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.

Fresh & Easy Neighborhood Market Flooding its Northern California Store Neighborhoods With Margin-Busting Store Coupons

Tesco's Fresh & Easy in Northern California - 2011
News/Analysis/Commentary

Fresh & Easy Neighborhood Market is flooding the local neighborhoods where its opening its first stores in Northern California with its deep-discount store coupons, specifically the $5-off purchases of $20 or more vouchers, which if used by shoppers to buy the minimum purchase amount offer a healthy 25% savings, resulting in getting $20 worth of groceries for $15.

Tesco's Fresh & Easy is distributing the $5-off purchases of $20 or more store coupons at the Northern California stores in books of four (as pictured at top), with each of the four coupons good for one week. For example, the coupon book currently being distributed at the five Northern California stores the grocer has opened thus far this year contains four $5-off-$20 vouchers good for the following dates: March 14-20; March 21-27; March 28-April 3; and April 4-April 10.

Employees of Fresh & Easy Neighborhood Market are asking customers shopping in the Northern California stores to sign up for its "Friends of Fresh & Easy" e-mail promotional bulletin in order to receive the coupon books. However, the grocer is also distributing the coupon books to shoppers who don't sign up for "Friends of Fresh & Easy," which the retailer uses in a data-base marketing fashion to communicate with and send promotional item announcements to members once or twice a month. The "Friends of Fresh & Easy" bulletins also include an online discount store coupon.

Along with the coupon books, which contain one month's worth (4) of discount vouchers, Tesco's Fresh & Easy is including at least one store coupon - either a $5-off-$20, $6-off-$30 or $10-off-$50 version - in the weekly advertising circular it direct mails to households located around the Northern California stores, something it also does in all of its market regions in California, Nevada and Arizona.

So far this year Fresh & Easy Neighborhood Market has opened five stores in Northern California, in the cities of San Jose, Danville, Pacifica, Concord and Vacaville. On Wednesday the fresh food and grocery chain opens two new stores in the region. Those stores are in Walnut Creek and Modesto. (Click here to read our extensive coverage about Tesco's Fresh & Easy in Northern California - 2011.]

The coupons and profit/loss

We've reported on and written extensively about Fresh & Easy Neighborhood Market's use of the deep-discount store coupons, which offer shoppers 25% and 20%-off total store purchases if used to buy the minimum required purchase amount, since 2008. The discount coupons, which can be used on everything sold in the stores, are Fresh & Easy's primary promotional vehicle, along with its weekly advertising circular. Tesco's Fresh & Easy stores don't except manufacturer's cents-off coupons, like nearly all of its competitors do.

In October 2010 United Kingdom-based Tesco reported a mid-fiscal year loss for Fresh & Easy of $151 million. [See - October 5, 2010: Philip Clarke's Early Welcome to America: Tesco Logs $151 Million Half-Year Loss For Fresh & Easy Neighborhood Market.]

Tesco has said it expects to report a full-fiscal-year loss of $250-$259 million for its El Segundo, California based chain, which is the same amount (loss) it reported for Fresh & Easy for the previous 2009/10 fiscal year, despite the fact sales at Fresh & Easy Neighborhood Market grew by 47% in the first half of fiscal-year 2010/11, compared to the same period in the previous year, largely as the result of new store openings. Tesco's 2010/11 fiscal year ended in February. It will report its interim 2010/11 fiscal year financials in April 2011.

Our analysis: Thus far, based on the sales-to-profit/loss ration described above, Tesco's strategy in which it says as sales grow at Fresh & Easy losses will decrease has failed to occur.

Tesco also reported a 10% increase in same-store-sales for the half-year, and in December 2010 reported nearly the same figure for Fresh & Easy for its third quarter. For the 13-week period ended November 27, 2010, overall sales at Fresh & Easy Neighborhood Market grew by 38.5% (35% at constant rates), over the same period in the previous year, and same-store-sales, an even more important indicator for retailers, grew 9.8%.

Same-store-sales is a key metric for food and grocery retailers because it measures sales growth for stores opened at least one year, thereby factoring out sales due primarily to rapid new store expansion.

Tesco operated 155 Fresh & Easy markets in California, Nevada and Arizona at the end of its fiscal 2010/11 third quarter. Currently there are 169 Fresh & Easy stores.

These sales growth figures, particularly the same-store-sales increases over the previous like periods, should impact the amount of loss Fresh & Easy Neighborhood Market has for the 2010/11 fiscal year.

But Tesco, based on its estimate that the loss this year will be about the same as the previous year, despite the significant overall and same-store-sales growth, is essentially saying - without outright saying it - that it's strategy of achieving rapid sales growth primarily by opening numerous new stores isn't reducing losses at Fresh & Easy, in our analysis.

If the sales growth strategy was working, for example, we should have seen some reduction in the loss amount in fiscal year 2009/10 compared to 2008/09, which wasn't the case, along with seeing the same phenomenon when Tesco reported the mid-year 2010/11 loss of $151 million for Fresh & Easy, which actually was a higher mid-year loss than for the previous mid-year period, despite the significant sales growth in period-over-period sales. (See the October 10, 2010 story linked above for additional details.)

The coupons and margins

In its mid-year report in October 2010, Tesco also said its trading profit margin for Fresh & Easy Neighborhood Market was a negative-38%. To put this number in perspective, even the worst-performing and less-profitable grocery chains in the U.S. have a margin at least in the plus-high teens -to- plus-low twenties. Whole Foods Market, for example, has a plus-36% gross margin.

It's this particular metric - margin - where the regular and even chronic use of the deep-discount store coupons comes into play for Tesco's Fresh & Easy and it's goal to break-even by the end of its 2012/13 fiscal year, which is two years from now.

For example, unlike manufacturer's cents-off coupons, which retailers like Kroger, Walmart, Safeway, Target and others are reimbursed by manufacturers for accepting, the discounts from the Fresh & Easy coupons come directly out of the grocer's profit margin, meaning each time a shopper uses one of the coupons and the 15%, 20% or so is discounted from her purchases, that percentage comes out of Tesco's hide from a profit margin standpoint.

The regular use of the coupons - Fresh & Easy has had the deep-discount vouchers in regular circulation since 2008 on a near weekly basis - is, in our analysis, a significant contributor, along with a number of other factors, to Fresh & Easy's negative-38% margin, as we've discussed previously in Fresh & Easy Buzz.

The coupons and Northern California

Tesco had a solid opportunity when it launched into Northern California - a brand new market region for its Fresh & Easy chain - this month to hold back from distributing the store coupons and see if the stores could make it on their own without the chronic use of the deep-discount vouchers.

However, as evidenced by the coupon books and distribution of the coupons in the weekly advertising circulars, Fresh & Easy obviously had decided not to do so. Im fact it's doing the opposite - it's flooding the neighborhoods where the stores are with the coupon books containg four weeks' worth of the deep-discount vouchers.

That's good news for grocery shoppers, as the coupons go a long ways towards bringing down a grocery bill, particular if a customer buys close to the minimum amount required to use the coupon, such as $20 for the $5 vouchers. Fresh & Easy's average market basket size is about $20-$25, according to our research and reporting, which among other things suggests that on average shoppers using the coupons aren't buying much over the minimum purchase amount required to redeem the store vouchers.

Additionally, in the past Fresh & Easy has tried to get away from using the $5-off purchases of $20 or more coupons and instead focus on the $6-off-$30 and $10-off-$50 versions. However, it's found that, particularly in the case of the $10-off-$50 coupons, which it does use at times as online coupons, the use of the version by shoppers is much lower than the $5-off and $6 off versions.

The shoppers we've talked to in Northern California are pleased as punch to get the coupons and coupon books from Fresh & Easy, as is the case with shoppers in California, Nevada and Arizona, many of whom told the grocer when it tried to stop offering the discount vouchers for a few months in 2009 (margin reasons perhaps?) that without the coupons they were either not shopping at the stores at all or doing so much less frequently. Tesco's Fresh & Easy listened and resumed its regular distribution of the coupons, which its done every since, having at least one version of the discount vouchers out in circulation nearly every week since then.

At present, we don't see Fresh & Easy Neighborhood Market coming in with a margin higher than the negative-38% Tesco reported for the California-based chain in October 2010, when it reports its fiscal year financials later this year. If the margin is improved, we except it to be so by no more than a couple percentage points. If Tesco doesn't report Fresh & Easy's margin number for fiscal 2010/11, we expect it's because it's worse than the first-half negative-38%.

The coupons and breaking even

Meanwhile, the coupon books and coupons in the weekly advertising circulars, along with the online vouchers the grocer distributes every two or three weeks, are helping sales at the just-opened Fresh & Easy stores in Northern California, which on Wednesday will number seven units, with five more stores to come between now and the end of April - and more units after that.

Perhaps Tesco has a secret plan to wean shoppers off Fresh & Easy' shopper-delectable deep-discount coupons? Or perhaps it has a companion plan that will bring Fresh & Easy's margin up from that negative-38% number to something in at least the plus-teens by say mid-2012, which is something that if achieved would warrant not only a tip of the hat but also a pat on the back at the same time?

But right now, in our observation and analysis, we don't see anything Tesco's Fresh & Easy Neighborhood Market is doing from operations and mechandising standpoints - combined with the price pressures from its competitors in the highly-competitive markets in California, metropolitan Las Vegas, Nevada and metro Phoenix, Arizona where it has its 169 stores - that indicates there will be a significant upward movement in that negative-38% margin metric in 2011.

Related Stories

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

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

December 7, 2010: Tesco Reports Solid Third Quarter Same-Store-Sales Growth For Fresh & Easy Neighborhood Market

January 29, 2011: Fry's Food Stores Brings Back 'Competitor Coupon Match' Promotion; Accepting Fresh & Easy Neighborhood Market Coupons in Arizona

November 19, 2010: Kroger-Owned Fry's Store Coupon Jujitsu Ensnares Tesco-Owned Fresh & Easy Neighborhood Market in Arizona

January 18, 2011: Fresh & Easy Neighborhood Market Launches 'Extra-Low Every Day Low Price' Merchandising Program

November 19, 2010: Kroger-Owned Fry's Store Coupon Jujitsu Ensnares Tesco-Owned Fresh & Easy Neighborhood Market in Arizona

February 3, 2009: Competitor News: 'Grocer-Gone-Wild:' Arizona's Fry's and its 'Bring it On' 'Take All Competitors' (Including Tesco's Fresh & Easy) Store Coupon Move

May 20, 2009: Breaking Buzz: Tesco's Fresh & Easy Issues Another New Discount Store Coupon ($10-off $50 Though); We Told You the Coupons Would 'Be Back'

Also, see (click on) the following links - deep discount coupons, store discount coupons, manufacturers cents off coupons, manufacturers coupons, Fry's Food Stores Arizona, Metro Phoenix Arizona market and Arizona Market Region Report - for additional related stories.

Fry's Food Stores Brings Back 'Competitor Coupon Match' Promotion; Accepting Fresh & Easy Neighborhood Market Coupons in Arizona

Fry's is turning up the heat, touting low prices at its Arizona stores on billboards like the one above in the Phoenix suburb of Chandler, as well as through promotions like its "competitor coupon match" program. The text on the billboard says: "For two years running, retail independent services have ranked Fry's #1 in low prices of traditional grocers in Arizona." Click on the photo to enlarge it.

Metro Phoenix, Arizona Market region
News/Analysis

Kroger Co.-owned Fry's Food Stores didn't wait long to bring back its "competitor take-all" "coupon match" program in the white-hot-competitive metro Phoenix, Arizona food and grocery retailing market.

We last wrote about Fry's extremely successful coupon promotion, in which it accepts the store coupons issued by all of its major competitors, along with doubling the value of all manufacturers' cents-off coupons up to a dollar, in a November 2010 piece - November 19, 2010: Kroger-Owned Fry's Store Coupon Jujitsu Ensnares Tesco-Owned Fresh & Easy Neighborhood Market in Arizona.

Fry's ended the "competitor coupon match" promotion in late December 2010. But the Kroger-owned grocery chain has brought it back for 2011, beginning this week, on January 26, and running until the grocer gives further notice. The promotion is good in all of the grocer's 120-plus Arizona stores. Metro Phoenix, where most of the states residents live, is where the majority of food and grocery dollars are spent in Arizona.

Under the promotion, Fry's is accepting store coupons issued by the following grocery chains doing business in Arizona: Albertsons, Safeway Stores, Bashas', Fresh & Easy Neighborhood Market, Sunflower Farmers Market, Sprouts Farmers Market, Walmart Marketside, Walmart Neighborhood Market, Whole Foods, Target, AJ’s, Trader Joe's, Food City and Pro's Ranch Market.

As we've said in past stories about the Fry's promotion, the default target of the store coupon aspect of the promotion ends up being Tesco's Fresh & Easy Neighborhood Market, because out of all the grocers listed above, its the only chain that issues discount store vouchers on a regular basis. These are the Fresh & Easy $5-off purchases of $20 or more; $6-off-$30; $10-off-$50 and the like store coupons the grocer has in distribution at virtually all times, as we written about extensively in Fresh & Easy Buzz.

If you're skeptical about our analysis that Tesco's Fresh & Easy Neighborhood Market is the default target (meaning the program isn't specifically aimed at Fresh & Easy exclusively but it's the competitor most affected anyway) of Fry's "coupon match" promotion, take a look here.

Additionally, take a look at what Fry's shoppers are saying about the return of the grocery chain's "coupon match" program here and here.

A few of Fry's other major competitors, like Albertsons, Bashas' and Safeway and a couple others, issue store coupons - such as $10-off-$50 and $25-off-$100 versions. But they do so on a sporadic basis, compared to Fresh & Easy's regular use of the discount vouchers. Fry's issues its own store coupons on occasion, such as a $5-off purchases of $35 or more voucher and a $10-off purchases of $100 or more version.

Another reason Fry's promotion targets Tesco's Fresh & Easy most directly, although as we've said that's not the strategy behind it for the Kroger chain, is because the Fresh & Easy neighborhood Market stores don't take manufacturers' cents-off coupons as a matter of policy.

In the program, Fry's Food Stores allows shoppers to combine the use of one of these store coupons, such as a $6-off-$30 voucher from Fresh & Easy, with their manufacturers' coupons, deducting both types from customers' total grocery order purchases at checkout.

For example, suppose mom or dad head off to a Fry's supermarket with a grocery list, a $6-off purchases of $30 or more Fresh & Easy store coupon, and a stack of manufacturers' cents-off coupons, each having a face-value of 50 cents and over.

Once at the store, our grocery shopper then fills his or her cart with an assortment of food and grocery items - ranging from milk and bread, to packaged snacks, household cleaners, breakfast cereals and more.

At the checkout lane our shoppers hands the grocery checker the coupons, then braces herself for the total, as the Fry's clerk scans the items.

The pre-coupon deduction total just so happens to end up being $50, right on the button.

Smiling, the friendly Fry's checker says..."Let me deduct the coupons for you." Scanning each coupon, there are 10, all with a value of 50 cents or higher, our shoppers $50 market basket purchase now drops down to $40. But there's more to come. Lastly, the checker scans the $6-off Fresh & Easy store coupon (the manufacturers' cents-off coupons are deducted first) and announces..."That will be...$34, please.

Not bad, $16 off a total grocery order of $50, thanks to the doubling of the manufacturers' cents-off coupons and the Fresh & Easy $6-off store coupon combination. Fry's allows shoppers to use only one coupon per retailer, per order. However, if a customer has a store coupon from Fresh & Easy, say a $6 off, and one from Albertsons, for example, such as a $10-off-$50 voucher, they can then use both on a single order. Therefore, in our example, the customer order would drop to $24, if he or she used both the Fresh & Easy and Albertsons' store coupons, in this particular example.

Well, we should note that "it's not bad for the shopper." But it's less than good for Fry's gross margin on that particular order and any others like it. Why? The chain gets reimbursed for the face value of the manufacturers' coupons, plus a carrying charge of a few pennies for each coupon, but has to eat the rest of the deduction it gives, up to that dollar, along with eating the entire value of the Fresh & Easy Neighborhood Market store coupon or those from any other competitor.

If Fry's wasn't owned by Kroger, the second-largest retailer of food and groceries in the U.S. after Walmart Stores, it wouldn't be able to sustain such a margin hit. But since Fry's is just one of Kroger's many chains, the mega-retailer can sustain the margin hit better than a smaller chain because it can spread it out over many chains and stores throughout the U.S.

And Fry's, which is the number two market share leader in Arizona after Walmart Stores, Inc., believes the added sales it gains from the coupon promotion in the hyper-competitive metro Phoenix market is worth taking this margin hit. If not, the chain wouldn't have brought the "coupon match" promotion back so soon in 2011, after doing it for more than half of 2010.

Meanwhile, the fact Fry's is accepting store coupons, along with doubling manufactures' cents-off coupons, is a tough nut for Tesco's Fresh & Easy in metro Phoenix, where the grocer has 28 stores, after closing six markets in November of last year.

The deep-discount store coupons are Fresh & Easy's primary promotional tool, in addition to its weekly advertising circular. It issues the vouchers regularly, nearly always having at least one version, and often times two or three versions, in circulation.

Based on our research and reporting - which you can see at the stories linked at the end of this piece - the Arizona Fresh & Easy stores experience a significant drop in sales, which is something Tesco can't afford, whenever Fry's runs its "competitor match" coupon promotion. Further, the fact Fry's kicked-off the promotion on Wednesday without issuing an end-date, could mean the Kroger-owned chain plans to run it non-stop over the next few months, which is something it did in 2010.

If that's the case, which sources tell us it is, the increased competition from the region's number two food retailer, Fry's, comes at a very bad time for Tesco's Fresh & Easy, which not only is trying to grow its same-store-sales considerably, but also must significantly increase its overall margin, which currently sits at a negative-38%.

After California, where Tesco has 107 of its 156 small-format fresh food and grocery stores, metropolitan Phoenix, Arizona has the second-highest number of stores, at 28, followed by 21 units in metro Las Vegas, Nevada.

Although the Arizona store-count is much lower than in California, Tesco needs to grow same-store sales in all of its Fresh & Easy units, not just those in one market region or another. And the more competition, which equals price pressure, means the harder it is for Fresh & Easy to move that gross margin up into the positive sphere.

Metro Phoenix, with Walmart, Kroger, Safeway, Albertsons and Bashas' - the top five in market share (in that order) battling against each other, along with niche players like Sprouts, Sunflower, Whole Foods, Trader Joe's, Fresh & Easy and others doing the same (and with WinCo Foods on the way in 2012) - is already arguably the most-competitive grocery retailing market in the U.S., as we've said in Fresh & Easy Buzz for over three years.

Blazing hot, price-competitive promotions like Fry's "coupon match" just add additional heat to that already burning competition. And because Fry's program is coupon-based, much of that competitive promotional heat is directed at Tesco's Fresh & Easy Neighborhood Market's metro Phoenix, Arizona operations and 28 stores.

Related Stories

January 18, 2011: Fresh & Easy Neighborhood Market Launches 'Extra-Low Every Day Low Price' Merchandising Program

November 19, 2010: Kroger-Owned Fry's Store Coupon Jujitsu Ensnares Tesco-Owned Fresh & Easy Neighborhood Market in Arizona

February 3, 2009: Competitor News: 'Grocer-Gone-Wild:' Arizona's Fry's and its 'Bring it On' 'Take All Competitors' (Including Tesco's Fresh & Easy) Store Coupon Move

May 20, 2009: Breaking Buzz: Tesco's Fresh & Easy Issues Another New Discount Store Coupon ($10-off $50 Though); We Told You the Coupons Would 'Be Back'

Plus, see (click on) the following links - deep discount coupons, store discount coupons, manufacturers cents off coupons, manufacturers coupons, Fry's Food Stores Arizona, Metro Phoenix Arizona market and Arizona Market Region Report - for additional related stories.

Fresh & Easy Neighborhood Market Launches 'Extra-Low Every Day Low Price' Merchandising Program

Private brands & grocery merchandising
News/Analysis

Tesco-owned Fresh & Easy Neighborhood Market today launched a new everyday low-price-oriented merchandising program in its 156 stores in California, Nevada and Arizona, in which it's guaranteeing the shelf prices on a selected number of its private brand items for an extended period of time. Fresh & Easy is calling the shelf prices on the selected group of items: "extra low every day."

Among the first batch of products included in the program include: 'fresh&easy' apple juice, in a 64 ounce bottle ($1.99); a multi-pack of 'f'resh&easy' brand bone-in loin pork chops ($1.99 pound); a multi-pack of 'fresh&easy' chicken breasts (1.99 pound); and assorted varieties of 'fresh&easy' packaged pasta (99 cents each).

Additional private brand items in the new everyday low-price-oriented program include various varieties of fresh&easy brand packaged cheese, ice cream, pre-packaged fresh lettuce items, and bagged vegetable steamers.

The shelf prices on the first batch of private brand items in the new everyday low-price-oriented merchandising program, which have shelf signs featuring the item price and the words "every day" below it, are guaranteed for about two months - from today -to- March 22, 2011. After March 22 Fresh & Easy reserves the right to raise the prices on the products, although it may or may not do so.

Based on our research, the shelf prices on the items listed above with the "extra low everyday low-prices" listed are the same as they were before Tesco's Fresh & Easy launched the program this week. That's not to say the price points are good or bad. Rather, its to say the price points on those specific items weren't lowered from what the shelf prices were a few weeks ago. The pasta price of 99 cents a unit everyday is excellent, for example. On the other hand, a number of the other items are about the same as what nearly all of Fresh & Easy's competitors offer on their respective private brands of the same variety.

The key proposition in the new merchandising program though, in our analysis, is the "price guarantee," in which the grocer is pledging not to raise the "extra low every day" shelf prices on the selected items for a given period of time.

EDLP, high-low, or both?

At first blush Fresh & Easy's new everyday low-price-oriented (EDLP) merchandising program looks like a move by the grocer to become more of an EDLP operator, rather than the hybrid EDLP/high-low grocer it currently is.

However, that's not the case. In addition to launching the merchandising program in the stores this week, Fresh & Easy Neighborhood Market also distributed a spate of its deep-discount store coupons today, which included a $6-off purchases of $30 (20%-off) or more coupon online and a $5-off purchases of $2o (25%-off) or more in its direct-mailed paper advertising circular.

The grocer also continues to distribute an online and direct-mailed weekly promotional circular, which features various items at reduced prices for a one week period of time.

The deep-discount store coupons, which can be used by shoppers on any of the retailer's private brands or manufacturer brands offered in the Fresh & Easy markets - the coupon amount is taken off customers' total grocery order purchase - is a promotional device and therefore part of high-low food and grocery retailing philosophy and practice - particularly because Fresh & Easy uses the coupons regularly - rather than a merchandising philosophy normally associated with EDLP grocers.

Many high-low retailers, such as Walmart and WinCo Foods, to name two that operate in the same markets as Tesco's Fresh & Easy Neighborhood Market does, use promotional mailers, coupons and other promo devices occasionally, but not on a regular basis like Fresh & Easy does. These retailers focus primarily on everyday low shelf pricing, using promotions at times as a device to stimulate customer draw and sales.

Fresh & Easy, on the other hand, is what we call a mixed or hybrid EDLP/high-low operator because the grocer uses the EDLP philosophy and practice and the high-low promotional variant equally in its stores.

It is our analysis though that Fresh & Easy Neighborhood Market CEO Tim Mason and his senior executive team, at least conceptually, have launched the "extra low every day low prices" merchandising program in the hope if it's successful down the road it could allow the grocer to stop distributing its deep-discount store coupons on a regular basis, as it has been doing chronically since 2008.

The 20% and 25%-off coupons take a big bite out of the fresh food and grocery chain's overall margin, which currently is in the cellar, at a negative-38%. Mason and company must get this margin up significantly, say at least in the low plus-twenty percentile, in order to have a chance of ever making a profit with Fresh & Easy, in our analysis.

Tesco has set the end of its 2012/13 fiscal year, a little over two years from now, to break-even with Fresh & Easy Neighborhood Market. Tesco lost $151 million on Fresh & Easy in the first half of its current fiscal year - 2010/11. The current fiscal year is over at the end of February 2011.

Significantly reducing the frequency of, or eliminating completely, the deep-discount store coupons will be a tough slog for Fresh & Easy though because, by using them so regularly, the chain has created a perception among shoppers that the vouchers, and the 20%-25% discount (if used to buy the minimum dollar purchase required) they offer, is a normal part of the grocer's pricing policy. In other words, a perception exists among customers, in our observation and analysis, that without the coupons the prices at the Fresh & Easy stores are too high.

The evidence of this phenomenon is two fold: When in the past Fresh & Easy tried to not use the store coupons for a couple months in 2009, sales in the stores dropped, and customers complained about the lack of coupons to the grocer in huge numbers, many saying that without the coupons they were not shopping in the stores or buying much less when they did shop at Fresh & Easy.

The retailer responded to these twin developments in 2009 by resuming regular distribution of the discount coupons, something its continued on a regular basis ever since, including this month.

Extra-low - everyday

Obviously it's too early to offer an analysis on the efficacy of Fresh & Easy Neighborhood Market's new everyday low-price-oriented merchandising program, since it is just starting. However, we can see pitfalls with the program, as well as some potential positive opportunities.

Overall though, it's our analysis right now that the program isn't going to have any material benefit on Fresh & Easy's sales. Even more important - and obvious - it will do nothing directly to help increase the grocery chain's gross margin.

The program could over time possibly help create a better overall customer price perception of Fresh & Easy. However, a true picture of how the stores can do will not come until the grocer stops - and perhaps it never will - using the deep-discount store coupons on a chronic basis.

For example, Fresh & Easy seldom lets more than two or three days pass between the expiration date of a batch of coupons and the distribution of a new batch. A good test would be to issue the coupons for just one week out of each month. Then we could see how the stores do for the other three weeks out of the month when the coupons offering 20%-25%-off shoppers' total grocery purchases aren't available.

We don't see this happening though. Why: Because it's our analysis that without the regular distribution of the coupons as described above, sales at the Fresh & Easy stores would drop substantially, despite the fact the everyday prices in the stores are decent, and despite the fact the chain distributes a decent promotional circular each week.

It's not too early to offer this, however: What we call the "Fresh & Easy coupon conundrum"and the associated issues described above is something incoming Tesco CEO Philip Clarke, who takes over the corner office at Tesco's corporate headquarters in the United Kingdom in early March, should be very concerned about.

Related Stories

Click on the following links - corporate merchandising, deep discount coupons, grocery merchandising, private brand showcase, promotional merchandising, store discount coupons, Fresh and Easy promotional-ad flyer, Fresh and Easy $6-off store coupon - to view a selection of related stories in Fresh & Easy Buzz.

Kroger-Owned Fry's Store Coupon Jujitsu Ensnares Tesco-Owned Fresh & Easy Neighborhood Market in Arizona

Analysis

We've written extensively about Fresh & Easy Neighborhood Market's chronic use of its 25%-off (pictured above) and 20%-off deep-discount store coupons as a way to create and maintain sales in its 155 stores in California, Nevada and Arizona. [Click: here, here and here for a selection of those past stories.]

As a current example of that chronic use, the Tesco-owned grocer currently has three versions of the 25%-off and 20%-off store coupons in distribution - one good for $5-off purchases of $20 or more (expires on November 30); another good for $6-off purchases of $30 or more (good until November 22); and a third offering $10-off purchases of $50 or greater (expires on November 22). The coupons are available online, which means shoppers can download the discount vouchers and use one each time they shop at a Fresh & Easy store in November.

The thrust of our writing about the Fresh & Easy store coupons, which give customers a full 20%-25%-off their total purchase amount if they buy the minimum amount required to redeem the coupons, has been three-fold.

Price perception: First, we've suggested that by chronically using the store coupons - Fresh & Easy has used them regularly with only a couple slight pauses since November 2007 when its first stores opened - the grocer has established to its detriment a retail pricing policy and related shopper perception that says because Fresh & Easy nearly always has the coupons in circulation, the everyday prices at the stores are too high. But with the coupons the prices are low.

We believe on some level Fresh & Easy's senior management has learned this to be true because when it attempts to stop issuing the store coupons for more than a few weeks at a time, store sales drop considerably. Additionally, customers complain about the lack of coupons on Fresh & Easy Neighborhood Market's Facebook and Twitter sites, saying that without the store coupons being available they will be doing far less shopping at the stores.

For example, at one point in 2009 Fresh & Easy stopped issuing the store coupons for nearly two months, the longest period it hasn't had at least one version of the discount vouchers in circulation. As a result, sales at the stores dropped significantly, and customer complaints went through the social media site roof. The result: Fresh & Easy Neighborhood Market started issuing the store coupons again regularly, and hasn't stopped doing so since then. [See - May 20, 2009: Breaking Buzz: Tesco's Fresh & Easy Issues Another New Discount Store Coupon ($10-off $50 Though); We Told You the Coupons Would 'Be Back.' Also - May 1, 2009: Fresh & Easy Brings Back $6-Off Deep-Discount Store Coupon; Latest Version Good For Nearly One Month; New Promo Strategy Didn't Last Long; and May 7, 2009: 'They're Back' in Full-Force: Tesco's Fresh & Easy Adds New $6-Off Online Coupon to Just-Recently Direct-Mailed $6-Off Coupon; Tough to 'Terminate.']

Fresh & Easy's senior management has compounded this problem by refusing to accept manufacturers' cents-off coupons in the stores, saying publicly in its marketing communications that the reason it doesn't accept the coupons is because its everyday prices are already low.

This argument doesn't hold water though because if that were the case, then why would Fresh & Easy need to regularly issue the deep-discount store coupons, which offer a far-higher percentage discount than manufacturers' cents-off coupons do? The Fresh & Easy-issued store coupons are a discount off a shopper's entire purchase, while manufactures' coupons are a discount off a single item. Grocer's get reimbursed by the manufacturers for the item coupons, while the discount from Fresh & Easy's store coupons comes out of the grocer's profit margin, which leads to our second argument as to why the chronic use of the store coupons has become a trap for Tesco's Fresh & Easy Neighborhood Market.

Gross Margin: In October Tesco reported its Fresh & Easy chain has a negative-38% gross margin. To put that in perspective, most healthy grocers have a gross margin that's at least in the plus-20% level. In order for Fresh & Easy Neighborhood Market to break-even by the end of 2013, as Tesco says it will, the grocer has to get its gross margin up from the current negative-38% to something at least close to what a healthy grocer produces in order to make a profit. Doing so is a huge task for Tesco.

In our analysis, one of the key contributors, but far from the only one, to Fresh & Easy's negative- 38% gross margin is the chain's chronic use of the deep-discount store coupons, which as mentioned earlier reduce a shopper's total market basket of purchases by a whopping 20% if the customer buys the minimum dollar amount - the $30 minimum purchase to get the $6 off, for example. Even if a customer buys $60 worth of groceries and gets the $6-off, that's still a 10% bite out of the market basket - $54 instead of $60 for the hypothetical purchase.

Since the store coupons are in distribution nearly always, and since shoppers use the coupons so often, Fresh & Easy is taking constant hits to its margins simply by virtue of having established the store coupons as a regular feature of how it does business. (This goes hand-in-hand with having created the price-perception in the minds of customers, which we detailed above.)

A vulnerable promotional tool: Lastly, we've suggested that in addition to the two key factors outlined above, the chronic use of the deep-discount store coupons by Tesco's Fresh & Easy - rather than using them as an infrequent (once a quarter or so) promotional tool as is the industry norm - is such a simplistic form of promotion that it presents an opportunity for competitors in a given market, particularly big ones with high market share, to make a defensive move, accepting the Fresh & Easy coupons in their respective stores, therefore rendering what has become Fresh & Easy's primary promotional tool, the deep-discount coupons, a seriously blunted one.

Fry's store coupon Jujitsu

Last year in Arizona, where Tesco's Fresh & Easy has 28 stores in the Phoenix metropolitan region, Kroger-owned Fry's Supermarkets did just that - it periodically excepted the Fresh & Easy Neighborhood Market store coupons in its 120 Arizona stores, as we wrote about in this February 2009 piece - February 3, 2009 Competitor News: 'Grocer-Gone-Wild:' Arizona's Fry's and its 'Bring it On' 'Take All Competitors' (Including Tesco's Fresh & Easy) Store Coupon Move.

Fry's did a handful of one-week promotions in 2009, in which it accepted the Fresh & Easy store coupons, along with those of all its other competitors, touting the move in its weekly advertising circular and in other forms of media advertising and promotion.

The direct or default target of Fry's in accepting the store coupons was Tesco's Fresh & Easy, since none of the other grocery chains in the market issue similar store coupons on a regular basis. (A couple do so on occasion.) In the promotion, Fry's also offered to round-up all manufacturers' cents-off coupons to a $1 value, regardless of the coupon's face value.

Fry's offered the deal a couple times early this year, once again. But beginning mid-year, the supermarket chain, which is the number two market share leader in metropolitan Phoenix, just a couple points behind Walmart Stores, went full-bore, offering to accept all competitors store coupons, along with offering the $1 value for all manufacturers' cents off coupons, nearly every week. Fry's has continued the promotion nearly every week, including at present, during the last half of 2010.

Since Fry's only accepted the store coupons of its competitors infrequently last year, the resulting loss of sales at the Fresh & Easy stores that can be attributed directly to the Fry's defensive move in 2009 wasn't all that significant or regular.

However, that's changed. Because Fry's has been taking its competitors' (which means primarily Fresh & Easy since it's the only grocer in the market regularly distributing such coupons) store coupons nearly every week since the middle of this year, numerous customers who normally shopped at Fresh & Easy because of the coupons have been and are now taking the deep-discount vouchers to Fry's, which has resulted in a significant blunting of what is Fresh & Easy Neighborhood Market's primary offensive promotional tool - the deep-discount store coupons.

We know this to be the case for a couple reasons. First, Fresh & Easy Buzz has talked to managers and grocery checkers at over 25 Fry's stores in metro Phoenix since the middle of this year. The store workers tell us their tills are overflowing with Fresh & Easy store coupons, which are being redeemed by shoppers who download the discount slips of paper from the Fresh & Easy site, print them out, but then use the coupons at a Fry's store instead of at a Fresh & Easy market.

Additionally, because of the regular acceptance of the Fresh & Easy store coupons at Fry's this year, Arizona's numerous grocery deal and coupon blogs have been recommending to their readers that instead of using the vouchers at a Fresh & Easy store, they instead use them at Fry's, in large part because Fry's runs its $1 value manufacturers' cents-off coupon promotion at the same time. Fry's lets shoppers first deduct the Fresh & Easy coupon from their total grocery purchase amount before then deducting the manufacturers' item coupons, which means even greater savings, which is what the Arizona blog sites are all about. [For some examples of what the numerous popular Arizona consumer coupon/grocery deal blogs are saying about using the Fresh & Easy store coupons at Fry's, take a look: here, here, here, here and here.]

Here's an example of the savings shoppers can get using both the Fresh & Easy store coupon and the $1 value manufacturers' coupons at Fry's: A customer buys $50 worth of groceries. She then uses the $10-off $50 Fresh & Easy coupon, bringing her grocery order to $40. She then can use her manufacturers' cents off coupons against the $40 total. Remember all of the coupons at Fry's are worth $1, regardless of their face value. Therefore, let's assume she has $10 worth of the single-item manufacturers' coupons, each worth $1 at Fry's. As a result, her original $50 purchase, reduced to $40 after using the Fresh & Easy $10 coupon, is now a mere $30, a whopping savings of $20.

Without a doubt the loss on profit for Fry's on these transactions is significant. Fry's eats the $10 discount from the Fresh & Easy coupon, plus the amount from each manufacturers' cents off coupon over the face value. For example, giving $1 off on a 50-cent item coupon results in a loss on the amount of 50% for Fry's. The manufacturer only reimburses the grocer for the face value amount of the coupon plus a small handling charge.

However, because Fry's is a close second to Walmart in market share in the region, and because Kroger wants to protect its turf, along with the fact that Fry's is a small (but important) piece of Kroger's overall revenue base, it's decided it can take the hit in order to protect and it hopes grow that market share, despite what will obviously be a negative effect on the Fry's bottom line. Think of it as Fry's version of Jujitsu applied to a competitors promotional program, in this case Fresh & Easy's store coupons, which to date has been its most important promotional tool in terms of generating sales, and therefore its most vulnerable one.

Additionally, the point of this analysis isn't how accepting the competitor store coupons will affect Fry's bottom line. Rather, it's to empirically demonstrate the trap Tesco's Fresh & Easy finds itself in, regardless if it knows it or not, in terms of the vulnerability of its chief promotional tool, the deep-discount store coupons.

Broader implications of Fresh & Easy's store coupon trap

For example, if Fry's can accept the Fresh & Easy store coupons in Arizona, so can Kroger-owned Ralphs, Safeway's Vons or Albertsons in Southern California.

Further, in Northern California, where Fresh & Easy plans to open its first batch of stores in early 2011, one or more competitors could decide to follow the Fry's model and as a preemptive strike against Tesco's Fresh & Easy Neighborhood Market announce a couple weeks before the first stores open - or even worse start accepting the coupons a couple weeks before the stores even open, doing an old fashion competitor pantry-loading scheme - that it will accept the Fresh & Easy store coupons in its stores for a month, or two, or three, for example. Doing so would likely significantly hurt sales, something no grocer particularly wants to happen when it's just entering a market for the first time.

One might suggest the fact Fry's is accepting the store coupons is a good thing for Fresh & Easy, since we argue the discount vouchers are a key contributor to its double-digit negative gross margin. But also recall we argue that without the coupons, sales at the Fresh & Easy stores drop like a ton of 10 pound Gold Medal Flour bags, which is why the grocer continues to issue them on a regular and even overlapping basis, as is the case this month. In other words, It's a store coupon "Catch-22" for Tesco's Fresh & Easy in our analysis: Can't live with the coupons, can't live without them.

If our analysis is wrong, then the simple thing would be for Fresh & Easy to stop issuing the store coupons, at least in the Arizona market. After all, if it's true the reason the grocery chain doesn't accept manufacturers' cents-off coupons is because its everyday prices are already low, which Fresh & Easy executives have said is the case, then the same argument should hold for not issuing its own discount coupons, which lower a shopper's total purchase amount (and Fresh & Easy's margin) far more than even a big stack of manufacturers' cents-off coupons do.

But that's far from being the case in everyday practice, as we've noted in Fresh & Easy Buzz for nearly three years. Additionally, the fact Fresh & Easy has three different versions of the store coupons in distribution this month is ample evidence the grocer needs the coupons in order to maintain sales at the present level. If not, it would use the coupons much more cautiously.

From a merchandising perspective, Fresh & Easy has created a serious price perception problem for itself in the minds of customers with the chronic use of the store coupons. Based on our research and analysis, many of the grocer's regular customers factor-in the discount from the coupon as the de rigueur price they should pay for their purchases at Fresh & Easy. Take the coupons away for any extended period of time and those shoppers will likely adjust that mental calculus, perceiving the non-coupon cost of shopping at Fresh & Easy to be too high, compared to some of its competitors. That's what experience has shown thus far, based on our research and analysis.

Added struggle in Arizona

Ironically, we don't think Fry's acceptance of the store coupons is directly aimed at Fresh & Easy, at least not from the perspective that Kroger thinks the Tesco-owned chain is a direct threat in metropolitan Phoenix. After all, Fresh & Easy isn't even among the top six-seven grocers in terms of market share in the region. But Fresh & Easy is owned by Tesco, which is the third-largest food and grocery retailer in the world. And that fact might just be good enough for Kroger Co. to want to make sure Tesco has a very difficult time gaining any sort of foothold in Arizona with Fresh & Easy, along with letting it know that attempting to do so will come at a significant cost.

Tesco's Fresh & Easy recently closed six stores in metropolitan Phoenix, leaving it with the current 28 units, down from 34. Additionally, the grocer plans to focus its new store openings in 2011 primarily in California, as we've previously reported. It will likely open a handful of new stores in Arizona next year.

Tesco's 28 Fresh & Easy stores in metro Phoenix have been struggling overall in terms of sales before the pressure from Fry's defensive store coupon acceptance move. The fact that Fry's is taking the Fresh & Easy store coupons during the crucial Thanksgiving holiday season - we're told it will continue to do so for Christmas as well - is exerting even more pressure on Fresh & Easy Neighborhood Market's Arizona operations.

And since metropolitan Phoenix is arguably the most competitive food and grocery retailing market in the U.S., or close to it, and it's only getting more competitive, the outlook for Tesco's Fresh & Easy in the region is a fairly poor one at present. The fact Fry's is blunting Fresh & Easy's most-popular promotional tool, its deep-discount store coupons, makes Tesco's struggle in the market an even more challenging one.

[Editor's Note: This is part one of a two-part analysis piece. In part two we will offer some ways in which Tesco's Fresh & Easy may be able to escape from the chronic store coupon trap it appears to have set for itself.]

Arizona 'Tweeps' Treasure Hunting in Fresh & Easy Neighborhood Market's Twitter-Trivia Contest

Metropolitan Phoenix, Arizona Market Region Report
Promotional Merchandising & Promotional Events

On July 19, we reported that Tesco's Fresh & Easy Neighborhood Market was planning to launch a Twitter.com-based trivia/treasure hunt-oriented consumer promotional contest for its 34 stores in Metropolitan Phoenix, Arizona, beginning on July 30.

Read the piece here: July 19, 2010: Twitter Trivia + In-Store Treasure Hunt Promo Next Up On the 2010 Promotional Hit Parade at Fresh & Easy Neighborhood Market.

Fresh & Easy kicked the promotional contest off on July 30, as we reported it would.
In the contest, the grocer posts three Tweets each day on its @fresh_and_easy Twitter feed. The Tweets are "clues" (the trivia aspect) about one of its stores in Metro Phoenix. Based on the Tweeted clues, 'Twitter Tweeps' and Arizona shoppers are to figure out which of the 34 stores are being referred to. Once a person determines the specific store and answer, they then visit the Fresh & Easy Kitchen Table in the store, where they tell the clerk working in the area what the clue or promotional code from the Tweet is (the treasure hunt aspect.)

If the person doing the above is one of the first ten people to do so at that particular Fresh & Easy Arizona store that day, they win a $50 Fresh & Easy Neighborhood Market gift card. There are 10 winners each day of the contest. (You can view the rules here.)

Now in its fourth day, the contest appears to be generating interest.

Fresh & Easy Neighborhood Market is using the Twitter hashtag #FEAZ to track Tweets about the contest. If you use twitter, you know how to find it. If you're not a Twitter user, you can go to twitter.com/fresh_and_easy. A couple of winners have offered "Winning Tweets" about their $50 gift cards. Also, Fresh & Easy has posted a picture here of the first winner in the contest.

The promotional contest runs until August 8, so there's still four more days for potential Arizona trivia experts and "Twitter Tweeps" to win a $50 gift card.

As we mentioned in our July 19 piece, promotions like this one, as well as others, are something Tesco's Fresh & Easy Neighborhood Market needs to be doing on a regular basis in order to create excitement in and around its 159 existing fresh food and grocery stores. Such promotions are additive, meaning the parts - regular and comprehensive promotions and special events - eventually help to create a whole, which becomes the way in which shoppers view a grocer.

Twitter Trivia + In-Store Treasure Hunt Promo Next Up On the 2010 Promotional Hit Parade at Fresh & Easy Neighborhood Market

'The 'Kitchen Table,' which along with Twitter is part of a new promotion (see heading below in the story) starting on July 30 at the 34 Fresh & Easy stores in Metro Phoenix, Arizona, is inside all Fresh & Easy Neighborhood Market stores.

Promotional Merchandising & Promotional Events

It's been in the neighborhood of two years since we first started suggesting in our analytical, prescriptive-oriented posts in Fresh & Easy Buzz that one of the things Tesco's Fresh & Easy Neighborhood Market should do in order to create some excitement in its stores, along with doing so likely helping to increase sales, is to create and conduct frequent promotional product merchandising events and other types of special events in a coordinated, regular and consistent way.

We've also suggested doing this could be a way for the grocer to potentially wean itself from the chronic use of its $5 (off purchases of $20 or more), $6 (off $25 or more) and $10 (off $50 or more) store coupons, which, because Fresh & Easy issues them so often, and are used by shoppers so often, eat into the grocery chain's already poor margins.

The use of the coupons is a quick (sales) fix tactic. Good grocery merchandising-oriented promotions are a strategy. Tesco director and Fresh & Easy CEO Tim Mason is responsible for the chronic use of the deep-discount store coupons though. We aren't in the business of promoting co-dependency, after all.

Tesco's Fresh & Easy has tried to stop using the store coupons more than once - and eventually took our advice and started offering the $10 off ($50 or more) coupons in place of the $5 off coupons in 2009 - but it gave up trying because sales in the stores drops significantly when the gorcery chain doesn't have one of the coupons in circulation. [See - May 1, 2009: Fresh & Easy Brings Back $6-Off Deep-Discount Store Coupon; Latest Version Good For Nearly One Month; New Promo Strategy Didn't Last Long and May 7, 2009: 'They're Back' in Full-Force: Tesco's Fresh & Easy Adds New $6-Off Online Coupon to Just-Recently Direct-Mailed $6-Off Coupon; Tough to 'Terminate']

In weening itself off the chronic use of the store coupons, we've also suggested eliminating the $6 off store coupon and replacing it with the $10 off ($50 or more) and a $25 off store coupon on purchases of $100 or more. Tesco's Fresh & Easy Neighborhood Market tried the $25 off ($100 or more) coupon a couple times but dropped it, going back to the $6 off, which it now uses regularly, along with the $10 off ($50 or more) voucher. Why? Because the average market basket size at Fresh & Easy stores is right around the $25 -to- $35 range. Few of the $25 off ($100) coupons were redeemed. Also, far fewer $10 off ($50 or more) Fresh 7 Easy store coupons are redeemed than its $6 off ($25 or $30 or more) coupons are. Again, it's a function of average market basket size. [Read some of our past stories on the deep-discount store coupon issue here.]

As regular Fresh & Easy Buzz readers are aware, we've said - and written regularly about since 2008 - that Fresh & Easy needs to eliminate the chronic use of the deep-discount store coupons completely if it ever hopes to obtain the gross margins it needs to break even, and eventually turn a profit. If it followed our "weening off" advise starting in 2008, it might have been able to do so by now, without seeing such a big drop in sales whenever it doesn't have a store coupon in circulation. Maybe.

But Fresh & Easy Buzz is used to focusing on a topic, like the store coupons, like the need for Fresh & Easy to do promotional product merchandising on a consistent and regular basis, and like the fresh food and grocery chain's now but not always the case weekly advertising flyer, and seeing our suggestions implemented some time later.

For example, speaking of the Fresh & Easy advertising flyer, which is weekly but wasn't always that way, back in 2008, when the grocer was issuing its ad flyer every three weeks and sometimes every two weeks, we pointed out it was making a big mistake in doing so, since weekly advertising flyers are the norm among U.S. grocers, including those in California, Nevada and Arizona, and as such Fresh & Easy was creating for itself a competitive disadvantage by not following convention. It took Fresh & Easy Neighborhood Market CEO Tim Mason and his senior executive team about a year to catch up with our suggestion that the chain needed a weekly advertising flyer - but they did adopt the suggestion, as we reported and wrote about in this early March 2009 story - March 11, 2009: Fresh & Easy Buzz Redux: Tesco's Fresh & Easy Changes its Promotional Advertising Flyer to 'Weekly;' Something We've Been Suggesting For About A Year.

And of course, it was in 2008 when we first pointed out that Tesco's Fresh & Easy doesn't take WIC Vouchers. The first Fresh & Easy store is set to start accepting WIC on July 29, 2010. See - July 16, 2010: South Los Angeles Fresh & Easy Neighborhood Market Store to Accept WIC Vouchers July 29; Additional California Units to Follow. Fresh & Easy has missed plenty of sales in the over two years since we first suggested they accept WIC. And once all 159 Fresh & Easy stores - particularly those in lower-income neighborhoods - are accepting WIC, the CEO Mason and his team will wonder (or at least should) why they waited so long.

Tesco's Fresh & Easy Neighborhood market is now clearly catching up with our suggestions going back to 2008 that it needs to offer food and grocery merchandising-oriented promotions and other promotional events on a regular and consistent basis, as a way to create excitement in its stores and to sell more food and grocery products, thus increasing sales - and it hopes average shopper market basket size.

Beginning in February 2010, Fresh & Easy Neighborhood Market launched the first of what's been a regular schedule of a wide-variety of food and grocery product merchandising-oriented promotions and special event type promotions. We've given the grocer overall high marks for doing so - and for the quality of the promotions and events.

We've reported on and written about each of the recent key merchandising-oriented and event-oriented promotions mentioned above since February. All are at the links below:

>June 3, 2010: Fresh & Easy Neighborhood Market Teams Up With The Los Angeles Dodgers in 'Game & Grill Sweepstakes' Promo

>June 23, 2010: Integrated Retail & Twitter Wine Promotion Rates Fresh & Easy Neighborhood Market A Gold Medal

>February 8, 2010: 'I Taste Therefore I Tweet': Fresh & Easy Set to Hold 'Twitter (Wine) Tasting' Tomorrow Night

>April 19, 2010: Tesco's Fresh & Easy Joins Kroger Co. in Holding Earth Month-Earth Day Reusable Bag Design Contest

>June 17, 2010: Fresh & Easy Neighborhood Market Picks Eight Finalists in its Reusable Bag Design Contest; Website Voting Through June 30

>May 11, 2010: Fresh & Easy Neighborhood Market Promotion Benefits America's Wounded Warriors

>May 16, 2010: Two Grocers, Fresh & Easy and Raley's Offer Two Very Different Approaches to Ready-to-Grill Fresh Meat Merchandising

>March 23, 2010: Fresh & Easy Kicks Off Three Week 'From Grapes to Gold Medals' Wine Promotion Tomorrow

>April 25, 2010: Thousands Get 'Cheesy' at Fresh & Easy Neighborhood Market Co-Sponsored Grilled Cheese Competition in Los Angeles (Note: This promotion was initiated by a Fresh & Easy store manager.)

>June 7, 2010: 'Bigmista' Hits the Stores in Fresh & Easy Neighborhood Markets' Free Barbeque Road Show

>July 9, 2010: 'Bigmista' Hits the Road Again For Fresh & Easy Neighborhood Market's Free Neighborhood BBQ Road Show

Twitter trivia + in-store treasure hunt promo set for July 30

Fresh & Easy Neighborhood Market's promotional hit parade continues.

On July 30, Fresh & Easy Neighborhood Market will kick off a back to school trivia and treasure hunt-type contest for its 34 Metro Phoenix, Arizona stores only - and using its Twitter account, which is @fresh_and_easy.

The contest will run from July 30 -to- August 8 2010. Fresh & Easy hasn't formally announced the promotion yet.

In the contest, the grocer will post three tweets each day on its Twitter feed. The tweets will be "clues." Based on the clues, Arizona shoppers are supposed to figure out which of the 34 Metro Phoenix stores are being referred to in the respective tweet. Once a person determines the specific store, they are then to visit the Fresh & Easy Kitchen Table (pictured at top) in the store, where they tell the clerk working in the area what the tweet/clue or promotional code from the tweet is. (The shopper can write it down.) The twitter clue is what we're calling the "trivia" aspect of the promotional contest. The in-store element is the "treasure hunt" aspect.

If the person doing the above is one of the first ten people to do so at that particular Fresh & Easy Arizona store that day, they will win a $50 Fresh & Easy Neighborhood Market gift card. There will be 10 winners each day of the contest.

Prior to playing, people who want to enter have to sign an entry form, which we assume will be located on the Fresh & Easy Neighborhood Market website.

The promotion is creative. We look forward to seeing how it plays out. Tesco's Fresh & Easy needs to make sure its explained very simply though, as we can see the potential for problems if it isn't made extremely clear to potential players.

The promotion also fits with a key suggestion we've been making regarding most of the promotions (there are some exceptions) Fresh & Easy launches, which is that the grocer tie-in store-level product promotion with external media sources, like Twitter and Facebook, as well as radio and other forms of external media when appropriate and affordable. The reason is the in-store promotional event benefits from external ways of driving (pulling) shoppers into the stores. It's simple - but important. In this case, Twitter is designed to be the pull-force, to borrow a marketing term.

It's also not a surprise to us that Fresh & Easy chose Arizona to do the promotion. The grocer needs to significantly boost sales at its 34 stores in Metropolitan Phoenix.

We've been saying for well over two years that Fresh & Easy needs to localize its merchandising and promotions. For example, there's no reason not to do promotion A in Southern California, B in Nevada and C in Arizona. And there's no need to do ABC in all three markets, either at the same time or at all. Regionalism and localism are key elements when it comes to grocery merchandising and promotions. The can also save a grocer money.

If Fresh & Easy executes the Arizona stores' trivia and treasure hunt promotion well, including doing some creative and fun publicizing of the event - which should start soon we would expect since July 30 is only two weeks away - the promotion could be a good one.

One final offering: If Fresh & Easy fails to create product displays featuring back to school type products, including having signage on the displays that ties-in the back to school twitter + in-store promotion, in its 34 Arizona stores during the 60-plus day promotion, it will be making a huge mistake, along with missing out on added sales.