More Reshuffling: Number Two Marketing Exec Follows CMO Uwins Out the Door at Tesco's Fresh & Easy Neighborhood Market

November 18, 2011: Fresh & Easy Neighborhood Market Combining Big Seasonal Foods Assortment With Promos and Discounts to Lure Holiday Shoppers

November 10, 2011; Chief Marketing Officer Uwins Out in Top-Level Reshuffling at Tesco's Fresh & Easy Neighborhood Market

October 10, 2011: Gov. Signs AB 183: End of Self-Service Checkout Only in California For Fresh & Easy Neighborhood Market if Stores to Still Sell Alcohol

More Reshuffling: Number Two Marketing Exec Follows CMO Uwins Out the Door at Tesco's Fresh & Easy Neighborhood Market

Tesco's Fresh & Easy celebrated birthday number four November 9.



The top-level management reshuffling and integration of the marketing function into a new combination buying-merchandising-marketing department headed by chief customer officer and former chief commercial (buying and merchandising) officer John Burry continues at Tesco's Fresh & Easy Neighborhood Market.

The latest departure from the Fresh & Easy's El Segundo, California headquarters is marketing operations director Paul Madarieta, who was the number two marketing executive in what was until a couple weeks ago the standalone marketing department.

Madarieta, now gone, reported directly to former chief marketing officer (CMO) Simon Uwins, who as we were the first to report in this story on November 10 left Fresh & Easy and Tesco in a top-level shakeup initiated by Philip Clarke, the CEO of Tesco, and Tesco group deputy CEO/chief marketing officer Tim Mason, who's also the CEO of Fresh & Easy Neighborhood Market.

Madarieta joined Fresh & Easy in late 2007 in a retail operations capacity. His title before moving into marketing was regional director of California stores.

He was later brought into the grocery chain's corporate marketing department by CEO Mason, who, according to our sources, believed his knowledge of retail operations, particularly in California, and high-level of enthusiasm would make him a good addition to the department and to the grocery chain's marketing efforts.

Mason, who since March of this year has been Tesco's chief marketing officer and deputy CEO, in addition to remaining CEO of Fresh & Easy, was the United Kingdom-based global retailer's chief marketing officer before coming to California in 2006 to start up Fresh & as its founding CEO.

Madarieta became Fresh & Easy's marketing operations director in January 2010.

As part of the shake up that resulted in Simon Uwins' leaving Fresh & Easy (see here), Madarieta was offered a lessor position in the new, combined department being headed up by John Burry, which he ultimately declined, instead leaving the 184-store fresh food and grocery chain, according to our sources.

Madarieta's position, like that of his former boss Simon Uwins, has been eliminated by Tesco's Fresh & Easy Neighborhood Market.

Fresh & Easy Neighborhood market recently posted an advertisement for a marketing analyst, a position that pays considerably less a salary than the former marketing operations director position, and a whole lot less than the chief marketing officer position formerly held by Uwins. The marketing analyst will work in the new joint commercial (buying-merchandising)-marketing department being headed up by chief customer officer John Burry.

Prior to joining Tesco's Fresh & Easy, Paul Madarieta spent a number of years working for iconic specialty grocer Trader Joe's, which Fresh & Easy Neighborhood Market has sought to emulate in a number of operational and merchandising ways, ranging from store size and look and its focus on private brands, to putting an emphasis on the wine category, among others.

Madarieta started out as a crew member (store clerk) at Trader Joe's. He later became a store captain (store manager), and from there was promoted to a regional vice president position with the Southern California-based grocery chain.

Fresh & Easy Neighborhood Market has hired a number of former Trader Joe's employees.

For example, Larry Biggerstaff, Fresh & Easy's current director of grocery buying and merchandising (reporting to John Burry), was the vice president of merchandising at Trader Joe's prior to joining El Segundo, California-based Fresh & Easy Neighborhood Market last year, as we reported in this September 11, 2010 story - Ex-Trader Joe's VP, Winn-Dixie Exec Larry Biggerstaff New Director of Grocery at Tesco's Fresh & Easy Neighborhood Market.

A number of category managers and buyers at Fresh & Easy also have previously worked for Trader Joe's, which is headquartered in the Southern California city of Monrovia.

For example, in the November 10 story about Simon Uwins' departure, we mentioned that three key mid-level headquarters employees had also recently left the grocery chain.

One of the employees who left in the last 60 days is Mei-Lon Jimenez, who until her departure was the category manager for bakery at Fresh & Easy, and prior to joining the grocery chain worked for Trader Joe's.

In her position at Fresh & Easy Neighborhood Market, Jimenez played a significant role in the start up of the new in-store bakery departments the grocer is putting in many of its stores. We broke the news about the bakery development in this May 18, 2011 story. Fresh & Easy started the in-store bakery installations late this summer. It's on the record as saying its goal is to have the bakeries in about 100 of its 184 grocery markets by the end of this year.

The former Fresh & Easy bakery category manager is now working for the Coles supermarket chain in Australia.

We discovered she joined the down-under supermarket chain two weeks ago when Coles' posted her name on a portion of its website, listing her as its new category manager for cheese. A senior executive at the supermarket chain confirmed the posting. She started at the down-under chain last week, according to the source.

Coles' is headed up by former British supermarket executive Ian McLeod. Its senior management team includes numerous veterans of the food and grocery retailing business in the United Kingdom, including Tesco, as we detailed in this December 25, 2009 piece: It's 'British Invasion: The Sequel Down Under' For Former Tesco Fresh & Easy Neighborhood Market Director of Grocery Charlotte Maxwell.

Another related Coles-Tesco Fresh & Easy angle: Charlotte Maxwell, who worked for Tesco for nine years and was the director of grocery buying and merchandising at Fresh & Easy from 2006 until August 22, 2008, joined Coles in April 2009 as its general manager of deli and bakery, which includes cheese. Ironically, she left Coles (about 30 days ago) to pursue other occupational opportunities. (Click here to read about Ms. Maxwell's departure from Tesco's Fresh & Easy and her joining Coles in Australia.)

With the departure of the number one (Simon Uwins) and two (Paul Madarieta) marketing executives at Fresh & Easy Neighborhood Market, chief customer officer John Burry has taken on the dual-responsibility for the corporate commercial (buying and merchandising) and marketing functions at the Tesco-owned chain, as we reported in our November 10 story.

Additionally, as we noted in the story, Tim Lee, who's been Fresh & Easy's director of fresh foods, reporting to Burry, is stepping in as a key player in the grocery chain's marketing efforts. He continues to report to Burry

Lee is being replaced as director of fresh foods by Ian Fletcher, who previously was in charge of Fresh & Easy's kitchen operation. He too reports to John Burry, as does Lee and director of grocery Larry Biggerstaff.

From a balance sheet (cost savings) perspective, Uwins' salary is being absorbed into Burry's, perhaps with a slight bump, while Madarieta's position and salary will essentially be absorbed by Tim Lee. As previously noted, the two marketing positions have been eliminated.

Tesco will report its 2011/12 fiscal year third quarter results on December 8, although it won't likely offer specific sales and loss numbers for Fresh & Easy, as it generally doesn't do so except when reporting half (interim) and full-year results.

On October 5, 2011 Tesco reported a fiscal 2011/12 half-year loss of $112 million for Fresh & Easy, on sales of $470 million. The loss is 21-23% (depending on how recorded) lower than the one reported for Fresh & Easy for the same period in the previous fiscal year.

The United Kingdom-based global retailer's CEO, Philip Clarke, says Tesco will break-even with Fresh & Easy Neighborhood Market by the end of the 2012/13 fiscal year, which is 15 months away. The 2012/13 fiscal year ends February 2013. Tesco reports its sales and profits/loss for the year in April 2013.

Post Script: Take a look at prediction number 7 in this story from last year - December 30, 2010: Seven Predictions For Tesco's Fresh & Easy Neighborhood Market For 2011.

Also see these columns by our 'The Insider' columnist, all published before Philip Clarke became CEO of Tesco in March 2011:

>October 8, 2010: Incoming Tesco CEO Philip Clarke Needs to 'Imagine' When it Comes to Fresh & Easy Neighborhood Market USA

>September 13, 2010: Reading Philip Clarke's Tea Leaves: Might A Mixed Corporate/Franchise Model Be in Fresh & Easy Neighborhood Market's Future?

>June 12, 2010: Will Phil Clarke Shake Things up at Fresh & Easy Neighborhood Market USA When He Becomes Tesco CEO in 2011?

Additional Related Stories

November 17, 2011: 'Meat Guru'-Category Manager Bill Arnold Out at Fresh & Easy Neighborhood Market

November 10, 2011: Chief Marketing Officer Uwins Out in Top-Level Reshuffling at Tesco's Fresh & Easy Neighborhood Market.

October 27, 2011: Former Meat Buyer Wins $400,000-Plus Legal Judgment From Fresh & Easy Neighborhood Market

February 23, 2011: Incoming Tesco CEO Philip Clarke Visits America - And Fresh & Easy Neighborhood Market

February 28, 2011: Changing of the Guard: Clarke Takes Over the Reins as Tesco CEO Wednesday

Click on this link - Fresh and Easy headquarters personel changes - for more related stories.

[Photo credit: Fresh & Easy Neighborhood Market.]

Chief Marketing Officer Uwins Out in Top-Level Reshuffling at Tesco's Fresh & Easy Neighborhood Market

Simon Uwins, chief marketing officer for Tesco's Fresh & Easy Neighborhood Market since early 2006 when the United Kingdom-based global retailer set up shop in El Segundo, California, is out as part of a top-level management reshuffling by Tesco's CEO, Philip Clarke, and Tim Mason, CEO of Fresh & Easy and Tesco group deputy CEO/chief marketing officer.

In addition to his position as chief marketing officer, Uwins was one of Fresh & Easy Neighborhood Market's senior corporate officers. He reported directly to CEO Mason.

Mason announced Uwins' departure from Fresh & Easy and parent company Tesco Wednesday at the grocery chain's Town Hall meeting.

The Town Hall meetings, which include the full office staff and are broadcast to employees at the Riverside distribution campus, are held weekly at 1 p.m at Fresh & Easy's corporate office in El Segundo, California

Neither United Kingdom-based Tesco or Fresh & Easy Neighborhood Market has publicly announced Uwins' departure. As a matter of policy, Fresh & Easy doesn't announce when senior executives or employees at any level leave the company. Additionally, Fresh & Easy doesn't as a practice announce new hires at any level.

Simon Uwins, 52, was part of the original team of senior executives who came with Mason to set up and launch Fresh & Easy Neighborhood Market in 2006. Prior to that he worked at Tesco's global headquarters in Cheshunt, United Kingdom, where he was a marketing executive.

As part of Uwins' departure as chief marketing officer at Fresh & Easy, Clarke and Mason have reshuffled the organization chart, making a number of changes.

John Burry, Fresh & Easy's chief commercial officer (head of buying and merchandising), is assuming overall responsibility for both the commercial and marketing functions at the Tesco-owned fresh food and grocery chain.

Like Uwins, Burry is one of the original members of Fresh & Easy's senior management team. He is also a senior corporate officer of Fresh & Easy Neighborhood Market.

The commercial department has two directors - grocery and fresh foods - who report directly to Burry. Below them are category managers, who are direct-reports to the directors. The category managers have buyers and assistant buyers directly reporting to them.

One of the two directors (the other is Larry Biggerstaff), Tim Lee, the trading director for fresh foods (produce, meat, deli/fresh-prepared foods) is vacating that position and will be working with John Burry to transition the marketing function at Fresh & Easy into the commercial department, according to our sources.

Lee won't be replacing Uwins as chief marketing officer but rather assuming many of his day-to-day marketing management duties. He will continue to report to Burry.

Tim Lee came to Fresh & Easy from Tesco in the UK in early-2010, replacing Jim Jensen, who left to take a position heading up drug chain Walgreens' new at the time fresh foods program. Lee's focus at Tesco in the UK was as a produce category manager and director.

According to our sources, Lee has 9-10 months left on his original assignment contract at Fresh & Easy. He will be using that time in the new position, which straddles commercial and marketing, our sources tell us.

Ian Fletcher, who runs Fresh & Easy's fresh-prepared foods kitchen operation, is replacing Lee as director of fresh foods, according to our sources.

Fletcher, who originally worked in the UK, has been with Fresh & Easy for a number of years. His wife, Karen Fletcher, was the beer, wine and spirits category manager at Fresh & Easy Neighborhood Market from 2007 until this summer, when she resigned. She too previously worked for Tesco in the UK. The Fletcher's were married not long after coming to Fresh & Easy at the start up stage. John Burry was the best man at the their wedding in Hawaii.

Rounding out the reshuffling, Mark Lodge will take over management of Fresh & Easy's corporate kitchen operation when Ian Fletcher moves into the director of fresh foods position, replacing Tim Lee, according to our sources.

Lodge is currently an employee of the kitchen operation, which is Fresh & Easy's central commissary at the Riverside County, California campus facility, where the ready-to-eat and ready-to-eat fresh-prepared foods sold in its 184 stores in California, Nevada and Arizona are prepared and packaged.

From a balance sheet perspective, the reshuffling will save Fresh & Easy one senior-level executive salary and benefits package, which is that of the departed Simon Uwins. Some of that savings will be taken up by probable pay raises going to Ian Fletcher and Mark Lodge in their respective new positions. Tim Lee is likely a wash, and it's unlikely Burry will be getting a raise as part of assuming the overall responsibility for marketing, in addition to keeping his commercial department duties.

Tesco's Fresh & Easy has lost a number of key middle management-level employees at its El Segundo, California headquarters over the last 60 days, according to our sources.

The employees include: a key director/manager in the grocery chain's logistics and supply chain department; a category manager/buyer who was playing a major role in heading up Fresh & Easy's new in-store bakery program, which is still in its infant stages; and a veteran-senior level  member of its information technology (IT) department.

All three of these employees left to take new jobs in the food and grocery industry, according to our sources.

Simon Uwins currently plans to remain in the U.S. rather than returning to the UK, according to our sources.

Tesco currently has no immediate plans to name a new chief marketing officer for Fresh & Easy either, our sources tell us, instead combining the marketing function and department with commercial under the direction of John Burry, as reported and detailed above.

Additionally, since Fresh & Easy's CEO, Tim Mason, is also Tesco's chief marketing officer and is based at the grocery chain's headquarters in Southern California, he will likely play a strong hand in the U.S. operation's marketing, since in the position, which he was named to in March of this year when Clarke became CEO of Tesco, he has the ultimate responsibility for all of Tesco's corporate marketing.

Therefore the new structure - no chief marketing officer at Fresh & Easy - has, at least theoretically, the effect of flattening the organizational chart at the senior level when it comes to the marketing function at Fresh & Easy Neighborhood Market and the headquarters office in El Segundo, California, where Mason is based.