Fresh & Easy Neighborhood Market Combining Big Seasonal Foods Assortment With Promos and Discounts to Lure Holiday Shoppers

Holiday 2011 Merchandising & Promotion

Tesco's Fresh & Easy Neighborhood Market is out with an online (and print version) holiday food and drink guide that's packed full of seasonal fresh-prepared entrees, side-dishes, appetizers, ready-to-eat desserts, fresh meats, gourmet groceries, wines and more.

The Thanksgiving and Christmas season food and drink items featured in the holiday guide are set to be available beginning tomorrow, according to Fresh & Easy Neighborhood Market.

Fresh-prepared foods in abundance

Among the many product offerings in Fresh & Easy's 12-page online holiday food and drink guide, which you can view here, include an impressive assortment of its own-brand seasonal ready-to-eat and ready-to-heat refrigerated, fresh-prepared foods, made at its kitchen facility in Riverside County, California.

A small sampling of those offerings include: Roasted Butternut and Beet Salad ($6.99); Apple-Cranberry Stuffing ($6.99/26oz); Butternut Squash Risotto ($7.99/46oz); and Pumpkin Bisque ($3.69/22oz), along with numerous other Thanksgiving and Christmas dinner-themed fresh- prepared food items.

Baked goods, desserts and more 

The 184-store El Segundo, California-based fresh food and grocery chain is also offering numerous ready-to-eat holiday-themed desserts in its holiday food guide. For example, there's Pumpkin Cheesecake ($6.99/40oz); Traditional Italian Panettone Bread ($5.99/24oz); Pumpkin-Pecan Coffee Cake ($3.99/16oz); Eggnog Gelato ($2.99 pint); and much more.

There's also some very decadent gourmet desserts that can do double-duty as gifts, as well as for enjoying at home. For example, there's a Cranberry & Almond Carmel Apple, at $9.99 each - yes, that's each - and the Espresso Truffle Trio ($5.99/3oz).

The guide also features numerous holiday-oriented wines and other drinks, along with specialty seasonal coffees like Organic Ginger Bread Ground Coffee ($6.88/12oz).

Holiday meals - online ordering option

Fresh & Easy is also offering three fully-prepared holiday meals: A turkey dinner for eight, for $50; a ham dinner for eight ($45); and a beef rib roast dinner for eight ($65).

The turkey and beef roast dinners come with three side-dishes and gravy. The ham version comes with four sides and a honey-brown sugar glaze. There are 11 side-dishes shoppers can choose from.

The pre-cooked, ready-to-heat dinners can be ordered by shoppers online, as well as in the stores. The deadline for Thanksgiving is today, for pick up at the designated store from November 21-24.

Fresh & Easy hungry for holiday dollars

Tesco's Fresh & Easy Neighborhood Market is aggressively going after shoppers for the Thanksgiving holiday.

For example, it's offering Jennie-O brand frozen turkeys for 39-cents a pound, which (see out twitter feed) is the best price we've found so far in Northern California, and the second-best promotional offering we've found in Southern California, after the Superior Grocer's chain, which is offering branded whole frozen turkeys for 37-cents pound in its 30-plus supermarkets in the region.

Fresh & Easy is offering Jennie-O fresh turkeys for $1.19 pound. That price is at the low-end - but not the lowest promotional price - in California, Nevada and Arizona.

For example, Safeway stores (Safeway and Vons banners) in offering its Safeway Select brand fresh birds at 99-cents pound in all three states. Safeway has around 600 stores in California, Nevada and Arizona.

A couple other grocery chains in California, such as 133-store West Sacramento-based Raley's in the north, also have fresh birds (Raley's brand) on sale for 99-cents pound.

Fresh & Easy's $1.19 pound price is a good one though, as a number of other grocery chains in California, Nevada and Arizona are offering comparable brand fresh turkeys for $1.29-$1.49 pound.

Deep discounts: coupons, bonus points

Fresh & Easy, which has 135 of its 184 stores in California - there are 28 units in metro Phoenix, Arizona and 21 stores in metro Las Vegas, Nevada - is also doing heavy deep-discounting this month, distributing its 20%-off store coupons weekly online and in its paper-version weekly ad flyers.

So far this month Fresh & Easy has distributed three $10-off (purchases of $50 or more) online discount store coupons via its friends of fresh & easy e-mail program - the first on November 2, another coupon on November 9, and a third $10-off/$50 or more voucher on Wednesday. Today Fresh & Easy sent out another new "friends" e-mailer and included the Wednesday coupon in it.

The store coupons are also being distributed in Fresh & Easy's direct-mail flyers, and in some cases in full-page newspaper advertisements the grocer has run this week in selected markets. We've also seen store workers handing out the coupons to customers in some of the Fresh & Easy grocery markets we've visited this week.

The friends of fresh & easy program is now part of the grocery chain's loyalty card program of the same name. However, customers need not have a loyalty card to use the store coupons.

In fact, the online coupons are available all over the web because various coupon and mom bloggers post them on their sites.

Do an Internet search for "Fresh & Easy coupons" or a similar version, for example, and you'll  see what we mean.

Fresh & Easy Neighborhood Market launched the loyalty card in October. The card gives customers bonus points which they can convert to discounts on their grocery purchases.

For example, shoppers who sign up this month get not only the 250 points that are an incentive for joining, but also an additional 250 bonus points that Fresh & Easy is adding as a bonus. The 500 points are good for $5 off any purchase over that amount.

Additionally, Fresh & Easy is giving members of its "Friends" loyalty card two-times the bonus points this month on numerous items they purchase. For example, last week, when the grocer was offering the frozen Jennie-O brand turkeys for 59-cents a pound (it slashed the price on the birds by 20-cents pound on Wednesday), it gave card-holders 500 bonus-points, which is the equivalent of a $5 coupon.

Holiday sales period key

The Thanksgiving holiday period is a crucial one for Tesco and its Fresh & Easy chain, which is in-part why the heavy discounting is taking place. Not only is Thanksgiving the number one holiday for consumers food and grocery spending - and the most competitive among grocers - in the U.S. (Christmas is second), Tesco's fiscal-year 2011/12 third quarter is over at the end of this month. The quarter began August 28.

The six months from August 28, 2011 to the end of February 2012, when its 2011/12 fiscal-year ends, is an important period for United Kingdom-based Tesco because in March 2012 the one-year clock starts - to 2012/13 fiscal-year-end (February 2013) - which is when CEO Philip Clarke says the global retailer will break-even with Fresh & Easy Neighborhood Market.

Tesco recently reported a fiscal 2011/12 half-year loss for Fresh & Easy Neighborhood Market of $112 million, on sales of $470 million. The loss an about 21% improvement over the loss of the previous fiscal half-year period.

Fresh & Easy needs to continue the trend in order to have a chance of achieving the goal set by Tesco's CEO. Tesco will report the fiscal 2012/13 results in April 2013.

Meanwhile, Fresh & Easy Neighborhood Market has put together a comprehensive, interesting and solid holiday season promotional guide, particularly when it comes to the numerous own-brand fresh-prepared foods and baked goods/desserts offered.

Right now its all about selling.

But the break-even deadline, which is less than 16 months away, is also very much top-of-mind at Tesco's global headquarters in the United Kingdom and at Fresh & Easy's headquarters office in El Segundo, California - and in the Fresh & Easy stores, with its employees.

To see all of the food and beverage items featured in Fresh & Easy's Holiday Guide, click here. A zip code is required to view the guide. If you don't live where there's a Fresh & Easy store, just type in the following zip code: 90266.

General Merchandise 'Growing Legs' at Tesco's 'Food-Focused' Fresh & Easy Neighborhood Market

Merchandising at Tesco's Fresh & Easy
News/Analysis/Commentary

Tesco is hoping the addition of more general merchandise items to its 175 Fresh & Easy Neighborhood Market stores in California, Nevada and Arizona, along with featuring items in the category more prominantly in displays, will help it grow the average market basket size purchases (the amount spent on each store visit) its customers make.

The more money a shopper spends each time he or she visits a grocery store is important in the grocery business because retailers operate on extremely slim profit margins, which are reduced even further by the items promoted each week in advertising circulars and in-store, along with - and particularly in Fresh & Easy's case because it uses them as a regular part of doing business - other vehicles like discount store coupons, in which the discount percentage comes out of the grocer's profit margin.

What grocers want customers to do is, along with buying the items offered on promotion and the basics on their shopping lists, to also pick-up impulse items offered for sale at full margin, such as that decadent chocolate cake from the bakery, a couple pints of Ben & Jerry's ice cream from the freezer case, a prepared meal from the deli, and household items like can openers and cooking pans, for example.

For those of you not familiar with the ways of grocery store merchandising, this is why you see inviting (and often higher retail priced) food and non-consumable impulse-oriented items like fresh flowers displayed in can't miss locations inside supermarkets, as well as why those useful household items like wine cork openers and ice cream scoops are displayed on clip-strips next to compatible grocery products on store shelves. It's all about getting shoppers to buy more items, hopefully at full margin, than they planned to before entering the store.

For example, in a May 3, 2011 story - Tesco's Fresh & Easy Neighborhood Market Launching 'Clip-Strip' Cross-Merchandising Program in Stores - we reported Fresh & Easy Neighborhood Market was launching a clip-strip merchandising program in its stores, featuring an assortment of general merchandise items.

The general goal of such programs, which nearly every U.S. grocery chain uses in one form or another, is to create added sales by placing items on shelving strips throughout a store, tied-in to compatible products on store shelves, as a way to encourage shoppers to buy an item or two (or more) on impulse.

Who doesn't need another ice cream scoop, for example?

And there's always a better corkscrew than the one you've been using at home for five years.

How about measuring cups for the kitchen? Can never have enough of those, right?

Then there's the toys. Kids are the original impulse shoppers after all, regardless if mom likes it or not, although grocers need to be careful and not go to far with the toys, since mom may decide to shop elsewhere.

Since we reported on and detailed the new clip-strip program at Tesco's Fresh & Easy in our May 3 piece, we've noticed in our coverage of the food and grocery chain that its merchandisers and retail operations chiefs have been adding additional general merchandise items to the stores, displaying the products on end-caps and, in the words of one of our correspondents, on "clip-strips with legs."

For example, below is one of those "clip-strips with legs" that recently sprouted in most of the 175 Fresh & Easy stores. The photograph (as were the other two below) was taken by a Fresh & Easy Buzz correspondent in one of the grocery chain's stores last week.

The clip-strip rack, which includes kitchen items like ice cream scoops, pizza cutters, kitchen shears and measuring spoons, is attached to an end-cap display that features a variety of consumable and general merchandise items, all with a picnic or cookout theme.

Tesco's Fresh & Easy is also currently featuring general merchandise items on two end-caps in its 10,000-12,000 square-foot stores.

The end-cap above features a variety of household and kitchen-oriented items - glass tumblers, bowls, serving trays, paper pates, napkins and flatware.

Also notice the related items on the "clip-strip with legs" on the side of the display above.

On the second end-cap (below), Fresh & Easy is offering an assortment of reusable carry bags in a variety of different sizes, shapes, colors and price-points.

The clip-strip (including the ones with legs) and end-cap display programs are chainwide at Tesco's Fresh & Easy.

Fresh & Easy Neighborhood Market has had a general merchandise in-and-out merchandising program operating in its stores for some time. However, the current clip-strip and display programs are the most extensive general merchandising offerings, particularly in terms of store square-footage and display space, we've seen in the stores since we began covering the grocer in late 2007.

Analysis & Commentary

We offer three merchandising takeaways from Fresh & Easy's new strategy of increasing both the number of general merchandise items it offers in its stores and the more prominant display space the grocer is giving the category and items:

>When Tesco launched Fresh & Easy in November 2007, its merchandising plan was for the stores to be almost completely food-focused, offering only a very limited assortment of general merchandise items in the grocery markets, along with devoting very little if any off-shelf display space to the category.

That merchandising strategy has changed completely.

As you can see from our reporting here and in May, Fresh  Easy Neighborhood Market has embraced the general merchandise category, at least in a clip-strip and in-and-out off-shelf merchandsiing way, fairly strongly.

>Fresh & Easy's adding of the clip-strip program and increased displaying of general merchandise items on store end-caps, which is something nearly every U.S. grocer does to various degrees, demonstrates Tesco is begnnng to realize nearly four years after launching that it might be wise to emulate successful merchandising programs that have been tried and true in the U.S. food and grocery retailing industry for decades.

The big question with this form of imitation though is: Does it fit with the Fresh & Easy format? Our answer is no.

However, if it helps Tesco increase sales and average market basket purchase size in its Fresh & Easy stores, then at this point in the game for the retailer, whether the general merchandise push fits with the format or not is really a moot point. Although it is an important merchandising question in terms of its working because such programs, when not compatible with a given format, can end up as more of a negative than they canbe  a positive for a grocery chain.

But Tesco has entered "crunch time" with its Fresh & Easy Neighborhood Market chain, which it says will break even with by the end of its 2012/13 fiscal year, a mere 21 months from now. Most recenty it lost $300 million on Fresh & Easy, in its 2010/11 fiscal year, which ended February 26, 2011.

Therefore it's probably wise to experiment as much as it can from a merchandising standpoint if it hopes to come close to break-even in 21 months.

>Lastly, will the increased general merchandise product selection (clip-strip program) and display focus in-store help Fresh & Easy to increase average market basket purchase size and therefore assist in increasing same or comparable store sales at the chain?

It's impossible to tease out to any precise degree how much a given merchandising program can contribute to those two metrics, unless such a program is a major one and there aren't numerous other merchandising changes going on at a chain at the same time.

Neither is the case with Fresh & Easy. The general merchandise program is small and incremental-oriented, although still significant.

It's also one of numerous changes and additions Tesco is currently making at Fresh & Easy Neighborhood Market.

We broke the news about the major changes planned for Fresh & Easy in these two stories -  April 12, 2011: Fresh & Easy Neighborhood Market to Shrink Health & Body Care Sections in Stores; Add Candy and Snack Items, and May 18, 2011: Major Changes Coming to Tesco's Fresh & Easy Neighborhood Market Stores - in fact.

Fresh & Easy is starting the health and personal care category section and bakery category section resets and additions in selected stores this month, according to our sources.

On Tuesday, Tesco reported an 11.1% first quarter gain in comparable-store-sales for its Fresh & Easy Neighborhood Market chain. As we noted in our story here - June 14, 2011: Tesco Reports First Quarter Comparable Sales Growth of 11.1 % For Fresh & Easy Neighborhood Market - the gain is significant for the chain despite the deep-discounting that helped Fresh & Easy achieve the boost.

But many problems and struggles remain, including: sustaining that comparable-store-sales gain, increasing sales at numerous under-performng stores and dramatically raising Fresh & Easy's whopping negative-38% margin, to name three

Tesco is counting on the general merchandise emphasis and the other changes and additions detailed in the stories linked above, along with the continued use of its discount coupons and other promotional vehicles - plus a new television adverising campaign it's preparing to launch in Southern California, where 101 of the 175 Fresh  Easy stores are located - to keep comparable-store-sales at Fresh & Easy growing at or near double-digits between now and the end of its 2012/12 fiscal year, when CEO Philip Clarke says the United Kingdom-based global retailer will break-even with its U.S. chain.

Related Stories

May 18, 2011: Major Changes Coming to Tesco's Fresh & Easy Neighborhood Market Stores

May 3, 2011: Tesco's Fresh & Easy Neighborhood Market Launching 'Clip-Strip' Cross-Merchandising Program in Stores

April 12, 2011: Fresh & Easy Neighborhood Market to Shrink Health & Body Care Sections in Stores; Add Candy and Snack Items

Also see these links - buying and merchandising, category merchandising, clip-strip programs, deep discount coupons, grocery merchandising, store discount coupons Category Management Report, HABC category, resets - for more related stories.

Tesco's Fresh & Easy Neighborhood Market Launching 'Clip-Strip' Cross-Merchandising Program in Stores

Breaking Buzz
News & Analysis - Merchandising

Tesco's  Fresh & Easy Neighborhood Market is launching a "clip-strip" cross-merchandising program in its stores, featuring a selection of numerous packaged general merchandise items like kitchen gadgets, cookware, toys and other products, merchandised on plastic "clips" attached to grocery shelving strips throughout the aisles.

The general merchandise "clip-strip" program was launched in the first batch of Fresh & Easy stores a little over a week ago, and is being implemented in all of the grocer's 175 units in California, Nevada and Arizona.

Tesco's Fresh & Easy Neighborhood Maket has not announced the new merchandising program publicly.

The general merchandise products are supplied to Fresh & Easy Neighborhood Market by distributor ATA, which for many years has implemented similar "clip-strip" and "j-hook" merchandising programs for grocery chains - Kroger Co. and Safeway Stores, Inc. are two examples -  independent grocers, drug stores, convenience stores and mass merchandisers.

ATA, which was founded in 1991 by Sumner Bennett and has distribution centers in Hayward, California and Nashville, Tennessee, is also a full-service "rack-jobber," meaning it offers merchandising services for its "clip-strip" programs, providing the labor to stock and replenish the general merchandise items for retailers. ATA is providing this service for Fresh & Easy Neighborhood Market.

As you can see in the photographs accompanying the story, the general merchandise items are cross-merchandised throughout the Fresh & Easy stores. In the stores we visited, the only sections without the "clip-stripped" products were the refrigerated/frozen food cases and fresh produce.

The philosophy and strategy behind "clip-strip" merchandising programs, which U.S. grocery stores have been using for many decades, is to create impulse sales by cross-merchandising related non-food and consumable items (as you can see in the photos) adjacent to compatible products on the shelves, in order to generate added impulse sales from shoppers. Cross-merchandising wine bottler openers next to wine and champagne (see the photo below), for example, frequently results in these types of impulse purchases by shoppers.

A number of grocers (some of Safeway's divisions, for example) also include higher-ring, higher-margin consumable items in their "clip-strip" programs, such as packaged sun dried tomatoes, dried mushrooms and gourmet dry-sauce mixes (near dry pasta), in order to achieve the same objective - impulse sales from shoppers.

All of the items we saw in the Fresh & Easy stores we visited were non-consumable, general merchandise products, however, which isn't uncommon, as numerous other grocers do the same.

Launching the "clip-strip" cross-merchandising program and using ATA to handle it is a good idea for Tesco's Fresh & Easy for a variety of reasons - although because of the limited and incremental nature of such programs it will result in minor overall added sales for the grocery chain.

First, Fresh & Easy needs to increase its customer average market basket size - the dollar amount of groceries a shopper buys during a visit to one of the stores. Therefore, any form of merchandising - and particularly a cross-merchandising-oriented effort like the "clip-strip" program that has the potential to add impulse purchases to customers' regular, planned item purchases - is a net positive for the grocery chain.

For example, suppose Jane A. Customer buys $20 dollars worth (planned purchase) of food and groceries at her local Fresh & Easy market. But while shopping in the store's aisles, she notices a wine opener, a plastic cat food can lid and a plastic "Pop Tart" container - all of which are currently available on "clip-strips" in the stores we visited - and tosses the three items in her shopping cart, which total, say, $7, bringing Jane's average market basket order for that particular shopping trip to $27, rather than the original $20 she planned to spend.

The result: An added $7 Jane might not have spent if the "clip-strip" program didn't exist at Fresh & Easy - as was the case until now - along with offering a potentially higher average market basket (purchase) for the store.

Additionally, "clip-strip" programs utilize available shelf space because the items are attached to the grocery shelf strips, thereby adding incremental sales without any additional cost to the retailer of added shelving or fixtures.

If the items sell well in a store, they also add to the store's average sales-per-square-foot metric, since the "clip-stripped" items are offered within a store's existing walls.

The "clip-stripped" general merchandise items, which are rotated periodically, are also almost always offered on a "guaranteed sale" basis by ATA and other distributors. In other words, if certain items don't sell over a given period of time, they're either traded out by the distributor for different items of equal dollar value or credited on the invoice to the grocer by the distributor.

Further, when grocers select to take the full-service merchandising service offered by ATA and other "rack jobbers," for "clip-strip" programs, that means the distributor sends merchandisers into the stores to stock and replenish the general merchandise items on a regular basis, which means no labor cost for the grocer. ATA is providing this service-level to Tesco's Fresh & Easy.

Lastly, the programs also offer advantageous seasonal opportunities for grocers. For example, in the summer months, items related to outdoor activities - picnics, cookouts - can be featured on the shelf strips next to related food and grocery items like condiments, beverages, hot dog and hamburger buns and others. Doing this takes advantage of seasonality to spur impulse sales.

The "clip-strip" item selection can also be partially geared to neighborhood demographics. For example, if a grocer desires to, it can have ethnic-oriented general merchandise items included in the overall merchandise  mix, say for its stores in neighborhoods with high Latino or Asian populations. Chopsticks are a good example, as are tortilla warmers.

And let's not forget the toys - a selection of which are almost always included in grocery store "clip-strip" programs, including the one being launched at Tesco's Fresh & Easy - frequently to the displeasure of mothers and fathers who take the kids grocery shopping.

Toys, largely because of those little customers sitting in the shopping cart child-seats, often are among the best-selling general merchandise products offered in "clip-strip" programs, regardless of where the items are placed on the shelf strips in stores.

But placing toys in, for example, the breakfast cereal aisle, and clipped on the shelf strip eye-level to a child sitting in a shopping cart seat, generally is a good bet if a grocer wants to generate some solid impulse sales.

According to our sources at Fresh & Easy Neighborhood Market, most of the 175 stores should have the "clip-strip" programs in place by the end of this week.

Additionally, new Fresh & Easy stores will include the cross-merchandised. "clip-strip" program and items in the stores when they open.

The "clip-strip" program won't cure Tesco's financial problems with Fresh & Easy's Fresh & Easy Neighborhood Market. [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 it and similar merchandising programs - along with making some major changes at Fresh & Easy - are essential for Tesco if it wants to come close to breaking even with its U.S. fresh food and grocery chain by the end of its 2013 fiscal year (just 23 months away), as CEO Philip Clarke says it will do.

Tesco's Fresh & Easy Neighborhood Market Celebrates the Royal Wedding In-Store With Cupcakes Fit For A Princess

Promotional & Special Event Merchandising

Fresh & Easy Neighborhood Market, which is owned by United Kingdom-based Tesco, celebrated its British pedigree and heritage today by featuring "fresh&easy princess cupcakes" in its 175 fresh food and grocery stores in California, Nevada and Arizona, in honor of the wedding of Prince William and Kate Middleton, who are now officially know as the Duke and Duchess of Cambridge.

The Fresh & Easy stores we visited today, as well as others in the chain, were displaying the cupcakes - which are white cake, with pink icing and pink curls, and contain no artificial colorings or flavors - prominently.

Point-of-purchase signs touted the hand-held sweet treats' connection to today's Royal Wedding.

Fresh & Easy Neighborhood Market has sold the pink "princess cupcakes" in its stores since 2008. It's a product ready-made to merchandise and promote for today's big event, if ever there was such a product. 

Some customers we observed and talked to in the stores today thought the "fresh&easy princess cupcakes" were created by the grocer specifically for Kate and William's wedding today. They were surprised when told by store employees that not only are they available year-round in the Fresh & Easy stores but have been for quite some time.

Therefore, not only was it a good idea for Tesco's Fresh & Easy to promote the "princess cupcakes" today, in order to have some fun, create a little in-store excitement and grab some impulse sales, it also, at least where we observed it, served to introduce a number of shoppers to a ready-to-eat sweet treat they weren't previously aware was available at the grocery chain.

Additionally, knowing the pink cupcakes are always available in the stores might just bring some of those shoppers back to Fresh & Easy to buy them for their own special - and not so special - occasions, particularly if there's a "princess" or two - or even a budding Kate Middleton - living in the house. After all, part of being a princess is getting what you want, when you want it.

Fresh & Easy store workers also served as human billboards for the "fresh&easy princess cupcake" promotion today, wearing shirts like the one pictured above.

The message on the shirts: "The Royal Couple is Here;" featuring a picture of two "princess cupcakes" below it, is eye-catching and, as we observed more than once today, led a number of shoppers to ask: "Where are the princess cupcakes?"

The human billboards therefore served a positive merchandising purpose, along with creating some fun and excitement in-store around the Royal Wedding.

Fresh & Easy Neighborhood Market to Shrink Health & Body Care Sections in Stores; Add Candy and Snack Items

Fresh & Easy will continue to merchandise its 'retreat' private brand body care line (above) in the slimmed-down HABC departments. The products contain no artificial colors, parabens, mineral oils or SLS detergents.

Category Management & Merchandising
News & Analysis

Fresh & Easy Neighborhood Market is preparing for a fairly major chain-wide category re-merchandising project, in which the Tesco-owned fresh food and grocery chain will be significantly reducing the HABC (health and body care) sections and product SKU-counts in its 172 stores, Fresh & Easy Buzz has learned.

The project is set to start soon. Current plans call for it to be completed by early-to-mid summer.

In its new schematic, Fresh & Easy plans to reset the HABC section in each store, consolidating it down to just a single aisle - aisle six - which is an about a 40% space reduction.

In order to achieve the single-aisle consolidation, Fresh & Easy is eliminating numerous items and will offer an even more limited assortment of HABC category SKUs than it currently merchandises, putting a focus on carrying just the basic health and beauty/body care items, under a few national brands. Fresh & Easy will continue to offer its 'retreat' private brand HABC products in the store sections.

The HABC category reset will free-up shelf-space in the back in the stores, which is where the sections are located.  Fresh & Easy's merchandising team then plans to replace the HABA SKUs with a selection of bulk candy, along with adding new packaged cookie and snack food items.

Additionally, the HABC category reset will free-up space on aisle five in the stores. Fresh & Easy plans to use that space to add a variety of new packaged snack chip and related items, with a focus on the Frito-Lay brand.

Two aisle end-caps will also become available because of the HABA category reset. Current plans call for the end-caps to be used to merchandise vitamins, dietary supplements and energy bars, according to our sources.

Health and beauty/body care has been among the worst performing categories for Fresh & Easy Neighborhood Market since the chain's first stores were opened in November 2007. This poor category sales performance is the reason for the planned merchandising change and reset project, according to our sources.

By decreasing the amount of space for HABC in the small-format (10,000-12,000 square-foot) Fresh & Easy stores and reducing the number of SKUs offered in the poorly-performing category, then using the space to add the bulk candy and packaged cookie and snack food SKUs (which are traditionally higher-velocity categories and items) the grocery chain hopes to better maximize the available space, resulting in increased sales-per-square-foot in the stores.

Health and beauty/body care items are generally a good category for grocers because the items tend to offer retailer's higher margins than many consumable categories, like snack items, do. However, if the items aren't selling at a decent velocity, margin - good or bad - tends to be a moot point, as is the case with the overall category at Tesco's Fresh & Easy Neighborhood Market, where as we noted, HABC is a poor performer.

With this fact in mind, you can better see the philosophy behind Fresh & Easy's wanting to use the shelf space that will be freed-up by the HABC category reset to merchandise products like Frito-Lay brand snack chips, which tend to move off the shelves at a relatively high velocity in most grocery, drug, convenience and mass merchandiser stores.

Snack food giant Frito-Lay is owned by PepsiCo, best know as the maker and marketer of soft drinks, along with its snack chip brand. Fresh & Easy Neighborhood Market recently added a number of new Pepsi/PepsiCo brand soft drinks SKUs, along with those from Coca-Cola, to its stores. That and the planned offering of the new Frito-Lay snack chip SKUs is part of an overall planned increase in business the grocery chain has planned with Pepsi-Frito-Lay.

Pepsi and Frito-Lay distribute soft drinks and snack chips to all retail stores on a direct-store-delivery (DSD) basis, which includes having distributor service people merchandise the products. Store clerks replenish the shelves between deliveries, as needed. DSD, which Pepsi and Frito-Lay do very well, is a plus for retailers, including Fresh & Easy, because it not only provides vendor labor (stocking and merchandising), it also helps to manage inventory (which is good for cash flow) because the retailer need not slot the DSD items in its central distribution center and truck the SKUs to its stores.

One reason the HABC category has performed poorly in the Fresh & Easy stores is because in the main shoppers aren't using the stores as primary and in many cases even secondary shopping venues in significant numbers.

From a theoretical standpoint this might make sense since the Fresh & Easy format was designed to be a fill-in fresh food and grocery store, which shoppers would use for convenience purposes, along with shopping at bigger supermarkets and mass merchandise outlets.

But theory isn't always reality - and in practice this strategy isn't working very well for Tesco's Fresh & Easy, which needs to get its average market basket purchase size (the average amount of money a shopper spends per trip to a grocery store) up considerably, along with producing a significant increase in average store sales-per-square-foot.

In order to achieve these twin goals - which are just two of about five key metrics it needs to significantly improve in order to stem its $200 million-plus annual loss - Tesco's Fresh & Easy needs to get those customers who regularly shop at the stores (primary) to spend more money on each shopping trip. It also needs to convert a decent percentage of people who shop at the stores on an infrequent basis to more frequent customers, thereby increasing its total universe of at least secondary shoppers.

Shrinking the HABC sections and SKU-count won't alone do either of those two things for Fresh & Easy Neighborhood Market.

However, it will likely make better use the available space, at least from the perspective that the added consumables - bulk candy, packaged cookie, snack chip and other items - will most certainly sell in higher velocity that the HABC items currently are.

The average retail price points of the HABA items set to be discontinued are only slightly higher than the avewrage price points of the bulk candy and others snack food items that are replacing the SKUs. As a result, if the new consumable items set to replace the discontinued HABA SKUs sell at an about 15%-20% higher overall rate of velocity than the replaced SKUs, Fresh & Easy could then see a slightly measurable increase in store sales-per-square-foot attributable to the category re-merchandising project, in our analysis.

Product category merchandising - and item mix selection - is a dynamic process in food and grocery retailing. We like to compare it to painting the Golden Gate bridge, where once the painters finish painting one end of the famed span (a couple years after starting), they immediatly start over again on the end where they first began.

In other words, merchandising and re-merchandising is, or should be, an ongoing process, the goal of which is to continually fine-tune the product assortment offered and how it's merchandised, in order to optimize the stores' sales-per-square-foot.

This process is even more important in small-format, limited SKU-assortment stores like Tesco's Fresh & Easy because with few items - the 4,500-5,000 SKUs offered - there's less room for error than there is in the average supermarket, which carries 35,000-plus SKUs.

For a limited assortment grocer like Fresh & Easy Neighborhood Market to do well, it's essential, among other criteria, that it maximize its product mix, and localize it to the demographics and lifestyle criteria in its various market regions, which is something the Tesco-owned fresh food and grocery chain does not do, which is why you see the same product assortment in a Fresh & Easy store in a neighborhood that is 60% Latino but has few Asian-Americans as you do in a neighborhood that's 60% Asian but has a Latino population of 5%, for example.

In our analysis, Tesco's Fresh & Easy needs to put a much greater focus on analyzing and tweaking the product mix it offers in its stores.

We would look at a strategy that offers about 6,500 SKUs total, adding about 1,300 new SKUs to the stores. About 65% of those SKUs would be what's called a "core-mix," meaning the items would be slotted  in all Fresh & Easy stores. The remaining percentage of SKUs would be regionalized and localized, based on market region and neighborhood demographic/ lifestyle-oriented criteria.

As an example, Fresh & Easy stores in neighborhoods with significant Latino consumers would have a greater selection of Hispanic food items. And if the majority of those consumers were from Puerto Rico or Central America, for example, rather than from Mexico, the brands and items would be selected based on those regional preferences, which are real and significant. The same with Asian consumers.

Factors like education level (college graduates) age, percentage of married vs. single people and other key demographic and lifestyle-oriented variables should also be factored into the selection of that 35% of the total SKU-count that is regionalized and localized. And by addng the 1,500 new SKUs, Fresh & Easy could have roughly the same amount of items in its "core mix" as it currently carries in its stores in total.

As we said earlier, category merchandising and product assortment selection is a dynamic process, which is something United Kingdom-based Tesco needs to focus on like a lazer beam if it's going to even come close to breakng even with Fresh & Easy Neighborhood Market by the end of its 2012/13 fiscal year, which is less than two years away.