Tesco Fresh & Easy Neighborhood Market USA CEO Tim Mason told
The Times of London (United Kingdom) newspaper in an interview published in today's edition the financial crisis and economic recession in the U.S. has resulted in a decision by Tesco to slowdown the rapid expansion plans of its Southern, California-based Fresh & Easy grocery and fresh foods chain.
Tesco's Fresh & Easy currently operates 100 small-format, convenience-oriented grocery and fresh foods markets in Southern California, Metropolitan Las Vegas, Nevada and in the Phoenix, Arizona Metropolitan region.
Fresh & Easy Neighborhood Market CEO Mason added in the published interview that plans for the chain to expand into Northern California could be put on hold because of the recession gripping the United States.
As
Fresh & Easy Buzz has previously reported, Tesco is way behind its original schedule already to open its Fresh & Easy Neighborhood Market distribution center (in Stockton, California) and first stores in Northern California. The first Fresh & Easy markets in the San Francisco Bay Area and in the Sacramento/Vacaville region, for example, were to have opened earlier this year, according to Tesco's original Northern California market Fresh & Easy store rollout plan
But late last year Tesco's Fresh & Easy Neighborhood Market changed its original schedule, saying then the first Northern California stores would be open by the end of this year. Then earlier this year, the retailer said the first Northern California stores wouldn't start opening until early in 2009.
Meanwhile, the Northern California distribution center in Stockton was originally set to be open by now. However, based on our sources in the area, it is nowhere even near ready for a first quarter 2009 opening. In fact, work appears to be non-existent at the facility site.
In his interview with
The Times, which was conducted yesterday and published today, Tim Mason said: "It was prudent to take a far more flexible approach towards the expansion of the business (Fresh & Easy); in describing the grocery chain's retrenchment.
Below (
in italics) is the story based on the interview with Tim Mason from today's
The Times. Following that is a
Fresh & Easy Buzz analysis:Meltdown puts the brakes on Tesco's US dreamThe Times - United KingdomNovember 12, 2008By Steve Hawkes in Los Angeles One of Tesco's most senior executives has said that the meltdown in the American economy will force the supermarket giant to slow the rollout of its fledgling Fresh & Easy business on the West Coast of America. Tim Mason, chief executive of Fresh & Easy, said yesterday that plans for the chain to expand into northern California could be put on hold because of the recession gripping the United States. In an interview with The Times, he said that it was prudent to take a far more flexible approach towards the expansion of the business, which celebrates its first anniversary today by opening its 100th store, in Orange County, south of Los Angeles. Tesco had hoped to have 200 Fresh & Easy stores, modelled on its Tesco Express format, operating across southern California, Arizona and Nevada by February next year. Mr Mason said that now he hoped to reach this target by next November. The group has talked of having 1,000 stores on the West Coast, stretching from Seattle to San Diego. However, a move into northern California would require huge capital investment because of the need for a new distribution centre. Mr Mason said: “The industry is in a very different place than when we came out and did the feasibility research three years ago. Then the US consumer confidence index was at the highest level it had ever been. In October the US consumer confidence index was the lowest it has been since 1967, so it's a big change. We will still open stores every week, but it's prudent to slow things down a bit. “There's a big cost step for us when we open up northern California and we can be quite flexible about when we do that. As things get to a point that we like how it's all coming together, we like the way the stores are growing into the second year, then we can accelerate. If the economy takes a turn for the worst, it would be unwise to accelerate.” The comments come two days after shares in Tesco had suffered their biggest one-day fall for a month after it emerged that the group's sales in South Korea, Tesco's largest market outside the UK, and China had slowed in the tougher economic climate. Yesterday the group unveiled plans for spate of store openings in the eastern China provinces of Shandong and Fujian next year. Tesco is spending $1.25billion over five years trying to break into the US. The move has been the subject of speculation since the first store opened near Los Angeles a year ago. The company has only recently begun to reveal financial infomation about Fresh & Easy, stating that sales in the six months to August 23 were £76 million while trading losses reached £60 million due to start up costs. Some analysts believe the sales performance is below initial expectations. Mr. Mason put the store opening programme on hold in March for three months to evaluate what Fresh & Easy could do better. It has since put far more emphasis on price promotions to emphasise its claim to be 20 per cent cheaper than traditional US supermarkets, such as Albertsons or Ralphs. Mr Mason conceded yesterday that the chain had found it harder than expected to crack America, not only because of the more mature nature of the market - “we are not filling a vacuum” - but also because of the economic slowdown. Fresh & Easy has been unable to open some stores in Phoenix and Las Vegas because property developers decided to shelve plans for certain sites. “You only have to look at the pronouncements of retailers that have been here more than a year,” Mr. Mason said. “Starbucks and Costco, to pick but two, have said that California, Arizona and Nevada are among the most difficult places that they operating in. Tesco has stores all over the world and there have been one or two weeks where customers everywhere wake up on a Monday morning and say: ‘Oh dear.' Times are quite tough.” However, Mr Mason insisted that critics doubting the potential of Fresh & Easy would be proved wrong, adding that to go from no stores to 100 in a year was an “exceptional” achievement. “We are absolutely thrilled with the customer response from those loyalists that have got it, and really loved what we do,” he said. “What retailer has better staff, better product quality and delighted customers and doesn't make it?”Fresh & Easy Buzz Analysis: It could be much fresher, it could be much easier: First, we must say the fact Tesco Fresh & Easy Neighborhood Market CEO Tim Mason chose to give his exclusive interview about a U.S. grocery chain, Tesco's Fresh & Easy, to a United Kingdom newspaper, demonstrates once again one of our arguments -- that he just doesn't get it.
We mean no offense by this; it happens to the best of us. We think it's more of a cultural thing -- just like if an American went to the UK and used his obvious extensive experience in U.S. food and grocery retailing to launch a British grocery chain.
It's difficult for any good grocer steeped in one nation's (even one with lots of similarities) ways of food retailing to move to another country and not impose his country's model of supermarket retailing in that new country across the water. This is especially true when that new country and global market for Tesco is the U.S., which is a far more mature market, including being regional and local in nature, than Tesco's other international markets are.
It's even more difficult to do food retailing American style if that grocer doesn't at least have the majority of his key executives steeped in that country's (the Western U.S. specifically) food retailing tradition. If those key executives, like the CEO, also are steeped in the retailing practices of their native country (the UK), there's nobody around at the top to tell him or her different. As a result, group think becomes the norm. 'That's how we do it in the UK, so that's how we will do it in the U.S.' Sainsbury's and Marks & Spencer, great British retailers both, learned this the hard way -- by failing in their respective U.S. ventures.
Since starting up Fresh & Easy in Southern California, Mason and his executive team have tried to force a British food and grocery retailing model on headquarters employees and Western United States consumers.
Food and grocery retailing in America is regional and local. That's why the U.S., unlike Europe, has so many big, medium-sized and smaller successful regional and sub-regional chains, and thousands of successful multi and single-store independent grocers. Imposing a British model, let alone even a U.S. national retailing model, on a regional market like the Western U.S. is a sure prescription for failure, as we've argued in
Fresh & Easy Buzz since the publication was started.
We believe this is what is at the heart of Fresh & Easy Neighborhood Market's real problems. Sure the financial crisis and recession are bad for business; for other grocery chains not just Fresh & Easy. But our analysis is that it is a symptom of Tesco's problem with Fresh & Easy and its need to retrench, rather than the cause.
Choosing to give an exclusive interview to an overseas newspaper even though Tesco is based in the UK, just further demonstrates the British-centric food and grocery retailing model Mason and company have imposed on what is supposed to be a grocery chain, Fresh & Easy, designed specifically for American consumers.
Tesco even went to great pains to leave Tesco out of both the corporate title of the company and from the store name. Nowhere is Tesco used in Fresh & Easy Neighborhood Market. The idea was to make it an American company. But it is that in name (or omission) only thus far. [Note: We aren't criticizing
The Times for doing the interview. Our comments focus on Mr. mason's choice of a non-U.S. paper in which to do the interview, thereby continuing to reinforce the ethnocentric model of Fresh & Easy.)
This imposition of the British model onto Fresh & Easy Neighborhood Market USA is one of the reasons the grocery chain has lost at least 12 category managers and buyers in less than two years.
A number of those former employees, most with extensive experience in U.S. food retailing, have told
Fresh & Easy Buzz sources and suppliers to Fresh & Easy they left because they felt Tim Mason and his top executives, all from the UK, just didn't get it -- that imposing a British food retailing model not only hasn't worked but has caused Fresh & Easy to miss opportunity after opportunity in the regional markets where its 100 stores are located.
Northern CaliforniaRegarding postponing going into Northern California,
Fresh & Easy Buzz has talked with a number of Northern California commercial real estate agents and developers who've been dealing with the grocery chain for some time regarding its store sites in the region. Last week a number of these sources told us they believed such a move might be in the works because they've been receiving lots of questions from company officials about lease-related issues. We've also learned the retailer stopped negotiations on a number of new locations it had been close to closing on.
We've written often about how difficult Northern California will be for Tesco to crack, particularly because it's been unable to crack the three markets it's already in -- Southern California, Metropolitan Las Vegas, Nevada and the Phoenix, Arizona Metro region.
Northern California is a much more unique and multi-competitive market (chains, independents, alternative formats) than all three of these other regional food and grocery retailing markets are.
For example, Northern California, particularly the San Francisco Bay Area, is one of the most vibrant multi and single-store independent grocer markets in the United States. The region also is headquarters to Safeway Stores, Inc., which with about 250 supermarkets in the market is the market share leader. Safeway is strong, especially in the Bay Area, and plans to do all it can to prevent Tesco from being successful on its home turf, as we've written about before.
Wal-Mart also is making a major push into Central and Northern California. Then there's Save Mart, Inc.'s Lucky chain (number two in market share), Raley's and many others. And on the specialty side Whole Foods, Trader Joe's and numerous regional players are strong, as is Costco on the deep discount side, along with numerous other discount grocers. And that's just for starters.
Postponing its move, or putting it on the shelf completely, into Northern California -- which we define in terms of Tesco's Fresh & Easy as from the Northern San Joaquin Valley (Modesto-Stockton) into the Sacramento/Vacaville Market, San Francisco Bay Area and Monterey Coastal area -- will be expensive for Tesco.
We've identified 45 planned (locked and loaded)Fresh & Easy locations in Northern California to date. Of these, the retailer has confirmed 37 locations -- 19 in the Sacramento/Vacaville region and 18 in the Bay Area, for a total of 37.
The other eight locations we've confirmed through our reporting, which includes documenting that Fresh & Easy has applied for off sale beer and wine permits for those 11 stores, along with documenting agreements or signed leases for the buildings or done deals for empty lots in those cases where the stores are new buildings rather than the remodeling of vacant buildings.
Those additional eight stores are in Modesto (two stores), the Sacramento/Vacaville region -- one store in Suisun and one store in Fairfield -- the San Francisco Bay Area -- two stores in Vallejo and one in Pacifica -- and one store in Seaside, which is located near Monterey on Northern California's central coast.
Tesco holds leases on most if not all of these 45 Northern California locations, as well as being in various states of remodeling and building on many of them. Even if the retailer postpones opening these stores in 2009, until say 2010, it's likely it will have to continue paying the monthly rent on nearly all of them, since according to a number of commercial real estate agents involved with Tesco we've talked with there doesn't appear to be escape clauses in most of the leases.
Additionally, with many of these 45 stores in various stages of being remodeled or built, there are contractor fees to pay and such even if Tesco ultimately decides to not move into the Northern California market. In other words, either postponing or pulling out completely will be costly.
Of course, based on what CEO Tim Mason told
The Times, the grocery chain doesn't appear to have the confidence to move forward into Northern California. So based on that lack of confidence, pulling out would be much cheaper than going in, since doing so with less than 100% confidence is no way to enter a market as tough and competitive as Northern California.
But one would then have to ask, if not Northern California, where else? Certainly going into the Chicago Metropolitan market, Florida and New York, all strategic U.S. markets Tesco has identified as potentials, would be a big mistake if conditions are such that the grocery chain would not move into Northern California at all, the market it identified through what it has said was extensive research the next most logical market after Southern California, Nevada and Arizona.
Postponing or putting Northern California completely on the shelf also changes Tesco's sales forecasts and profit targets for Fresh & Easy completely. Merely opening more new Fresh & Easy stores in its three current markets isn't going to get Tesco to those sales and profit targets because they are based on entering a new market, with all the criteria doing so implies.
A part of Tesco's strategy with Fresh and easy has been to literally grown the chain to profitability by rapidly opening new stores and entering new markets like Northern California. By postponing its march into Northern California -- or killing it completely -- Tesco will now have to dramatically increase sales at its existing stores in order to stem its losses. Without 40-plus new stores opening starting in early 2009 in Northern California, existing store sales will be much more important to Tesco's Fresh & Easy and Tesco plc.
We believe, as we've written about previously, that moving into Northern California now would be a financial disaster for Tesco's Fresh & Easy. But not for the reasons given by CEO Tim Mason -- the financial crisis and recession.
We first wrote many months ago that Fresh & Easy was ill prepared to enter the highly-competitive Northern California market. That it needed to prove itself in Southern California, Nevada and Arizona first, if for no other reason than for the sake of Tesco plc stockholders and Fresh & Easy store employees.
This argument was essentially laughed off though in interviews by CEO Mason and other Fresh & Easy executives. We leave it for you to decide.
We also wrote about how much stronger of a union region Northern California, particularly the San Francisco Bay Area, is compared to Southern California -- and particularly compared to Nevada and Arizona. This includes unionization of Tesco's Fresh & Easy distribution center proposed for Stockton, as well as the stores.
Every supermarket chain-owned distribution center in Northern California, as well as the region's two major grocery wholesale companies, Unified Grocers and C&S Wholesale Grocers, Inc., is union, even the Winco supermarketdistrbution chain facility in Modesto, California, despite the fact Winco is a non-union supermarket chain.
All of the supermarket chains and nearly every independent grocer of note, even most of the larger single-store independents, are union shops in Northern California.
Wal-Mart, Costco, Whole Foods Market and Trader Joe's are non-union -- but they aren't supermarket chains. They are classified as specialty grocers (Whole Foods and Trader Joe's) and mass merchandisers (Wal-Mart and Costco.) And in the case of Wal-Mart and Costco, food and grocery retailing is only a portion of their merchandising format. Fresh & Easy on the other hand is 100% food and grocery retailing. And since it is not positioned like a specialty grocer like Trader Joe's and Whole Foods are, that makes it easier for the UFCw union to classify it as a supermarket.
Winco, as we mentioned, is a non-union supermarket chain. But its the exception. And to date only has a handfulful of supermarkets in Northern California. The Idaho-based chain also is employee-owned, which makes it a further exception to the union norm for supermarket chains in the region.
Fresh & Easy (theoretically) should be strong in a recessionIt's ironic Tesco is choosing to scale back it expansion of Fresh & Easy Neighborhood Market at this time actually. After all, based on the Fresh & Easy format (at least as stated by Tesco), -- which is a neighborhood food and grocery store offering basic groceries and fresh foods at the lowest available prices, the stores should be doing well in a recessionary economy. Tesco also claims its everyday prices at Fresh & Easy are 15% -to- 20% lower than the everyday prices of its supermarket competitors. Isn't that what shoppers are looking for in a recession -- savings?
For example, discount food and grocery retailers like Wal-Mart and Aldi are doing well in the down economy, taking business away from conventional supermarket chains in particular.
Costco also is doing well, although it had a 1% earnings loss reported this week. But that's in large part because of a significant drop in consumer spending across the board on non essential food and grocery items. A major portion of Costco store revenue comes from selling household goods, electronics, books and other general merchandise items. In fact were it not for Costco's strong food and grocery category sales in the quarter just ended, that loss would have been much greater, according to analysts.
But the problem with Fresh & Easy is that its been merchandising and marketing its stores more like they are specialty markets rather than as low overhead, small-format discount food and grocery stores.
Look at Fresh & Easy's last promotion, for example, for election day 2008. Instead of promoting basics and essentials like milk, eggs, bread, fresh chicken, hamburger, lettuce, laundry detergent, bathroom tissue and other core food and grocery items at super low prices befitting a recessionary economy (a potential theme: "Basic grocery items at basic prices for basic Americans on election day") and consumers' pinched pocketbooks, Fresh & Easy promoted specialty foods like fancy cheeses and smoothie drinks. Such a promotion is one a grocer would run to target yuppies in an up economy rather than average consumers who across the board are having a tough time making ends meet.
These types of promotions, which the grocery chain seems to do more often than value-based ones on food and grocery essentials, also cretes an impression the Fresh & Easy store brand (and format) is a specialty one rather than an everyday neighborhood grocery market format and store.
If you don't believe our analysis do a simple research experiment which we've done many times, asking at least 200 Fresh & Easy customers to date outside of various markets. Ask this simple questioin of them: Is Fresh & Easy a specialty grocery store more like Trader Joe's or is it more of a basic supermarket, one where people do most of their shopping, like Vons, Ralphs, Bashas or Stater Bros.?
About 65% of those we've asked thus far said it's a specialty store similar to Trader Joe's. Close to 25% said they had no idea. Five percent just walked away. Only five percent said they thought Fresh & Easy was a basic supermarket where people do most of their food and grocery shopping.
While we don't suggest this is a scientific survey, although it actually is in part, nor is it a perfect sample size, it is very illustrative -- especially when combined with other research we've conducted -- of consumer perception of what the Fresh & Easy stores are, and who they are for.
In other words, either Fresh & Easy has done a great job positioning its stores as specialty markets similar to Trader Joe's -- which they aren't according to the Tesco Fresh & Easy -- or they have failed thus far to position Fresh & Easy as what they say it is: A combination basic grocery and fresh foods store, with a convenience-orientation, that's for everybody -- a store to do ones primary food and grocery shopping at.
When we saw the Fresh & Easy election day promotion the week of November 4, we collectively scratched our heads. It's not that the promotion was bad. Not at all. It was a good promotion for a specialty grocery chain. But that isn't what Tesco's Fresh & Easy is. Further, based on what Tesco says Fresh & Easy is, a low-price food and grocery store for the masses, any election day promotion for such a retailer should have taken advantage of the occassion to tout its value proposition big time, as we suggested earlier more specifically.
In our analysis about 70% the time Fresh & Easy's corporate merchandising and marketing looks more like Whole Foods Market or Trader Joe's than what it says it is, a neighborhood food and grocery market offering basic groceries and fresh foods at everyday low prices; a store for everybody.
Maybe Fresh & Easy should go all the way, become a fully and clearly stated specialty grocer like Trader Joe's and refocus the business on a selective market, national retailing strategy like Trader Joe's does.
After all, Trader Joe's has about 312 stores in the U.S., just slightly 200 more than Fresh & Easy currently has, and has annual sales of about $6.5 billion. Tesco's Fresh & Easy on the another hand has 100 stores and current sales of about $400 million. You can do the math. But at its currrent sales rate, with 212 more stores (equal to Trader Joe's current 312) Fresh & Easy would theoretically have annual sales of $1.2 billion, compared to Trader Joe's $6.5 billion with 312 stores.
Could Fresh & Easy really grow its way organically to $6.5 billion with 312 stores in five years, ten years, 15 years? You be the judge.
Of course Trader Joe's has been around for about two decades now -- but for only about 10 years outside of the Western U.S. That obviously gives it an advantage.
On the other hand, Trader Joe's only sells specialty and natural products; niche products. This means it isn't even the primary shopping venue for the majority of consumers. Grossing $6.5 billion a year for 312 stores, 10,000 -to- 13,000 square foot stores at that, would be considered excellent even for a similar chain that sold everyday items along with the natural and specialty products.
But unlike Trader Joe's, Tesco's Fresh & Easy has the benefit of having a merchandising mix that includes at least a 50% or 60% ratio of basic, essential food and grocery items -- conventional packaged goods and perishables, household items like basic laundry detergents and paper towels and the like -- which means its sales per square foot should be much higher on average than currently is the case. It also means it should be more of a primary shopping venue than Trader Joe's is -- but it isn't in the markets where Fresh & Easy stores and Trader Joe's stores are located.
We suggest the major difference between Trader Joe's and Fresh & Easy though is Trader Joe's positioning as a specialty grocer is clear -- and thus in part its merchandising and marketing, based on that clear identity and positioning is excellent.
Tesco's Fresh & Easy though is a format muddle, a chain with an identity crisis self imposed. Its part basic grocery store, part upscale retailer, part specialty food store and part prepared foods market. The retailer has thus far failed to make the sum of all its parts equal a whole. In fact it's parts are greater than its whole.
And its merchandising and marketing reflects this identity crisis. However, from that perspective its positioned itself far more as a specilty grocer chain than as a neighborhood grocer for everybody -- its stated positioning. As a result, the merchandising and marketing to date has communicated this identity crisis. Until Tesco developes a clear format concept for Fresh & Easy, and then positions and brands the stores to that format, it will not find success, in our analysis.
Fresh & Easy also has done such a poor marketing and merchandising job by using it deep discount coupons so regularly (chronically is a better term) since the first store opened last October that it has virtually trained shoppers to believe that without the $5 off purchases of $20 or more coupons or $6 off purchases of $30 or more (the current coupon version) coupons the stores are expensive. What happened to the everyday low price premise and positioning? The answer: it was never executed. Fresh & Easy has literally created a new consumer species with those coupons: "Couponous Freshneasynous" -- The Fresh & Easy deep discount coupon addict.
We've talked to scores of shoppers, received dozens of emails from readers, and read scores more comments on Blogs and Web sites (including comments on Fresh & Easy Neighborhood Marketing marketing director Simon Uwins' own corporate marketing Blog) in which shoppers said without the coupons, which the grocer has unsuccessfully trying to limit, there weren't likely to buy much if anything at Fresh & Easy stores.
Deep discount coupons should be used for two primary reasons: (1) to generate new customer trail in the stores and (2) to increase shopper market basket (overall total purchase dollar amount per shopping trip) sizes. Its also commonly called "average ring" in U.S. food retailing.
Fresh & Easy has failed on both counts by the way its chronically used the deep discount coupons in our analysis. In order to be successful, the coupons need to be used infrequently (that's what you do with promotional tools) and have higher minimum purchase requirements. For example, a $10 off purchases of $50 or more and a $25 off purchases of $100 or more coupon set would be a good idea. Used promotionally though, not chronically.
The current deep disount coupons have become a part of everyday business and shopping at Fresh & Easy stores because they've been always available. It's very difficult for "Couponous Freshneasyous" to stop using the coupons cold turkey after all.
Coupons in this value range -- the $10 off $50 and $25 off $100 -- do the job of generating new customer trail as well as motivating and increasing shopper market basket size.
Fresh & Easy's current $6 off purchases of $30 or more coupon for example demonstrates to us the grocer is having a big problem increasing its average market basket above $30, for example. If not, why would a retailer reward a shopper with a 20% discount for spending merely $30 at a grocery store? A $30 purchase might be good at a traditional convenience store but its poor for a supermarket.
Consumer-centric, not retailer-centricIn terms of our argument that Tesco Fresh & Easy CEO Tim Mason and his top executives just don't get it, that imposing the British food retailing model is failing, we suggest you read this quote from his interview with
The Times' reporter:
"We are absolutely thrilled with the customer response from those loyalists that have got it, and really loved what we do,” he said. “What retailer has better staff, better product quality and delighted customers and doesn't make it?"It isn't the job of consumers to "get" a food and grocery retailer's format, positioning and way of selling groceries. Rather, it's the retailer's job to design a retailing format and merchandising and marketing program, and position and operate in such a way that it creates as many regular customers as it can, which means success. It's called "consumer-centric" retailing; it's what grocers do if they want to be successful. Mr. Mason's comment suggests what we call "retailer-centric" retailing. In other words, if you build it, they will come. Doesn't work.
We also find the loyalist comment interesting. And there are a number of Fresh & Easy loyalist customers out there, without a doubt. And for some good reasons. However, there aren't enough loyalists to make a business.
We also can't help remembering what happened to the British military a couple hundred and thirty two or so years ago when it relied on what it called
British loyalists, British nationals living in the then colony of Britain called America, to help it win the war of independence waged by a rag tag bunch of Americans, many of whom were former British nationals who fled their country for the new world. The so called loyalists stop being loyal to Queen and country once they thought the Americans, which they finally figured out they too were, had a chance of winning the war. And as they say -- the rest is now history.
Supermarket loyalists can do the very same thing. After all, weren't today's Fresh & Easy loyalist likely loyalists of another grocery chain a little over a year ago, before the first Fresh & Easy store opened, and even less than a year ago in many cases, before the current Fresh & Easy store in their respective neighborhood opened.
Also ask Whole Foods Market about loyalists. No food retailer in the U.S. has had a more loyal following over the last 15 or so years than Whole Foods has. A cult of loyalists even. But beginning earlier this year, as the economy starting getting really bad and food prices began to soar, many of those Whole Foods loyalists shed their pledges of loyalty and went searching for grocers offering lower prices. And even more loyalists have fled Whole Foods over the last three months as the economy has worsened, so much so that Whole Foods reported a 40% drop in earnings for last quarter and its common stock is as of today 70% lower than it was just one year ago.
We've heard many versions of Mr. Mason's comment in the quote from The Times: "Shoppers who get it" (what Fresh & Easy is), numerous times in the last year from Tim Mason and a number of his top executives. So many times in fact it sounds more like they are conducting a treasure hunt rather than positioning a supermarket chain. Frankly it also comes off as a self-congradulating pat on the back. 'See, we must be on to something because there's a core group of loyalists that get it.' We can't help but wondering how that would go over say in a meeting with Tesco plc's ten largest shareholders.
It is a comment that's completely foreign to successful American grocers. They see their job as constantly coming up with ways to appeal to consumers rather than hoping a certain segment "gets" what they are doing, and being appreciative of it And when not enough consumers "get" what those retailers are doing, which is the case with Fresh & Easy, those retailer's change, adapt. That's what Mr. Mason and company should be focusing on, along with dropping that "those who get it" language. It makes them look like they...well, don't get it. Notice not one mention in the published interview about what Fresh & Easy plans to do better?
We do agree with Tim Mason's comment about Fresh & Easy store-level employees though. In our observation they are the grocery chain's number one asset.
In fact it is to a large extent because of these excellent store level employees, and their being able to keep their jobs if they want them, we suggest Tesco plc CEO Sir Terry Leahy, who we think is one of the most talented food and grocery retailing executives around, needs to take a very close look at Fresh & Easy Neighborhood Market and how it is being run. Sir Terry, Fresh & Easy looks nothing like you said it would be. After a year of operations, aren't you concerned why that is the case?
For example, in this recessionary economy, Fresh & Easy should daily be hammering home its value proposition. Something like this:
"Fresh & Easy markets are basic, smaller neighborhood discount grocery stores (a
minimalistic and even nostalgic message). This allows us to keep our prices low. In tough times, when you (consumers) are having to cut back and live a simplier life, isn't it good to know you have a simplier, lower priced alternative, Fresh & Easy." This message then has to be constantly and consistantly hammered home with integrated merchandising, marketing and communications. Walking the talk as well as talking it.
Instead of promoting berry flavored gourmet cheese and Spanish sparkling wines, Fresh & Easy needs to focus on the basics: Essential food and grocery items at the lowest possible prices. We have just three words for it: value proposition, value proposition, value proposition. All other merchandising, marketing and promotion -- specialty, envoronmental and the like -- should be secondary and tertiary to the value message focus and positioning.
This is something Fresh & Easy should have starting doing at the first signs of a recession -- say in March-April, 2008. But its November, 2008, the economy is in the tank, and Fresh & Easy has yet to create a solid value proposition-based marketing and merchandising program. Wal-Mart has. Safeway has. Kroger has.
Is it time for Sir Terry to sit in the front seat instead of the back?Tesco's problems with Fresh & Easy go far beyond postponing or even killing completely its plans to enter the Northern California market. We've discussed a number of those problems in this piece.
Our suggestion to Tesco plc CEO Sir Terry Leahy is, if you want to succeed with Fresh & Easy in America, its probably time to get out of the back seat, jump in the front seat, and even put your hands on the steering wheel a bit. Do a complete evaluation of the operation, from the top on down, in terms of apprach, strategy implementation and headquarters operations. Changes geared to success are needed.
It's been a year since the first Fresh & Easy store opened and well over two years since Tim Mason and his top executives began what amounts to attempting to run a British grocery chain, using British food retailing systems, in the Western U.S. states of California, Nevada and Arizona, which just happen to be among the most "American" of American food and grocery retailing markets. You know, the wild west and all that.
We don't argue the current financial crisis and recession make it difficult for any grocery chain to launch a major expansion such as Fresh & Easy's into Northern California. Others are cutting back as well. But they aren't start ups who've said all along plans called for investing lots of capital.
But we do argue that despite the serious economic mess the U.S. is in -- it is far from the only or even primary cause of the current state of Fresh & Easy.
Things could be far fresher and far more easier though for Tesco with its Fresh & Easy Neighborhood Market USA.
But until it stops trying to impose a British food and grocery retailing model and strategy at Fresh & Easy and changes to a Western U.S. regional retailing focus and strategy -- along with implementing a localized merchandising, marketing and operational approach in its current three market regions -- and couples this new model with a focus on the value proposition -- it's our analysis Tesco's small-format, convenience-oriented Fresh & Easy Neighborhood Market food and grocery retailing venture has little chance of suceeding beyond mere survival, if that, despite the fact it has the potential to be successful.
The opportunity still exists for Tesco's Fresh & Easy to be a success in America. Of course CEO Mason argues in the interview, as well as elsewhere publicly, the only problem facing the grocer is external -- the current financial crisis and recession. We respecfully disagree.
It's our analysis that in order for Fresh & Easy Neighborhood Market to succeed, especially on the terms Tesco has set for its success, Tesco will have to make serious changes, including the ones we've outlined in this piece. We will explore more of those potential changes in upcoming pieces in
Fresh & Easy Buzz.
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