Tesco's Fresh & Easy Neighborhood Market at 175 (Stores): Three New Stores Open in Northern California Today

News/Analysis

Fresh & Easy Neighborhood Market opened three stores today in Northern California, giving the small-format fresh food and grocery chain, owned by United Kingdom-based Tesco, a total of 11 units in the region. [See - April 26, 2011: Behind the Buzz: Tesco Opens Three New Fresh & Easy Neighborhood Market Stores in Northern California Tomorrow.]

The three new stores, in Hayward (Mission Boulevard and Rousseau Street), San Jose (Saratoga Avenue and Payne Avenue) and Napa (Imola Avenue and Jefferson Street), are the last batch of the 11 Fresh & Easy markets Tesco-owned El Segundo, California-based Fresh & Easy has to date announced it will open in Northern California in early 2011.

However, as we've reported, Tesco's Fresh & Easy is preparing additional stores for spring-to-summer openings.

On March 15, 2011, we reported here - San Francisco, Antioch and Fairfield Stores Next Up in Northern California For Fresh & Easy Neighborhood Market - that Fresh & Easy Neighborhood Market has four stores next in line for Northern California openings. Two of the stores are in San Francisco - at Third Avenue and Carroll Avenue and 32nd Street and Clement. The other two units are in Antioch and Farfield. (See the story linked above for details.)

As of today, Tesco's Fresh & Easy hasn't announced new store openings for May, including in Northern California.

Based on our reporting, the two San Francisco stores noted above will be the first of the group to open, possibly at the end of May, but more likely in June. (We'll have more on this development in an upcoming story.)

There are now 175 Fresh & Easy stores open and operating in California, Nevada and Arizona.

Below is a breakdown of the 175 units, by market region, as of today.

Fresh & Easy stores, by the numbers:

Southern California/San Diego
= 101 units

Northern California
 = 11 units

Central Valley, California/Bakersfield Metro
= 7 units

Central Valley, California/Fresno Metro
= 7 units

Southern Nevada/Metro Las Vegas
= 21 units

Metro Phoenix, Arizona
= 28 units

Total = 175 stores

Tesco has opened 21 Fresh & Easy grocery markets so far this year - 11 units in Northern California and 10 stores in Southern California.

In a December 30, 2010 piece - Seven Predictions For Tesco's Fresh & Easy Neighborhood Market For 2011 - we said Tesco would open 40-50 Fresh & Easy stores in calendar year 2011.

On April 19, Tesco said it would open 50 Fresh & Easy grocery markets this year, noting it is a few more than it originally planned on opening for 2011. [See - April 19, 201: Tesco's Fresh & Easy Neighborhood Market Posts Biggest One-Year Loss Yet - $307 Million Loss on Sales of $818 Million.]

April 19 was the first time Tesco or its Fresh & Easy chain mentioned how many stores it would open in 2011. It doesn't usually announce new store opening numbers at all.

Based on the 50 new stores' number, and having opened 21 units so far this year, that means Tesco plans to open an additional 29 Fresh & Easy fresh food and grocery markets this year.

Based on information from our sources, all, or nearly all, of the 29 or so new stores set to be opened in the remainder of 2011 will be in California.

No new Fresh  Easy stores have been opened so far this year in Nevada or Arizona.

No new stores in either region are planned for what's left of April.

Tesco has six less Fresh & Easy stores than it had six months ago in both Southern Nevada and metro Phoenix, Arizona, having closed six stores in each market region in November 2010. [See here for details.]

According to our sources, Fresh & Easy Neighborhood Market isn't planning on opening any new stores in Nevada or Arizona in May, either.

On April 19, Tesco reported a 2010/11 fiscal year loss of $307 million (on revenue of $818 million) for Fresh & Easy Neighborhood Market. It's fiscal year ended February 26, 2011. There were 164 Fresh & Easy stores open at the end of Tesco's fiscal year. Tesco is currently in its 2011/12 fiscal year, which ends February 2012.

On October 5, 2010, when Tesco reported its mid-year financials, the retailer said it planned to have 400 Fresh & Easy stores open and operating by the end of its 2012/13 fiscal year because it needed the sales volume from that number of units open to break-even by February 2013, when that fiscal year ends. [See - October 5, 2010: Philip Clarke's Early Welcome to America: Tesco Logs $151 Million Half-Year Loss For Fresh & Easy Neighborhood Market.]

But last week, on April 19, Tesco CEO Philip Clarke said the retailer has revised the 400-store number down, saying it plans to break-even with Fresh & Easy Neighborhood Market by February 2013, having 300 stores open and operating, 100 less units than it said would be needed seven months ago.

The downward revision from 400 to 300 stores didn't come as a surprise to us here at Fresh & Easy Buzz, since we said in the October 5, 2010 story linked above, when the 400-store metric was announced, that it was not a realistic number of new Fresh & Easy stores for Tesco to open between then and February 2013. We were correct.

For example, from November 2007 to today, a period of three-and-a-half-years, Tesco has opened 175 Fresh & Easy stores. That would mean it would have had to open 225 stores between now and February 2012, a period of less than two years, in order to hit 400 units. That's opening 40 more stores over a 22 month period than the 175 units it's opened since November 2007 (3.5 years.)

Even hitting 300 stores by February 2013, which means opening 125 new units over the next 22 months, is a pretty tall order, from simply a logistics standpoint, although Fresh & Easy can do it, based on its history.

If it opens the 50 stores this year it will end calendar 2011 with 204 units open, which means it will need to open 94 new stores from January 2012 to February 2013. A tall order - but achievable.

But at what cost in doing so? Tesco already has more Fresh & Easy stores in poor locations than it can afford to have. The 13 stores Tesco closed in November 2010 are a perfect example of this fact.

And, having so many stores out of the current 175 in poor locations is directly related to opening too many stores too rapidly, although that's only one of a handful of major mistakes Fresh  Easy Neighborhood Market has made when it comes to choosing store locations.

For example, the grocer has a number of stores in Arizona, Nevada and Southern California that are completed but have been sitting empty for up to two years. It also has store sites it hasn't even started construction on yet, and not just in Northern California, where it opened its first two stores on March 2. These are store sites primarily in metro Las Vegas, metro Phoenix and the Bakersfield, California region that it's possible Tesco will never even open stores at but is paying for.

This brings up another decision Tesco CEO Clarke will have to make, either at the end of this year or in early 2012. That decision: How many of the current under-performing Fresh & Easy stores should he close? If Tesco used the same performance criteria it used to close the 13 poor-performing stores in November 2010, it could close another 13 units and still have change leftover in terms of additional stores not doing much better than the 13.

Getting to 300 Fresh & Easy stores by February 2013 is achievable for Tesco. But it's far from the most important metric involved in breaking-even its Fresh & Easy Neighborhood Market, which Tesco CEO Philip Clarke says will happen by then, with 300 Fresh & Easy stores open and operating.

Behind the Buzz: Tesco Opens Three New Fresh & Easy Neighborhood Market Stores in Northern California Tomorrow

News/Analysis/Commentary

Tesco's Fresh & Easy Neighborhood Market is set to open three new stores in Northern California tomorrow morning.

Once opened tomorrow, the three grocery markets in the San Francisco Bay Area cities of Hayward (Mission Boulevard and Rousseau Street), San Jose (Saratoga Avenue and Payne Avenue) and Napa (Imola Avenue and Jefferson Street), will give Fresh & Easy 11 units in Northern California and 175 stores total in California, Nevada (21 units) and Arizona (28 units.)

The new store at Saratoga Avenue and Payne Avenue is the second unit in San Jose for Fresh & Easy Neighborhood Market. On March 2 the grocery chain opened one of its first two stores in Northern California, in San Jose's Willow Glen neighborhood. [See - March 2, 2011: Fresh & Easy Neighborhood Market Opens First Two Stores in Northern California Today.]

The Hayward store is located in a middle-income neighborhood. The neighborhood doesn't have an abundance of grocery stores and supermarkets, which is something that could benefit Fresh & Easy at the location.

Tesco's Fresh & Easy first announced its plans to open a store at Mission Boulevard and Rousseau Street in Hayward in early 2008, over three year's ago.

Tesco has a second unit in Hayward, at A Street and Hesperian Boulevard, that it's been sitting on since at least January 2008. We expect the grocer to open the store this year or next. But, as of last week, no construction work was taking place at the location.

The neighborhood surrounding the Fresh & Easy store opening tomorrow at Saratoga Avenue and Payne Avenue in San Jose is also comprised primarily of middle-income residents.

We reported in this September 22, 2010 story - Tesco's Fresh & Easy Neighborhood Market Planning A New, Third Store in San Jose, California that Tesco's Fresh & Easy planned to open the store at 1328 Saratoga Avenue (at Payne Avenue). The store wasn't one of the 37 units Fresh & Easy had previously announced it would open in Northern California. [See - November 5, 2010: Fresh & Easy Neighborhood Market Queuing Up Three Additional Stores in Northern California For Early-to-Mid 2011 Openings.]

When Fresh & Easy announced on August 19, 2010 its plans to start opening stores in Northern California in "early 2011," the Saratoga and Payne store in San Jose wasn't on the grocer's initial list of eight stores. [See - August 19, 2010: Tesco Will Open its First Eight Fresh & Easy Neighborhood Market Stores in Northern California in 'Early 2011.']

On November 10, 2010 Fresh & Easy Neighborhood Market announced it planned to open 12, rather than eight, stores in Northern California in "early 2011." The Saratoga and Payne unit was on the list of 12 stores. [See - November 12, 2010: Postponed But Not Abandoned: Fresh & Easy Neighborhood Market Gearing Up For Northern California Launch.]

November 2010 was the first time Tesco's Fresh & Easy publicly said it had a store location at Saratoga and Payne, although we broke the news of its existence in our September 22 story.

Tesco has a third Fresh & Easy store location in San Jose, at Almaden Road and Curtner. As of last week, no construction work was taking place at the vacant building on the site. Tesco has been sitting on (and paying the monthly rent on) the Almaden Road location since at least January 2008.

The store in Napa, at Imola Avenue and Jefferson Street, not only will be Tesco's first Fresh & Easy market in the city. It will also be the first store the grocer has opened in the North Bay Area.

Six of the current eight Fresh & Easy stores in Northern California are in the San Francisco Bay Area.

Four of the stores (Walnut Creek, Concord, Danville and Pleasanton) are in the Easy Bay Area. One store, the unit in San Jose's Willow Glen neighborhood, is in the South Bay Area. The remaining store (of the six) is in Pacifica, which is located on the coastal peninsula near San Francisco.

The remaining two stores are in Vacaville, which is between Sacramento and the Bay Area, and Modesto, which is in the Northern Central Valley.

The opening of the Fresh & Easy store in Napa should be of particular interest to readers of Fresh & Easy Buzz because of a story we published about the location on September 14, 2010. The story:  Eight Plus One: Napa Unit Added to Eight Fresh & Easy Neighborhood Market Stores Opening in Northern CA in Early 2011.

In the story, in addition to reporting before Tesco's Fresh & Easy announced its plans to do so that the grocery chain would open the Napa store early this year, we offered Tesco a suggestion, based on our knowledge, experience and analysis of the market and the specific Napa location, on how it could create a better opportunity for success with the store.

That suggestion included using a portion of an extra 3,500 square-feet available at the store to put in an in-store cafe, where the grocer could offer coffee and pastries, along with other baked goods, drinks and related items. The cafe would have a bar and some tables as well, so it would serve as a way to draw shoppers into the store as well as to keep them in the store longer, which research and practical experience shows results in the spending of more money per-store-trip.

The Napa store, however, is identical to virtually all the other 171 Fresh & Easy markets. Instead of using all or a portion of the extra 3,500 square-feet for a cafe, the space is currently being offered for lease.

You'll see in our September 14, 2010 story - Eight Plus One: Napa Unit Added to Eight Fresh & Easy Neighborhood Market Stores Opening in Northern CA in Early 2011 -  we presented a conceptual sketch as to how Tesco's Fresh & Easy could use the entire 3,500 square-feet, localizing and customizing the store to the neighborhood and city of Napa. It would have been an interesting and smart thing for Tesco to do as a test, in our analysis.

The idea and concept is all the more interesting because one week ago, on April 19, Tesco CEO Philip Clark, who took over in March, said the company plans to open the Fresh & Easy stores at 7 a.m., an hour earlier than most of the stores now open (a few units open later than 8 a.m.), and to serve coffee and pastries at all the stores in the early morning hours. You know - just like every convenience store, coffee shop/cafe (many featuring drive-through windows), fast food joint (more drive-through options) gas station, supermarket, doughnut shop, bakery and restaurant does in California, Nevada and Arizona.

Selling a cup of coffee and pastry to takeout in the stores isn't going to do much of anything to improve Fresh & Easy's sales, profits or image.

It's fine we suppose. Coffee is available nearly everywhere else, after all. (We forgot to include that's it's also available at most workplaces, in vending machines and in all those food trucks driving around in the early morning, in the list above. Some of us even make coffee at home in the morning.) But as a strategy and merchandising addition to Fresh & Easy Neighborhood Market, it's a near-empty and not very substantial cup of Joe, in our analysis. A shot of decaf, at best.

We aren't taking a cheap shot at Clarke about the plans to start selling coffee and pastries at Fresh & Easy. Instead, we're just looking at it in a serious, analytical way.

After all, he's the new boss at Tesco and had nothing to do with Fresh & Easy in his previous executive positions at the retailer, which were director of Europe and Asia retail operations and chief of information technology.

When Clarke was touring Fresh & Easy stores in February of this year, before he became CEO the first week of March, he was surprised shoppers couldn't grab a cup of coffee in the stores. A few units do offer it, like one he visited in Long Beach, California. [See - February 23, 2011: Incoming Tesco CEO Philip Clarke Visits America - And Fresh & Easy Neighborhood Market.]

He asked Fresh & Easy Neighborhood Market CEO Tim Mason (and others at Fresh & Easy), who became Tesco deputy CEO when Clarke became CEO, about the lack of being able to grab a cup of Joe in the stores more than once. And soon, coffee and pastries will be for sale in all the Fresh & Easy stores, as the Tesco CEO announced on April 19.

It's a nice thing, having coffee and pastries available in the morning. But Clarke will have to make some much bigger additions and changes in strategy and practice if he wants to break-even with Fresh & Easy by 2013, as he says will be the case. [See - April 19, 2011: Tesco's Fresh & Easy Neighborhood Market Posts Biggest One-Year Loss Yet - $307 Million Loss on Sales of $818 Million.]

But breaking-even is only job one. As the CEO of Tesco Clarke must ask himself another question at the very same time. That question: Then what? In other words, if Fresh & Easy does come close to or break-even by 2010, what's the strategy - for profitability, growth, ect. - going forward? That strategy needs to be developed now.

What might be helpful, and its something we first suggested over three years ago Tesco try at Fresh & Easy, is to include some small in-store cafes/seating areas in selected stores and see how they perform. Not long after we first offered the suggestion, Fresh & Easy CEO Tim Mason mentioned in an interview with a British newspaper that putting small cafes with sit-down areas in some of the stores was something he was considering doing. It never happened though.

Had Tesco tested the small in-store cafe concept even two years ago, say in about 6-12 Fresh & Easy stores, it would know by now if it was helping and could be using it as a way to help draw customers, keep them in the stores longer, build stronger shopper loyalty, develop a little needed in-store excitement, and create a better sense-of-place in the Fresh & Easy stores, the lack of which is a major reason they don't draw an adequate number of new and repeat primary and secondary shoppers, in our research and analysis.

'Walmart To Go' - Walmart Stores' Launches Test of Grocery Home Delivery Service Today in San Jose, California

The Insider - Heard on the Street

As the once popular song asked - "Do you know the way to San Jose?"

For mega-retailer Walmart Stores, Inc., which wants to sell more groceries than it's currently doing in the San Francisco/San Jose Bay Area region, and today launched an online-based grocery home delivery service in San Jose, California, the answer is - hopefully.

In my April 7, 2011 column - A Walmart Grocery Home Delivery Service in San Jose, California Wouldn't Likely Be Much to Write Home About - I wrote about Walmart's probable plan to test an online ordering-based fresh food and grocery home delivery service in San Jose, California. The story was first reported by Bloomberg News (here).

Walmart launched that grocery home delivery service test - which it's named "Walmart To Go" - today in San Jose, beginning with a website section attached to its Walmart.com site, where shoppers in the neighborhoods where the Arkansas-based retailer is conducting what it has announced is a "limited test," can order a selection of fresh food and grocery items and have the products delivered to their homes.

You can view the website, Walmart.com/togo, here. Click here for details on the website about "Walmart To Go."

Walmart is offering a limited assortment of fresh food and grocery items on its grocery home delivery site (which is in beta test mode at present) across the basic grocery store categories, ranging from fresh produce, meat, seafood and other perishables; to packaged food and groceries, health and beauty/body care, pet food and supplies, baby food; and household supplies like paper goods, cleaning products and relate non-foods items.

There's also a section on the site for promotional items (Rollbacks), offered at temporarily reduced prices.

Shoppers can also have their drug prescriptions filled using "Walmart To Go," and have the medications delivered to their homes, along with their groceries.

Walmart is currently charging $5 and up for home delivery. According to the website, the current minimum purchase amount required to get a grocery order delivered is $49.00.

As part of the launch, "Walmart To Go" is offering an E-Voucher that shoppers can use to get their first order delivered free of charge.

In order to find out if "Walmart To Go" delivers to their neighborhood, potential online shoppers in San Jose need to put their zip code into a section on the website. If the service is available in their neighborhood, it will let the user know.

I typed in a few different zip codes for various parts of San Jose. The site indicated "Walmart To Go" delivered to about 40% of the zip codes I  punched in. But I didn't do a random sample. Nor did I try all of the available zip codes for the city.

The prices on the assortment of items currently offered on "Walmart To Go" are about in line with what Walmart charges at its hand full of stores in the San Jose area.

The everyday retail price-points for most items, particularly basics like milk and eggs and popular items like 12-packs of Coke, range from being slightly lower to about the same, and in a few cases I noticed higher, than those everyday prices the two leading supermarket chains in the market region - Safeway Stores, Inc. and Save Mart-owned Lucky Supermarkets - charge for like and similar items in their respective stores.

For example, "Walmart to Go" is selling a dozen of its private brand large-size eggs for $1.68, which is about the same as at the two chains mentioned above do for their best-priced private label versions.

Other grocers and discount format stores in the area sell similar quality eggs for less than $1.68, while other grocers retail the item for more than $1.68.

Eggs, particularly large-size, are also regularly advertised by grocer's in the region, just as is the case in other parts of the country.

As an example, Save Mart has its Sunnyside Farms private brand large eggs on sale this week at its Save Mart and Lucky banner supermarkets at buy-one-get-on-free (BOGO). At that promotional price, the cost per-dozen comes out lower than $1.68. But it is a promotional rather than an everyday price.

Walmart's private label fluid milk is selling for $2.41 on the "Walmart To Go" site. That's considerably lower, for example, than what Safeway is currently retailing its Dairy Glen (the lowest-priced of its private label fluid milk brands) fluid milk for. As of today, Safeway is selling a gallon of the Dairy Glen milk for $2.89, and to get that price shoppers are required to purchase a minimum of two gallons.

Other retailers in the San Jose area sell similar gallons of milk for less than $2.89. However, at $2.41, the "Walmart To Go" price-point is among the lowest I've seen when doing price checks in the area.

Lastly, Coca Cola, in the popular 12-pack cans size (Classic, Diet, ect.), sells for $4.38 on the "Walmart to Go" site. That price is about the same as what the two chains and many other grocery stores in the region offer the popular soft drink variety for on an everyday price basis.

Like eggs, 12-packs of Coke are an item promoted and advertised regularly by grocers and other format retail stores. In fact, it's hard not to find one or more retailers in any given market in the U.S. that aren't advertising 12-packs of Coke at least two, and often three, weeks out of a month, particularly in spring and summer.

For example, Raley's Supermarkets, which operates stores under the Raley's and Nob Hill Foods banners in and around the San Jose region, is currently promoting the Coke SKU in its weekly advertising circular for $2.25, based on a minimum customer purchase of four 12-packs.

Eggs, fluid milk and Coca-Cola are among the ten top-selling products or items in U.S. grocery stores.

Safeway Stores is the market share leader in the San Francisco Bay Area, followed by Save Mart and Raley's.

Safeway Store's operates the only major online ordering-based grocery home delivery service in the San Francisco Bay Area. Safeway's delivery area includes San Jose.

Therefore, at least in the parts of San Jose where Walmart is delivering groceries to residences, Safeway will have a new competitor - "Walmart To Go" - although at present the assortment of products Walmart has available to online shoppers on the website doesn't come close to matching the assortment Safeway offers on Safeway.com. But Walmart can add items to its selection easily, which I suspect it will. It's just launched the service as a "limited test," after all.

A few things about "Walmart To Go ... before I go.

First, I like the name. It's short. It's descriptive. And it fits well with Walmart's emerging multi-channel (brick-and-mortar and online), multi- (brick-and-mortar) format food and grocery retailing strategy.

Under the new strategy, there's the supercenters -  the big guys, and the lead horse of the brick-and-mortar store pack.

Next is "Walmart Market", the name Walmart is changing all of its Neighborhood Market supermarkets to, as well as what it will call its new grocery markets in the about 30,000-60,000 square-foot range.

Lastly, there's the smaller guy, "Walmart Express," the name of its new convenience format grocery stores, which will be about 15,000 square-feet.

I think "Walmart To Go," as a name, fits nicely in that mix.

[There's also "Walmart on Campus," the retailer's tiny (about 3,000 square-foot) convenience store on the University of Arkansas campus. But it's really a one-store test for now. So I don't include it yet in the overall multi-channel/multi-format strategy.]

In terms of my lack of enthusiasm for a Walmart home grocery delivery service in San Jose - and it's limited to that region, by the way, as I look at each market region as unique and see some strong potential for such a service by Walmart in other parts of the country - as expressed in my April 7, column, it's still my analysis that from a sales standpoint, at least in the near-to-medium term, a Walmart grocery home delivery service in San Jose, and in most if not all parts of the Bay Area, isn't going to be much to write home about.

However, I like that Walmart is testing it.

And they are testing it in a smart way - just like they did with the "marketside by Walmart" small-format stores in metro Phoenix, Arizona (although I would have tested the stores in the San Francisco Bay Area and in urban parts of Southern California, for example, as I've said before) - which is to start with a very limited test, in this case the city of San Jose, and then see what happens. The investment is low, particularly for Walmart, and as such if the retailer decides not to go forward and expand the service, the loss will be moderate.

I also think in a longer-term sense a grocery home delivery service operated in certain parts of the U.S. could fit well within what is a growing and emerging online business at Walmart Stores.

Walmart's ASDA chain in the United Kingdom has a grocery home delivery service, so the concept isn't completely new to the chain. In fact, Walmart has transferred one or more executives from the UK operation to work on "Walmart To Go." The U.S. and the UK, where online-based grocery home delivery is much more popular, are very different animals though when it comes to the business.

The retailer is planning some interesting new developments online, including experimenting with using social media to help it improve the performance of its online shopping offering in a much more aggressive way than it is currently doing. If things go according to its plans, Walmart Stores will become a much more dominant online retailing force in the U.S. over the next couple years than it is at present.

On April 18, Walmart announced it has signed a definitive agreement to acquire Mountain View, California-based social media company Kosmix, which "has developed a social media technology platform that filters and organizes content in social networks to connect people with real-time information that matters to them," according to its two founders, Venky Harinarayan and Anand Rajaraman.

The two founders, whose first company, Junglee, was acquired by Amazon.com in 1998, have been involved in the social media space for a number of years, focusing on ways to better integrate social media with online shopping.

Harinarayan and Rajaramen, along with members of the team they assembled at Kosmix, are going to work for Walmart and will be part of a newly formed research and development operation the retailer has created in Silicon Valley, called @WalmartLabs.

Walmart says "it plans to expand the @WalmartLabs team and expects the new group will create technologies and businesses around social and mobile commerce that will support Walmart’s global multi-channel strategy, which integrates the shopping experience between bricks and mortar stores and e-commerce."

The @WalmartLabs operation is part of the retailer's Walmart.com division, which is based in Brisbane, a small city next door to San Francisco.

Mountain View, where Kosmix was based, is a 30-45 minute drive from Brisbane and less than 10 miles from San Jose. San Jose is under an hour's drive from the Walmart.com offices in Brisbane, depending on traffic conditions, of course.

I included the travelogue paragraph above in order to highlight the geographical - and human resource - synergies behind Walmart's launching the grocery home delivery service in San Jose, acquiring the Mountain View-based social media-based company, and setting up @WalmartLabs in Silicon Valley, which San Jose and Mountain View are part of.

From the human resource and talent angle, The San Jose -to- San Francisco geographical region is home to, among other top-flight social media companies (and start ups), Facebook (Palo Alto) and Twitter (San Francisco). It also has the human resource talent and infrastructure Walmart needs to become a leader in online shopping and in using social media to help it achieve that objective.

Walmart should be given credit for making the synergistic  moves. (I just don't think, in my experience and analysis, "Walmart To Go" will be very popular in San Jose from a sales perspective. But I could be dead wrong)

In addition to creating an e-commerce/social media research and development center, @WalmartLabs, putting the operation in Silicon Valley gives the retailer an added presence, along with having its Walmart.com facility there, in the Bay Area, where it plans to do all it can to become a serious player in food and grocery retailing over the next few years. And testing "Walmart To Go' in nearby San Jose does allow for the operation to be nearby both Walmart.com and the new @WalmartLabs start up.

According to my sources, the retailer is also looking at possibly testing "Walmart To Go" in at least one other part of the country, and perhaps even two regions. But for the immediate-term, my sources tell me, the focus will be on the limited test in San Jose, where Walmart wants to "find a way" to sell more groceries, and hopes one of those ways is through "Walmart To Go."

I will have more to say about "Walmart To Go" in a upcoming column, including hopefully some evaluations by one or two people who've tried the online ordering and home delivery service. Stay tuned.

- The Insider

Read 'The Insider's' past columns here.

A Walmart Grocery Home Delivery Service in San Jose, California Wouldn't Likely Be Much to Write Home About

Walmart's ASDA chain delivers fresh food and groceries to online shoppers' homes in parts of the United Kingdom.

The Insider - Heard on the Street

An April 1 non-April Fool's Day report by Bloomberg (here) that Walmart Stores, Inc. might be planning to test an online-ordering and grocery home delivery service in the San Jose area in Northern California's San Francisco Bay Area has been getting a considerable amount of attention in the press over the last week.

However, as most often is the case, the numerous publications that have picked up on Bloomberg's piece have merely either re-printed the story partially, fully, or added a couple comments from a favorite industry analyst or two to what Bloomberg had already reported.

Here at Fresh & Easy Buzz we like to offer a bit more depth, particularly when it comes to a story first reported on by another publication. Therefore, I'm going to offer a little analysis, observation and commentary on what Walmart is up to in the San Jose, California region with its potential e-commerce/ grocery delivery scheme.

First, a little history: The idea of launching an online-ordering and home delivery business for fresh foods and groceries isn't brand new at Walmart Stores, Inc. A little over three years ago then corporate head of business development, David Wild, who's team was responsible for the retailer's initial small-format food and grocery store development efforts - the result of which are the four 'marketside by Walmart' stores in suburban Phoenix, Arizona that opened in August 2008 - was also very interested in Walmart's starting up an online ordering and home grocery delivery service.

The new business development team's initial target test market for the online/home delivery scheme was the San Francisco Bay Area. Wild, who left the company later in 2008 to become the CEO of United Kingdom auto parts and bicycle retailer Halfords, worked out of Walmart's Brisbane, California Walmart.com offices. Brisbane is an industrial and residential suburb of San Francisco, located about 50 miles from San Jose.

The online ordering and grocery delivery service was one of a number of new business ideas and concepts Wild and his team came up with that didn't become reality.

For example, another concept the team proposed was a brick-and-mortar health and wellness-oriented small-format store of about 10,000 square-feet that would be part drug store and part natural foods market, the overall focus being on selling products with a health and wellness orientation. Walmart has incorporated some aspects of the format into its new Walmart Express convenience format, the first three stores of which are set to open in a few months in Arkansas.

As part of the e-commerce/home delivery food discussions with the business development team in 2008, Walmart began slotting packaged food and grocery items on its Walmart.com website in early 2009, and has continued to add categories and items to the website since then. The items are ordered online, just like everything else on Walmart.com, and shipped to customers' homes via a postal carrier like Federal Express or UPS, just like Amazon.com does. No perishable foods are offered, however, just shelf-stable products.

Over the last few years, Walmart has off and on looked at testing the online ordering and grocery home delivery service, both in the San Francisco Bay Area and in a couple other regions of the U.S. The retailer's main interest in possibly trying such a service in the Bay Area is because Walmart has few stores in the region that offer fresh foods and groceries. It also continues to struggle in gaining approval from various Bay Area cities in its attempts to convert existing discount format stores into hybrid supercenters that offer fresh foods and groceries, along with attempts to build new supercenters, even smaller units in the 100,000-140,000 square-foot range. The average U.S. supercenter is about 180,000 square-feet.

As a result, the idea of launching a test of an online ordering and grocery home delivery service in the Bay Area has become more interesting to Walmart's senior brass. In essence, the long-term strategy the retailer is looking at in the Bay Area, where it hopes to open numerous smaller-format Walmart Market (30,000-60,000 square-foot food and grocery markets) and Walmart Express (15,000-30,000 square foot convenience-style grocery stores), is to combine however many supercenters it can get approved with the smaller-format stores mentioned above, and then add a grocery delivery service, starting in the San Jose region, where Walmart has enough supercenters so the stores can be used as order-fulfillment centers for the online orders.

Potential: The question that must be asked by and of Walmart though is: Does going into the online ordering and grocery home delivery business in the Bay Area, particularly at this stage of its meager brick-and-mortar store development and presence in the market region, make sense for the retailer? My answer: History and the current state of the online/home delivery business in the region suggests the answer to that question is...no.

For example, from the mid-1990's -to 2001 there were three retailers offering online ordering and home delivery of fresh food and groceries in the nine county San Francisco Bay Area, which today has a population of close to seven million people.

The three retailers were: Safeway Stores, Inc., which is headquartered in the East Bay Area city of Pleasanton; Albertsons; and Webvan, which was a pure-play online/home delivery grocery retailer that went bankrupt in 2011, after only a few years in business. Albertsons, then owned by Albertsons Inc. of Boise, Idaho, closed down its online ordering and home grocery delivery service a couple years later. Today, Safeway Stores, Inc. is the only major food retailer offering the service throughout the nine-county Bay Area. (What was the Albertsons' Northern California division is now owned by Modesto, California-based Save Mart Supermarkets. The stores operated under the Lucky banner.)

The fact Safeway today remains the only major fresh food and grocery online/home delivery grocer in the Bay Area, which research still shows is one of the better markets for the business in the U.S., is probably one of the motivating forces behind Walmart's consideration of launching such a service in the San Jose region.

Safeway fulfills customers' online grocery orders out of some of its supermarkets in the San Francisco Bay Area, where it has about 200 stores. Walmart would do the same, using a couple supercenters it operates in the San Jose metropolitan area.

But despite being the lone e-commerce/home delivery grocer in the Bay Area - and Safeway does a pretty good job at it - it remains a meager business for the grocer. Safeway CEO Steve Burd has recently said as much.

In fact, in an attempt to boost its online/home delivery business, last year Safeway held a very aggressive promotion over a number of months, offering first time users of Safeway.com, its e-commerce-home delivery site, $15 off any orders of $50 or more, along with free delivery. Safeway continued the aggressive promotion until mid-January of this year. Since then it's eliminated the $15-off deal but continues to offer free delivery to first-time users of the service. [You can read a December 15, 2010 story about the promotion in Fresh & Easy Buzz here: Safeway Wants to Grow its Online-Home Delivery Grocery Business - And is 'Giving Away the Store' to Prove it.]

Early this year Burd said in a conference call to analysts the promotion last year added some new business to Safeway.com but that basically it wasn't anything to write home about.

Keeping and continuing to promote the service makes good sense for Safeway though, in my analysis, because it fits well as an integrated and synergistic part of its overall food and grocery business in the Bay Area and in the handful of other U.S. regions where it offers home delivery. But, I can share this with you: Safeway's senior executives don't currently see Safeway.com as being one of the chain's major growth engines at present, even in its Bay Area home market.

Mega-Walmart can afford to experiment with and test an online ordering and grocery home delivery service in the San Jose region. After all, the start-up costs aren't huge - buying a few combination freezer/refrigerator/dry product delivery trucks, outfitting a few store backrooms to fulfill the online orders and spending some cash for marketing and advertising. But the benefits would likely also be meager, in my analysis.

Therefore, before it goes forward with the test - and our sources say Walmart hasn't decided if it will do so yet - the Bentonville, Arkansas-based mega-retailer should keep in mind that the majority of the customers of Safeway's online ordering and home grocery delivery service are dual-income (and higher income), well-educated younger professionals. These are the consumers in the Bay Area who primarily shop at Whole Foods Market, Safeway's more upscale stores and numerous other more upscale grocery markets in the Bay Area. They use Safeway.com primarily for convenience. Price isn't a motivating factor, particularly considering delivery charges add on $10 or more to a grocery order.

Will this demographic shop for their groceries at Walmart, even with home delivery? My analysis: I doubt it. Why: Walmart isn't their brand.Whole Foods is. Target is. Even Costco is. But not Walmart.

If I'm correct that means Walmart would need to reach a different shopper demographic (than Safeway does) with its online ordering and home delivery grocery service, like it does with its stores -  its traditional lower-income/middle income segment.

The problem with this segment when it comes to an online/home grocery delivery business for Walmart is consumers in these segments are looking to save money on grocery purchases not spend more, which unless Walmart delivers the orders for free or for a couple dollars, will be the case. Additionally, lower-to-middle income shoppers use online ordering/ home grocery delivery services in very low percentages, both in the Bay Area and nationally in the U.S., according to numerous studies.

Walmart might be tempted to think that because many lower-to-middle- income consumers use its Walmart.com service to buy products online and have the items shipped to their homes via a postal carrier, that these same shoppers will therefore use a home grocery delivery service in equal or similar numbers.

But the comparison is apples and oranges, so to speak. Why? Shopping for fresh food and groceries is a regular task and a very competitive enterprise. Most lower-to-middle income consumers shop at multiple stores, shop weekly ads, use coupons and look for the best deals. In contrast, ordering products, be it contact lenses, books, a television set or clothing, from Walmart.com for home shipment, which can actually be cheaper because there's often no sales tax on the items, is an irregular task that can be done after first comparing prices at brick-and-mortar stores.

Walmart's best strategy for the San Francisco Bay Area region is a smaller-format brick-and-mortar store approach, supplemented with as many supercenters of the smaller variety as it can gain approval for over the next few years.

What the retailer needs to do for starters is strike up a deal with the mayors and city councils' of the region's three biggest cities - San Jose, San Francisco and Oakland, like its done with Mayor Daley in Chicago, offering to focus on building and opening mostly smaller-format stores in exchange for getting approval for a few bigger supercenters. With municipal budgets in California so stretched, these cities are willing to listen, something they probably wouldn't have done five years ago when the region was booming and city budgets were flush with money.

Once Walmart has achieved a bit of critical mass in the San Francisco/San Jose Bay Area (eg: food and grocery sales market share) it's my analysis that perhaps then an online ordering and home grocery delivery service might make sense for the retailer. But until then, if Walmart tries it now, I don't think it will be anything to write home about.

- The Insider

Read 'The Insider's' past columns here



First Look: Fresh & Easy Neighborhood Market Store in Northern California's Danville Set to Open on March 2

The Fresh & Easy store (pictured above), in the Green Valley Center in Danville, California is set to open March 2, 2011. [Photo credit: Doloros Fox-Ciardelli.]

Tesco's Fresh & Easy in Northern California - 2011

In less than three weeks time, on March 2, Tesco's Fresh & Easy Neighborhood Market will open its first two stores in Northern California, in the San Francisco Bay Area cities of San Jose and Danville.

On January 17, 2011, we offered a preview (including photographs) of the soon-to-be-opened Fresh & Easy market in the Willow Glen Village shopping center, in San Jose, California. [Read the story at: First Look at the Willow Glen-San Jose Fresh & Easy Neighborhood Market Store Set to Open March 2, 2011.]

The second Fresh & Easy store opening on March 2, is in the Green Valley Center, which is at Diablo Road and Interstate 680, in the East Bay Area city of Danville.

The Fresh & Easy sign pictured above recently went up next to the Walgreens sign at the entrance to the Green Valley Center in Danville, California. [Photo credit: Fresh & Easy Review/for Fresh & Easy Buzz.]

Danville is an affluent town. It has one of the highest average incomes in the nine-county San Francisco Bay Area, which is home to about seven million people.

Side-by-side. The Fresh & Easy store in the Green Valley Center is next to a Walgreens drug store, as you can see in the photograph above. Locating the small-format (10,000-12,000 square-feet) fresh food and grocery markets close to (although seldom so close) Walgreens and CVS Pharmacy stores has been a strategy of Tesco's since it began opening the Fresh & Easy markets in November 2007. [Photo credit: Fresh & Easy Review/for Fresh & Easy Buzz.]

The Danville Fresh & Easy location is interesting for another reason, however, besides the city's high-income status. That reason: The store is located right next door to an existing Walgreens drug store. In fact, the Walgreens' store and the Fresh & Easy market in the Green Valley Center share the same building. The Walgreens, which opened in October 2009, took about half of the former Albertsons. the Fresh & Easy is in the other half.

What will soon be the Fresh & Easy store in the Danville shopping center was once an Albertsons supermarket, which was closed a numer of years ago because of its small size and its relative under-performance.

Tesco's Fresh & Easy acquired the then-vacant building in the Green Valley Center in January 2008, and has been paying the monthly lease on it since then.

The location could prove to be a good one for Tesco's Fresh & Easy for a few reasons.

First, its the only grocery store in the shopping center, although the Walgreens' does sell a limited assortment of grocery items, including some perishables, but not fresh meats or produce.

Additionally, the store isn't currently one of the Walgreens' units the retailer plans to add fresh foods to as part of its program announced in January of this year, in which it's expanding its 2010 test of offering an assortment of fresh-prepared foods, along with some fresh meats and produce, in a handful of stores in the Chicago metro region and New York City.

Lastly, the population demographics (high-income, high-percentage of college educated residents) and lifestyle (smaller families, busy professionals) indicators of Danville and the neighborhood surrounding the Green Valley Center index fairly high in terms of fresh-prepared foods' consumers. Since fresh-prepared foods are a major aspect of Fresh & Easy's offering, the location will prove to be a good test of the format, in an area where indications are it should do well. The shopping center is not far from the Blackhawk community, where the entry-level price for a home is about $1 million.

As you can see in the photographs, the exterior of the Fresh & Easy market in the shopping center is completed. Additionally, as the photograph below shows, most of the work on the store's interior has been completed.

Inside the store: Most of the shelving, refrigerated cases, checkout stands and other interior fixtures are in-place at the soon-to-be-opened (March 2, 2011) Fresh & Easy Neighborhood Market store in Danville, California's Green Valley shopping center. [Photo credit: Fresh & Easy Review/for Fresh & Easy Buzz.]

We will have more on the Green Valley Center-Danville Fresh & Easy store, along with all of the Northern California stores opening in March-April 2011, when it opens. But, like the title says - this is a first look.

Related Stories

February 3, 2011: Fresh & Easy Neighborhood Market Spokesman Confirms Our South-to-North Distribution Reports in Talk to Pacifica, California Group

February 1, 2011: Tesco's Fresh & Easy Neighborhood Market Still Plans April-May 2011 Openings For First Two San Francisco Stores

January 26, 2011: Fresh & Easy Neighborhood Market is On A Mission - In San Francisco's Mission District

January 17, 2011: First Look at the Willow Glen-San Jose Fresh & Easy Neighborhood Market Store Set to Open March 2, 2011

January 14, 2011: Tesco 'Banking' on California in 2011 For Fresh & Easy Neighborhood Market USA

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

December 30, 2010: Seven Predictions For Tesco's Fresh & Easy Neighborhood Market For 2011

December 27, 2010: First Look at the Pacifica, California Fresh & Easy Neighborhood Market Store, One of the First Opening in Northern California in Early 2011

For additional related stories, see (click on) the following links: Fresh and Easy Northern California, Fresh and Easy San Francisco Bay Area, Northern California, Northern California Special Report.