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 Looking Into Accepting Mobile, Digital Manufacturers' Cents-Off Coupons; But the Jury is Still Out

Tesco's Fresh & Easy Neighborhood Market is looking at potentially adopting a program which would allow its stores to accept digital, paperless manufacturer's cents-off coupons, using either its own mobile phone-enabled application, or more likely by partnering with one of the existing mobile, digital couponing companies, such as Cellfire, Shortcuts or another, Fresh & Easy Buzz has learned.

As we've written about extensively, Fresh & Easy doesn't accept manufacturers' coupons - either the traditional paper or the newer mobile, digital versions - at its 147 fresh food and grocery stores in California, Nevada and Arizona.

Instead, Fresh & Easy regularly distributes its own store coupons - both via its Web site and in direct-mail flyers - in versions like $5-off purchases of $20, $6-off $30 or more and $10-off $50 or more. The store coupons are paper, either already in that form, or downloaded from the web by consumers and then printed out.

The key differences between manufacturers' cents-off coupons and store coupons like those Fresh & Easy uses are: (1) the manufacturers' coupons are for (discounts on) single items or products, while the Fresh & Easy coupons are a certain dollar amount "off" of total purchases; and (2) grocers get reimbursed by the manufacturers' for the face value of the coupons they issue that are redeemed by the retailers (plus a small handling charge), while the discount on the Fresh & Easy store coupons comes out of the grocery chain's own profit margins.

Based on the information we have, Fresh & Easy Neighborhood Market has not yet decided to go forward with a mobile, digital couponing program, but is looking into the possibility of doing so for its stores.

The easiest way for Fresh & Easy to get into the mobile, digital couponing game, something many of its competitors such as Kroger Co. and Safeway Stores, Inc. already are doing, would be to partner with a third-party company like Cellfire or one of the others.

Such companies already have the technology available to enable grocers like Fresh & Easy to adopt a program without much upfront development cost.

These companies also have relationships with the packaged goods manufacturers and marketers that issue the coupons. The total system is in place in a package for retailers.

For example, Kroger Co. which operates the Ralphs and Food-4-Less chains in Southern California; Fry's in Arizona; and Smith's Food & Drug in Nevada, partners with Cellfire for its mobile couponing system. Cellfire's system offers both traditional coupons that can be obtained via the internet and then printed out, and digital coupons available on cell and smart phones.

And Safeway operates the Vons chain in Southern California, Central California and Southern Nevada; and under its Safeway banner in Arizona.

A major key to a mobile, digital couponing system like Cellfire is that a retailer has a loyalty card program, something Kroger Co. does have but Tesco's Fresh & Easy doesn't at present. However, some third-party mobile, digital couponing systems will work for a retailer even if it doesn't have a loyalty card program.

The way this works is that a shopper merely shows the checkout clerk the various digital coupons he or she has on their mobile phone during the checkout process. The clerk then deducts the digital coupon discounts from the customer's order on the store's POS system, just as they do with a paper coupon.

This presents a problem however for Fresh & Easy, since it's stores have self-service checkout only. As such, store clerks would have to assist shoppers whenever they have digital coupons on their mobile phones to be deducted from their respective grocery purchase orders. This could be so frequent it might turn self-service checkout into full-service, which is something Fresh & Easy's senior management doesn't want to do.

Therefore, since Fresh & Easy doesn't currently have a loyalty card program, it would have to use this second alternative (the human checkout clerk) in order to be able to use the existing third-party mobile, digital couponing systems, based on the current technology available.

Barring bringing on a loyalty card program, or having store clerks assist each customer who has mobile coupons on their mobile device to be deducted, Tesco's Fresh & Easy either would have to create its own mobile, digital coupon application, or in partnership with an existing third-party mobile couponing company, figure out a way to get around these two limiting factors.

Fresh & Easy's CEO, Tim Mason, was in the past the IT marketing manager for Tesco in the United Kingdom. It was under Mason in 1996 that Tesco launched its first online grocery Web site, which was developed by Nick Lansley, a programmer and analyst in the company's IT department at the time.

Today, Lansley is Tesco's resident IT guru. He would be the go-to-guy we would look at to solve the mobile, digital couponing dilemma for Fresh & Easy described above.

One of Lansley's major focuses for Tesco in the United Kingdom currently is developing various smart phone applications involving Tesco's Clubcard loyalty card program, for example.

One of the key reasons Fresh & Easy is looking into a mobile, digital couponing program is because its received numerous complaints about not accepting paper manufacturers' cents off coupons over the last two-plus years its been in business.

Additionally, since the grocer started actively asking its followers on Twitter and Facebook for feedback, suggestions and ideas starting in about mid-2009 - which Fresh & Easy responds to well on the social media sites -one of those frequent suggestions from shoppers has been that it accept manufacturers' cents off coupons. And as more and more grocers adopt mobile, digital coupons in Fresh & Easy's market regions, more shoppers have also been suggesting that it to accept the paperless coupons.

Tesco's Fresh & Easy doesn't want to accept paper of any kind. In addition to not taking paper manufacturers' coupons, the stores accept no paper personal or payroll checks or WIC Vouchers, the check-like government vouchers given to poor mothers. They do accept their own paper Fresh & Easy store coupons however.

The grocer believes the labor savings from not accepting paper checks, WIC Vouchers or manufacturers' coupons in its stores outweighs the benefits of taking them, even though virtually all of its major competitors do take all of the above.

A mobile couponing system that accepts digital manufacturers' coupons would, if it can be technologically adopted given Fresh & Easy's limitations as we described above, allow the grocer to at least capture some of the business from coupon shoppers it's not getting in its stores that it's giving away to competitors, virtually all of which welcome and accept paper manufacturers' cents-off coupons and increasingly are adopting their own mobile, digital couponing systems. And, there's a substantial amount of business from frequent coupon clipper-users out there.

We've said in numerous pieces in Fresh & Easy Buzz over the last two-plus years that Tesco's Fresh & Easy is making a huge mistake by not accepting manufacturers' cents-off coupons of all types - traditional paper, paper coupons clipped out by consumers via internet sites, and mobile, digital coupons.

It's been, and remains, our analysis that Tesco's Fresh & Easy is missing the boat by not accepting all forms of these manufacturer-issued coupons in its stores, particularly in light of the fact that consumer use of the coupons, including traditional paper ones, has soared over the last two years, and is expected to increase again in 2010.

We believe one sign that Fresh & Easy has decided not to go forward with a mobile system that would allow it to take digital manufacturers' coupons is if the grocer comes out with a digital version of its current paper store coupons, which are distributed regularly via the web, and in paper format by direct mail, and sometimes in the stores.

It's our analysis that if Fresh & Easy does this anytime soon, it will mean, at least for the foreseeable future, it has no plans for a mobile couponing program which would allow the grocery chain to accept digital versions of manufacturers' cents-off coupons in its stores.

[Readers: Click here and here (plus, see the links there) to read a selection of past posts from Fresh & Easy Buzz about the manufacturers' coupon phenomenon, mobile coupons, digital coupons and related issues and topics.]

Online Grocery Coupon Use Soaring; Coupons.com Reports Whopping 192% Increase ($57 Million) in Value of Coupons Printed in March 2009 Over March 2008

Ready-to-eat breakfast cereals, like the $1.00-off Kellogg's brands SKUS pictured above on the Coupons.com Web site graphic, were the number one category of coupons printed out by consumers last month (March 2009) on the Web site, which is the number one online coupon site based on overall shopper usage and volume.

Food & Grocery Retailing in the Recession: Online Coupons

Fresh & Easy Buzz has been reporting, writing about and offering extensive analysis on the recessionary mega-trend that has consumers seeking out and using more and more manufacturers' grocery coupons in the current economic recession. [See the linked bibliography at the end of this piece for a selection of those stories.]

Now comes a fresh report from Coupons.com, the popular Internet-based, online coupon Web site, that it experienced a whopping 192% increase in the value of coupons printed from its site in March 2009 (last month), compared with a year ago. The total value of the coupons printed out by consumers was $57 million.

"Consumers printed a record amount of (coupon) savings in March, almost tripling the amount printed last year," Coupons.com CEO Steven R. Boal says. "Consumers are using digital coupons to save on virtually everything they spend money on, from food to household essentials to entertainment items. We see no slowdown in sight."

Coupons.com CEO Boal says his company's business has been growing about 25% every month since the recession began. He sees continued growth, even beyond the 25% increase each month.

According to recent research conducted by the market research firm Comscore, coupon Web sites have been the second-most-visited category on the internet, right behind job sites like Monster.com, Hot Jobs and Career Builder, for about a year. Comscore focuses on measuring and analyzing what goes on in the digital world.

The recession officially began in December, 2007. But its demonstable evidence presented itself in about February-March 2008, right about the same time consumers started using sites like Coupons.com in growing numbers.

Coupon sites had 28 million unique visitors in February, up 41% from the year before, when they drew 20 million, says Andrew Lippsman of Comscore. Coupons.com had the biggest share of the category, with 6.6 million unique visitors, up 29% from 5 million the year before. Eversave.com came in second, with 5.5 million unique visitors in February, according to the research firm's data.

Manufacturer-distributed online coupons for food, grocery and related consumer packaged goods items comprise the majority of online coupon offerings.

Ready-to-eat cereal was the most popular category for coupon usage on Coupons.com in February and March 2009, followed by baby products and baking ingredients, according to the Web site's report.

Diet aids and yogurt rounded out the top five categories.

Laundry supplies and personal care entered the top 10 in March, while salty and convenience snacks fell off the list, after ranking in the top five in February.

In other words, basics and essentials are currently the top item coupons being downloaded from the site by consumers.

Coupons.com offers coupons from packaged goods giants like Kellogg's, Johnson & Johnson, General Mills, Kimberly-Clark, Del Monte Foods, McCormick, Kraft Foods, Clorox and numerous others. The Web site also offers coupons for private label food, grocery and related packaged goods items from retailers like Kroger Co., Safeway Stores, Inc. and the CVS drug chain, along with a few others.

The data from Coupons.com and Comscore fits with a research report Fresh & Easy Buzz conducted and published on the Blog on March 7, 2009, in which we charted the fast-growing search volume on the search engines Google and Yahoo Search for the search term "grocery coupons." Read the story here: Google & Yahoo - The Tale of the Search Engines: An Analysis of How Tesco's Fresh & Easy is Losing Out By Not Accepting Manufacturers' Grocery Coupons.

Tesco's Fresh & Easy

Tesco's Fresh & Easy Neighborhood Market doesn't accept manufacturers coupons in its 116 combination grocery and fresh foods stores located in California (Southern and Bakersfield), southern Nevada and Metropolitan Phoenix, Arizona. As a result, the retailer is unable to gain the business and sales from shoppers who, as all the data demonstrates, are using grocery coupons regularly and in increasing numbers.

Conversely we aren't aware of one major mainstream grocery chain or independent of any significance in California, Nevada and Arizona that doesn't accept manufacturers' grocery coupons. In fact most all of the grocery chains and independents encourage and promote the practice, including partnering with manufacturers' to run coupons good only at their specific stores in their retailer weekly ad circulars and on their respective Web sites.

Since Tesco's Fresh & Easy is the lone wolf food retailer in its markets in not accepting the manufacturers' grocery coupons, it's sort of the odd grocer out in the eyes of many shoppers --particularly in the current recession as more and more consumers who never before used the coupons are doing so now and with increased frequency -- in our research and analysis.

Retailers get paid back by the manufacturers that issue the coupons for the entire face-value discount amount of each coupon they redeem, along with a three -to-five cent per coupon handling charge. The retailers don't have to send the redeemed coupons to each manufacturer. Rather, they send them to a central coupon clearing house that handles the reimbursement.

In contrast, coupons issued by retailers like Tesco's Fresh & Easy for a certain dollar amount off of a minumum total purchase -- like Fresh & Easy's $5-off $20 and $6-off $30 store coupons -- come out of the retailer's profit margins. This is the primary reason you aren't seeing Tesco's Fresh & Easy distributed the $5-off and $6-off store coupons on a regular basis anymore.

Yet the retailer doesn't accept the manufacturers' grocery coupons. It's a rather strange practice in the eyes of most experienced grocers and industry analysts like Fresh & Easy Buzz, especially because Fresh & Easy Neighborhood market needs all of the added sales it can get.

Changing its operating policy immediatly to accepting the manufacturers' coupons, and then promoting that change widely, would be one of the easiest and least expensive retail operations changes Tesco's Fresh & Easy could make as a way to position itself for increased sales, in the current recession and once it is over. But apparently the grocery chain doesn't think that's the case. We do. [Suggested related reading - March 7, 2009: Analysis & Commentary: The Seven Retail Operations Changes Tesco's Fresh & Easy Neighborhood Market Needs to Make to Help it Get On the Success Track.

Below is a linked bibliography of some of Fresh & Easy Buzz's recent reports, stories and analysis on the grocery coupon topic and issue, as mentioned in the first paragraph of this story:

>April 5, 2009: Food & Grocery Retailing in the 21rst Century: New Study Says Younger Consumers Getting Hip to Online Coupons; Particularly Mobile Couponing

>March 19, 2009: Ground Control to Shopper: Point-of-Purchase-Based Mobile Couponing the Next Hot Ticket; Kroger Co. Leading the Food Retailing Pack.]

>March 9, 2009: >March 9, 2009: Consumer Use and Retailer Redemption of Manufacturers' Coupons Soaring Says Leading Redemption Company in the U.S.; But Not at Tesco's Fresh & Easy

>March 7, 2009: Google & Yahoo - The Tale of the Search Engines: An Analysis of How Tesco's Fresh & Easy is Losing Out By Not Accepting Manufacturers' Grocery Coupons

>February 12, 2009: >February 12, 2009: Consumer Use of Manufacturers' 'Cents Off' Coupons Continues to Grow: The Latest American Rage: Home Coupon-Clipping and Coupon-Trading Parties

>February 3, 2009: >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

>December 12, 2008: December 12, 2008: December 12, 2008: Marketing & Promotions Report: Manufacturers' Coupons Becoming the 'New Black;' Use Among Consumers Soaring; Marketers Distributing More Than Before

>December 6, 2008: Use of Manufacturers' Coupons Soaring Among U.S. Consumers; Coupon Delivery Systems Going High-Tech; But Fresh & Easy Stores Don't Accept the Coupons

>November 26, 2008: Consumer Briefing: The New, Frugal and Near-Broke American Consumer is Staying Home For the Holidays

>August 24, 2008: Sunday Supplement: 'America's Cheapest Family' Helping to Spur Increased Use of Manufacturers' Coupons At the Grocery Store; Accept At Fresh & Easy

[You can follow-Fresh & Easy Buzz around on Twitter.com at www.twitter.com/freshneasybuzz.]

Food & Grocery Retailing in the 21rst Century: New Study Says Younger Consumers Getting Hip to Online Coupons; Particularly Mobile Couponing

Pictured above is a graph captured today from Google Trends, showing the volume of consumer searches on the search engine for "online coupons," from 2004 to today, April 5, 2009. Notice the progression of online search for the manufacturers' discount grocery coupons.

When it comes to online manufacturers' discount grocery coupons, the younger an adult consumer is, the more receptive he or she is to the online discount offerings, according to a just-released joint-study by AOL's Platform- A business intellegence group and consumer packaged goods research firm Information Resources, Inc. (IRI).

The joint study, which utilized information provided by 36,000 IRI consumer panelists, offers the following three key results:

>The youngest market segments are the most receptive to online coupon offers, with 51% of 18-24 year-old shoppers indicating that they would be very likely to use coupons presented to them online.
>While historically ambivalent to traditional coupons, younger couples are the most likely life-stage group to use online coupons, indicating an opportunity to influence product choices within this segment.
>Young couples without children are among the respondents most likely to use a coupon they found online, followed by shoppers with younger children.

"What's particularly remarkable about the study results is how open young people are to the idea of using coupons online – even though clipping coupons from the newspaper really hasn't been their thing," says J. P. Beauchamp, senior vice president, IRI Consumer & Shopper Insights. "I think we’ll be seeing consumer packaged goods manufacturers jumping on this trend – using online coupons to court a new generation of consumers and build loyalty during these cost-conscious times." [We don't think the finding that young people are "so open" to using online coupons is remarkable. In fact, it makes intuitive sense that 18-24 year olds would be so receptive to online coupons. Most spend more time online today than they do watching television, for example. And the Internet and the Web is to today's 18-24 year olds what the telephone was to 18-24 year olds in the 1970's and 1980's.]

Based on input from more than 36,000 IRI panelists gathered in September, 2008, the study gauged consumer usage of traditional newspaper coupons and interest in digitally distributed online coupons.

"The research comes at a critical juncture, when American families are extremely value-focused and eager to stretch their buying power, yet newspaper circulation (and thus the traditional vehicle for coupons) is in steep decline," says Mark Ellis, senior vice president of the AOL/Platform-A business intelligence unit.

AOL owns and operates an online manufacturers' grocery coupon service called Shortcuts.com. The service allows shoppers to search for and download online manufacturers' grocery coupons using a cell phone or other personal digital device right in a supermarket or other format store aisle. The product item discount value of the coupon is downloaded directly onto the shoppers store loyalty card. The discounts are then given to the customer at check out and printed out on their receipt.

"This data highlights a number of trends that are converging to make online couponing an appealing option for consumer packaged goods manufacturers, Ellis says. "We have an economy that makes coupons much more relevant to the average consumer, a rising generation of families totally at home with the Internet, and an overall decline of the newspaper and its Sunday circular distribution. There's clearly a huge window of opportunity here."

The AOL/IRI study reports that more than 90 million consumers (78% of retail shoppers) currently use traditional newspaper coupons, with nearly one out of every four of the newspaper coupon clippers likely to be at least 65 years old.

Additionally, It also suggests that nearly four out of every 10 shoppers – a total of 40 million consumers – would be very likely to use coupons accessed online. Not surprisingly, the younger the consumer, the more comfortable they were with the idea of accessing coupons online. After all, consumers aged 18-24 years old, the top online grocery coupon demographic, according to the study, were literally born into the era of the Internet. Conversely, consumers over 40 have had to adapt to the Internet and its various offerings.

As a result, younger consumers are early adopters to everything digital and online; it's coded in their DNA. For older consumers it's a more learned behavior. But one shouldn't discount the fast-growing numbers of older consumers who are going online to search for and download manufacturers' grocery coupons. It is significant, and growing rapidly in the current recession.

Older consumers may be late adopters in some cases, but when they adapt they tend to go big online. For example, people over 40 are the fastest-growing consumer segment signing up for the social networking site Facebook, according to data released by the company in March.

AOL, which is owned by Time-Warner, obviously wants to get more consumer packaged goods companies to use its Shortcuts online coupon service, along with getting more consumers to regularly use the site to obtain the coupons.

But the study's results basically fit with Fresh & Easy's Buzz's independent research, which finds online consumer coupon use fast-growing, particularly among adult consumers 18-35, but also those 40 years old and over. Most of the online use by consumers at present involves downloading manufacturers' (and in cases where retailers like Tesco's Fresh & Easy and others that offer store coupons) coupons from Web sites, printing the coupons out, and taking them to the supermarket to redeem.

Right now it's all about obtaining value, a theme we write about often when it comes to food and grocery shopping. [Related value proposition reading. April 1, 2009: Competitor News: Bashas' Chain Launching 10,000-Plus Item Storewide Price Slashing Program This Week in its Arizona Supermarkets. March 2, 2009: Fresh & Easy Buzz Redux: Much of the Value Proposition-Based Analysis and Suggestions We've Been Offering Now Being Adopted By Tesco's Fresh & Easy. 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.]

AOL/Platform-A and IRI agree with our value is currently King assessment.

In the study they say: "Value-focused promotion is clearly the strategy of choice right now in the consumer packaged goods (CPG) market, evident in the fact that eight out of Platform-A’s top 10 CPG clients use value-based messaging in their online advertising. And, many of these advertisers are already taking advantage of the innovative approaches to couponing available online, such as AOL’s Shortcuts.com. Launched in 2008, the site allows consumers to apply online coupon promotions directly to their grocery loyalty cards, making coupon discounts paperless and automatic at checkout.

Kroger Co., which operates the Ralphs supermarket chain in Southern California and in California's southern Central Valley region, Food 4 Less in Southern California and Nevada, and the Fry's and Smith's Food & Drug chains in Arizona and Nevada (all markets where Tesco's Fresh & Easy has its current 116 grocery and fresh foods markets), is using AOL's Shortcuts.com service, along with Cellfire Mobile, a competitor. [You can read about the development in this March 19, 2009 piece: Ground Control to Shopper: Point-of-Purchase-Based Mobile Couponing the Next Hot Ticket; Kroger Co. Leading the Food Retailing Pack.]

Platform-A is AOL’s digital marketing and advertising business. It includes AOL.com, AIM, MapQuest, Advertising.com's third-party networks and other services.

Platform-A also includes TACODA's audience insights and behavioral targeting; Quigo, a site- and content-targeting solution; ADTECH, an international digital ad serving business; Third Screen Media, a mobile ad serving network; and buy.at, an affiliate marketing solution.

AOL's Platform-A currently has operations in the United States and in nine European countries: the United Kingdom, France, Germany, Denmark, Finland, Netherlands, Norway, Spain, and Sweden. It also operates in Japan through a joint venture with Mitsui corporation.

Online couponing and Tesco's Fresh & Easy

Fresh & Easy Buzz's research indicates that the only consumer segment that's began to develop some retail brand loyalty to Tesco's small-format, combination grocery and fresh foods Fresh & Easy stores thus far are younger consumers in the about 18-34 year old age range.

It is among this general age range that our research finds the most shoppers having an affinity for the Fresh & Easy concept, model, format and way of doing business.

Among the 18-35 year old age cohort, our research shows those aged about 18-29, the same basic age cohort indentified in the AOL/IRI study as being the most active (or willing to use) manufacturers' online coupons, to be the age group that appears to generally like Fresh & Easy the most. In other words, the younger the adult is the more they seem to like Fresh & Easy, based on our research and analysis.

Unfortunately for Tesco's Fresh & Easy, its stores do not accept manufacturer-distributed grocery coupons. As a result, until the grocer changes that operations practice and starts taking the ocupons, it can't tap into the potential opportunity that presents itself. That opportunity being that the same consumer age group our research shows likes Fresh & Easy the best happens also to be the age group that uses and is willing to use manufacturers' grocery coupons the most. [Related reading - March 7, 2009: Analysis & Commentary: The Seven Retail Operations Changes Tesco's Fresh & Easy Neighborhood Market Needs to Make to Help it Get On the Success Track.]

Fortunately (accept from a profit margin perspective) for Tesco's Fresh & Easy, it does sometimes issue its own store brand discount coupons (the $5 off purchases of $20 or more and other value variations) online on its http://www.freshandeasy.com/ Web site, as well as using Twitter.com to sometimes promote the availabilty of the store coupons at the Web site.

The downside between manufacturers' item coupons and retailers'-own store coupons though is that in the case of the manufactuers' coupons, online or paper, the manufacturer pays the retailer back for the discount value (plus a five cent or so handling charge per coupon) of the coupon, which means the discounts don't come out of a grocry chain's profit margins.

Retailer store coupons though come directly out of the retailer's profit margins. For example, if a shopper buys $30 worth of groceries and uses one of Fresh & Easy's $6-off store coupons, Tesco loses a whopping 20% on the transaction. In the low margin grocery business that 20% is a significant percentage to lose. This is one key reason why Tesco's Fresh & Easy has dramatically reduced the distribution of its deep-discount store coupons since the first of this year, much to the dismay of many shoppers who became used to using the coupons as a regular habit at the stores.

It's our analysis that Tesco is missing a huge opportunity to tap into the fast-growing online manufacturers' grocery coupon trend by not accepting the coupons in its 116 Fresh 7 Easy markets in California (Southern and Bakersfield), southern Nevada and Metro Phoenix, Arizona.

Additionally, since Tesco isn't using a loyalty card program at Fresh & Easy USA like it uses at Tesco in the United Kingdom, it can't utilize paperless online manufacturers' grocery coupon services like AOL's Shortcuts.com and Cellfire Mobile, both which allow retailers to accept the online coupons without any paper transactions.

The primary reason Tesco's Fresh & Easy doesn't accept manufacturers' cents-off coupons, just as it doesn't take WIC vouchers or paper checks from customers, is because the retailer believes the labor savings of avoiding store-level paper transactions (although last time we looked cash is still paper money, as are the Fresh & Easy paper store coupons) outways the benefits of accepting the paper coupons and checks from shoppers. We disagree with this based on extensive experience and our research and analysis.

Therefore, if Tesco's Fresh & Easy did use a loyalty card scheme, it could utilize the various paperless manufacturers' grocery coupon services and still avoid handling the paper coupons. But it can't since in order to use services like Shortcuts and cellfire a retailer must has a loyalty card system in place.

Therefore it's a "lose-lose" proposition all around regarding manufacturers' coupons for Fresh & Easy until it changes its operations policy, which would be the smartest thing to do since paper manufacturers' discount coupons are still the vast majority of those used by shoppers, or the grocer brings in a loyalty card program.

Conclusion: Competitive advantage

It's our analysis that those food and grocery retailers like Kroger Co. that have adopted the use of paperless coupon technology like Shortcuts and Cellfire for their stores have in their hands what will increasingly become a competitive advantage.

This is particularly the case because more and more consumer packaged goods companies are signing up with the paperless coupon services, offering their coupons with them in addition to elsewhere online and in the traditional paper formats like Sunday newspaper inserts and direct mail.

Additionally, consumers are increasingly buying smart phones like Apple's 1-phone and others. These units make going online anywhere a breeze. This superior protable digital technology will result in more consumers of all ages using digital media, including online manufacturers' coupons.

Lastly, the power of combining the ability for shoppers to obtain online coupons via their handheld devices right at the point-of-purchase, in the supermarket aisle, is powerful. For example, a shopper can check Shortcuts.com or Cellfire Mobile right in the cleaning products aisle in a Kroger Co. store before deciding which brands to buy. They can then download a coupon for a particular brand of laundry detergent, household cleaner, paper towels and the like, buy those brands, and get an instant discount on each of the items at checkout.

The store is increasingly where the action -- and marketing -- is. Therefore the obtain at the point-of-purchase manufacturers' paperless coupon technology is only going to continue to grow, in our analysis. Those retailers that are early adopters, like Kroger, will reap the most competitive advantage from the technology, we believe.

Select related stories from Fresh & Easy Buzz:

>March 19, 2009: Ground Control to Shopper: Point-of-Purchase-Based Mobile Couponing the Next Hot Ticket; Kroger Co. Leading the Food Retailing Pack

>March 9, 2009: Consumer Use and Retailer Redemption of Manufacturers' Coupons Soaring Says Leading Redemption Company in the U.S.; But Not at Tesco's Fresh & Easy

>March 7, 2009: Google & Yahoo - The Tale of the Search Engines: An Analysis of How Tesco's Fresh & Easy is Losing Out By Not Accepting Manufacturers' Grocery Coupons

>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

>February 12, 2009: Consumer Use of Manufacturers' 'Cents Off' Coupons Continues to Grow: The Latest American Rage: Home Coupon-Clipping and Coupon-Trading Parties

>December 12, 2008: December 12, 2008: Marketing & Promotions Report: Manufacturers' Coupons Becoming the 'New Black;' Use Among Consumers Soaring; Marketers Distributing More Than Before

>September 4, 2008: >September 4, 2008: News & Analysis: Tesco's Fresh & Easy Launches New Direct Mail Promo Piece Full of $5-Off Discount Coupons; Is it Taking Deep-Discounting Too Far?

>December 22, 2008: December 22, 2008: Marketing: Tesco's Fresh & Easy Launches E-Mail Promo Alert Program; Something Fresh & Easy Buzz First Suggested it Do Many Months Ago

[You can follow Fresh & Easy Buzz around on Twitter.com at: www.twitter.com/freshneasybuzz.]

Consumer Use and Retailer Redemption of Manufacturers' Coupons Soaring Says Leading Redemption Company in the U.S.; But Not at Tesco's Fresh & Easy

Inmar Inc., the leading promotions transaction settlement provider in the U.S., said late last week that manufacturers' "cents-off" coupon redemption in the fourth quarter of 2008 grew nearly 10%, compared to the fourth quarter of 2007, making it the first jump in redemption since the early 1990's.

Inmar operates one of the leading U.S. clearinghouse operations for the redemption of manufacturers' coupons by retailers and the payment to those supermarket and other format retailers by the manufacturers'-marketers.

According to data just released by Inmar, consumer response to manufacturers' coupons remained strong for 2008, with 2.6 billion coupons redeemed, the third year in a row at that level.

The peak year for coupon redemption was 1992, at the end of the last major recession, when 7.9 billion coupons were redeemed, Inmar says. [Fresh & Easy Buzz thinks 2009 could come comparatively close to that number. It won't be 7.9 billion because manufacturers aren't distributing coupons in the same volume as they were in the late 1980's-early 1990's. However, we bet when 2009 is over the total redemption amount will be much higher than 2.6 billion.)

"Consumers responded to the financial uncertainty (in 2008), in part, by using more coupons," says Bob Carter, president of Inmar CMS Promotion Services. "When everyone started hearing reports of record unemployment, drops in consumer confidence and losses on Wall Street, coupon redemption volume started to go up."

CMS Promotion Services is the brand solutions and promotions arm of Inmar.

The first three quarters of 2008 saw coupon redemption dip slightly, compared to the same three quarters in 2007, according to Inmar's data.

But manufacturer-issued food, grocery and non-food item coupon redemption surged up by nearly 10% in the fourth quarter of 2008, compared to the fourth quarter in 2007.

That increase came in November and December which both saw double digit redemption growth.

A double-digit increase in the use of food coupons primarily drove the jump in redemption, although non-food coupon redemption also rose by nearly 10%, Inmar says. [Note: This compares to the search trends by consumers we analyzed and published in this piece on March 8:

The increase in coupon use also accompanied an unprecedented shift in the channels in which consumers used coupons, according to Inmar.

"For years, nearly 70% of coupons were redeemed in conventional supermarkets," says Jennifer Mauldin, president of Inmar Carolina Services Revenue Recovery Services. "But in 2008, the mass-merchandiser channel saw a 15% increase in redemption overall, made up by a 20% increase in redemption for food coupons and a 13% increase in non-food coupons."

Inmar's Carolina Services Revenue Recovery Services processes coupons and manages third party pharmacy claims for retailers.

The majority of non-food coupons issued by manufacturers are for items like household cleaning supplies and essentials (toilet tissue, paper towels, cleaning products) and health and beauty care category items (vitamins, OTC drugs, body care products) that are sold in supermarkets, mass-merchandise stores and drug stores.

The mass-merchandiser channel includes retailers such as Wal-Mart, Target and Costco, all three of which accept manufacturer-issued coupons for food and non-food items.

Every major (and most minor) food, grocery and related format retailers in the U.S. accepts manufacturer-issued "cents-off" coupons in their respective stores.

Tesco's Fresh & Easy Neighborhood Market does not accept manufacturers' coupons at all in any of its stores in California, Nevada and Arizona, which currently number 115. Since Fresh & Easy is owned by the third-largest retailer in the world, Tesco, which also is the number on retailer of food and groceries in the United Kingdom, is qualifies in the major retailer category mentioned above.

Supermarkets and grocery stores still remain the top retail channel for the redemption of manufacturers' coupons, with about 64% of all coupons being redeemed in the channel, according to data provided by Inmar, which is based in Winston-Salem North Carolina.

However, coupon redemption is growing in the mass-merchandiser channel, largely because the mass-merchandiser channel is a fast-growing seller of food and groceries. About 19% of manufacturers' coupons are now redeemed in the mass-merchandiser channel, according to Inmar's data.

The remaining percentage of coupons are redeemed from other retail classes of trade, such as the drug store channel, and others.

Much of this growth in the mass-merchandiser retail channel in 2008 can be attributed to the fact that more and more shoppers have been turning to the channel, particularly to Wal-Mart, but also to other mass-merchandisers like Costco, to buy their food and grocery items, taking the manufactures' coupons with them to those stores.

Based on our research and analysis, it's not that fewer shoppers are using the coupons at supermarkets. Rather, it's the fact that over the last few years the mass-merchandiser channel has gain a much bigger share of the overall food and grocery (and non-food) consumer dollar. This therefore is reflected in the growth in coupon redemption for the channel.

For example, the overall number one retailer of food and groceries in the U.S. today is a mass-merchandiser, Wal-Mart. The number two seller of food and groceries nationally in the U.S. is Costco, also a mass-merchandiser, with a membership club store specialty. Kroger Co., the largest supermarket chain in the U.S., now comes in as number three. Just two years ago Kroger was the overall top-retailer of food and groceries in the U.S., and Supervalu, Inc. (now number four) and Safeway Stores, Inc. (now number five), were both in front of Costco.

Inmar CMS Promotion Services' president Bob Carter says food and grocery manufacturers'-marketers continue to believe in the power of coupons, proven by a 5% increase in the number of coupons made available to consumers last year. "At 317 billion coupons, distribution is not just up over the previous year, but is back up to levels from a decade ago," Carter says.

"This high level of (manufacturer-issued coupon) distribution, combined with a 9% increase in the average face value and a generally sour economy, make coupon offers more attractive to consumers than ever," says Carter.

As Fresh & Easy Buzz has been writing about and offer analysis on in a variety of pieces over the last many months, all of the empirical evidence out there demonstrates that Bob Carter is correct; that the use of manufacturers' "cents-off" coupons by consumers will continue to increase, and do so significantly.

To demonstrate this point, Inmar's Carter says current data shows consumers' use of manufacturers' coupons increased substantially in January, 2009, over January, 2008. Over 9% more manufacturer-marketer-issued food, grocery and non-food item coupons were redeemed (meaning they passed through retail stores) in the U.S. in January of 2009 than were redeemed in January , 2008.

"While we can't predict the future, it is safe to say that the traditional coupon is back in vogue for consumers, says Inmar's Jennifer Mauldin. "Even if the economy turns a corner sooner than later, a combination of factors have put coupons back on the radar of many consumers and introduced some to them for the first time."

Inmar is a logistics company that specializes in providing services and solutions between trading partners for the physical, financial and information flows within the supply chain. It's the nation's largest provider of promotions logistics and settlement services, serving over 1,700 business clients, including manufacturers, wholesalers and retailers. The company says it processes more than 3.5 billion transactions annually.

The Inmar data matches that from supermarket and other format retailers, which we've reported on and written about previously in Fresh & Easy Buzz . The retailers report that food and grocery coupon volume (use by shoppers) in their stores is at what some say is at an all time high, and what others say is significantly higher volume than they've seen in many years.

But since Tesco's Fresh & Easy has a policy of not accepting the manufacturer-issued coupons in its stores, the many shoppers who use the coupons take them to stores operated by its competitors, where they spend their money because those grocers accept the coupons.

Google & Yahoo - The Tale of the Search Engines: An Analysis of How Tesco's Fresh & Easy is Losing Out By Not Accepting Manufacturers' Grocery Coupons

Earlier today we wrote and published this piece [Analysis & Commentary: The Seven Retail Operations Changes Tesco's Fresh & Easy Neighborhood Market Needs to Make to Help it Get On the Success Track]. One of the seven retail operations changes we suggest in the story, and have been suggesting for at least a year, is that Tesco's Fresh & Easy Neighborhood Market change its policy of not accepting manufacturers' grocery coupons in its stores.

In the analysis below, we take a look the fast-growing trend among U.S. consumers to use the Google and Yahoo search engines to find grocery coupons, so they choose specific item coupons, print the coupons out, and use them at the grocery store in order to save money on their food and grocery purchases.

Today, Saturday, generally is the top shopping day for consumers to do their food and grocery shopping. It's a day off work for most Americans, and in most households it's what can be called household chores and errand-running day.

Fresh & Easy Buzz has for many months been writing about and offering analysis on what we call the mega-increase by American consumers in the use of manufacturers' "cents off" grocery coupons, those little slips of paper that come in the mail, are inserted in Sunday newspapers, and increasingly are available on the Internet at a multitude of coupon Web sites.

To show you just how popular the use of manufacturers' grocery coupons are becoming in the current economic recession, the search term "grocery coupons" is today the fourth most-searched term on Yahoo Search, just ahead of the actor Vince Vaughn (number five) and right after the actress Leelee Sobieski (number three most-searched).

And, what's up with Actress Carla Gugino that makes her the most-searched on Yahoo Search? You'll have to click her linked name on the top-ten list below to find out what all the fuss about her is.

Today's Top Searches on Yahoo Search

1. Carla Gugino
2. Michelle Obama
3. Leelee Sobieski
4. Grocery Coupons
5. Vince Vaughn
6. UFC 96
7. Bernard Madoff
8. Drivers Ed
9. Bartending School
10.DNA Tests

Google Trends for 'grocery coupons'

One way to demonstrate the dramatic growth in consumer interest (and use) in grocery coupons is to take a look at the search volume (for the U.S.) for the search term "grocery coupons" using Google Trends' "Search Volume Index," the analytical tool Google.com uses to rate and rank searches on its search engine.

The graph above (click here to view the graph) depicts the volume of Google searches for the search term "grocery coupons" from 2004-2008 in the entire U.S.

Notice the beginning of the spike in the number of searches starting in late 2007. The current recession officially began in December, 2007, according to the economic group charged with determining when recessions start.

Additionally, note the almost continual increase in searches throughout 2008, particularly the huge spikes in mid and late 2008. The financial and credit crisis hit hard beginning in about September-October, 2008 -- and it has been downhill in terms of the deepening of the recession since then. (Note: read the top portion of the graph, where it says "Search Volume index." The bottom portion of the graph measures the volume of news media searches.)

The graph pictured above (click here to view) is for 2008 (total U.S.). It shows a dramatic spike in searches for "grocery coupons" in October, right about the time when the financial crisis hit, then a trending down, and then another spike at the end of the year, the holiday period.

In 2008, the top ten states in which consumers searched "grocery coupons" on Google were: (1) South Carolina, (2) Kentucky, (3) Mississippi, (4) North Carolina, (5) Tennessee, (6) Alabama, (7)Georgia, (8) New Hampshire, (9) Missouri, (10) Arizona.

Seven of the ten top Google-search states are in the southern U.S. One, New Hampshire, is in New England in the east. The other two, Missouri and Arizona, are in the Western U.S.

Tesco's Fresh & Easy Neighborhood Market has stores in one of the top ten states -- Arizona. The other two states where Tesco has Fresh & Easy stores are California and Arizona. After California, Arizona has the second-highest number of Fresh & Easy markets. There currently are 115 of the small-format, convenience-oriented, combination grocery and fresh foods stores in the three states.

The graph pictured above (click here to view) is for 2009 thus far (all U.S. states). Note the significant spike in the graph for February.

Thus far this year, the top eight states for consumer searches on Google for "grocery coupons" are (1) North Carolina, (2) Georgia, (3) Ohio, (4) Texas, (5) Florida, (6) New York, (7) California, (8) Pennsylvania.

Notice that California, where Tesco operates the majority of its 115 small-format Fresh & Easy Neighborhood Market grocery and fresh foods stores, thus far this year has the seventh-highest amount of Google searches for "grocery coupons." About half of the 115 Fresh & Easy markets are in California.

California

Let's take a specific look at California, the largest state in the U.S. and home to Tesco's Fresh & Easy, specifically in terms of the volume of searches on Google for "grocery coupons.

The graph pictured above (click here to view) is for all of 2008. Note the major upward spike in June, 2008, then a steady trend, then a huge drop, followed by a major upward spike in September-October, 2008, when the financial and credit crisis hit big.

The following California cities and metropolitan regions had the highest volume (listed in rank order from first -to- 10th) of Google searches for 2008: Riverside, Rancho Santa Margarita, Long Beach, Santa Barbara, Irvine, Los Angeles, Pasadena, Bakersfield, San Luis Obispo and Fresno.

Tesco's Fresh & Easy currently has stores in each of these metropolitan regions except for Santa Barbara, San Luis Obispo and Fresno. It has plans to open stores in the Santa Barbara and Fresno regions in the very near future, and longer range plans to open stores in the San Luis Obispo region.

Since the grocery chain has numerous stores in the metro regions listed above that have the highest volume of "grocery coupon" searches on Google, and since most of the searches are for manufacturer's "cents off" grocery coupons on the Internet, rather than store coupons like Fresh & Easy offers, it's our analysis that by not accepting the manufactuers' cooupons, the grocer is missing out on all these shoppers who are searching Google for "grocery coupons," which it's rather safe to assume they then download, print out and take with them to the grocery store.

Our safe assumption that consumers aren't just looking at the coupons online, but rather going online to find the coupons and print them out, is backed up by statistics that show coupon use at all time highs throughout the U.S., including in California, Nevada and Arizona, where the 115 Fresh & Easy stores are located.

Above is California thus far in 2009 (click here to view). It's safe to say consumer-Google-users in California are pretty grocery coupon-focused so far this year, based on the data.

It will be interesting to see where the trend line goes once March is over and Google is able to include the full month data. The graph only includes seven days in March thus far, obviously. We suspect the trend line will go up more than it drops, as grocery coupon use continues to increase, and manufacturers' continue to distribute more coupons as a way to keep and increase sales of their respective brands in the recession.

Arizona

Now we turn to Arizona. Above is a graph for 2004-2008 (click here to view), depicting the volume of searches on Google for "grocery coupons" from consumers-Google users in Arizona. Note the huge spike in search in late 2008.

Additionally, this graph for 2008 shows a steady upward trend for Arizona in the volume of Google searches for the coupons in 2008.

Lastly, this graph depicts searches thus far in 2009. There are some peaks and valleys, and currently the trend is headed very much upward in coupon search volume.

Thus far this year these are the top seven (in ranked order) Arizona cities in terms of having the highest volume of coupon searches on Google: Pima, Tempe, Chandler, Phoenix, Mesa, Tucson and Scottsdale.

Tesco has Fresh & Easy stores, or will soon have stores, in all of these cities except for Pima (at least that we are currently aware of in the case of Pima.)

Nevada

The graph pictured above (click here to view) shows Google coupon search volume for 2004-2008 for the state of Nevada. Note the major growth trend beginning in late, 2008.

You can view all of 2008 by itself in this graph. Coupon search shot up considerably beginning in about October, 2008.

The top three Google-search cities for 2008 were (in rank order): Carson City, Las Vegas and Reno.

Carson City and Reno are in northern Nevada. Las Vegas is in southern Nevada. All of the Fresh & Easy stores are in the Las Vegas region in southern Nevada, where the vast majority of the state's residents live.

The fact that so many consumers in the Las Vegas Metro region were searching for coupons on Google in 2008 demonstrates how Tesco's Fresh & Easy is missing the boat by not accepting the manufacturer's "cents off" grocery coupons in its stores in Nevada (as well as in Arizona and California.) Those consumers that printed out the coupons took them to one of the grocery chain's competitors in the Las Vegas market region, where they used them to shop.

Lastly, this graph depicts the Google search volume thus far for 2009 for coupons. There was a huge spike in late February with the line now trending down. However, that's largely due to the fact we are only seven days into March.

Conclusion

It's increasingly said that as Google goes (and to a lesser but significant degree Yahoo Search and search in general), so goes the country -- and the world. Online search has revolutionized the way consumers live their lives and shop.

And as our analysis demonstrates, consumers are increasingly using manufacturers' grocery coupons and turning to search engines like Google and Yahoo Search to find the coupons online, download and print them out, and take them to the grocery store to use when they do their shopping.

It's all about pinching pennies and trying to save a buck in this severe recession. But it was a very popular consumer practice pre-recession as well.

Therefore, those grocers that accept the coupons, which amount to nearly 100% of all major food retailers in the U.S., are the ones who are benefiting, and will continue to benefit, from this fast-growing trend.

Meanwhile, Tesco's Fresh & Easy, which by company policy does not accept manufacturers' coupons from shoppers in its stores, will continue to lose out on the growing sales volume that comes from shoppers who choose where they shop to a significant degree (and since nearly 100% of all grocers take coupons it's not an issue for the majority of retailers) based on the fact they will be using the coupons as one of the ways of saving money on their food and grocery purchases in these trying economic times.

The trend is great for Fresh & Easy's competitors, since all of them accept the coupons. It's not so great for Fresh & Easy, since as a matter of policy and strategy it believes achieving the minimal savings in store labor required to handle the manufacturers' coupons from shoppers trumps the benefits of accepting them, and the added sales and customer loyalty doing so brings a food and grocery retailer.

Since about 100% of the grocery chains and independents (including Wal-Mart) in California, Nevada and Arizona take the manufacturers' "cents off" coupons -- and even encourage the use for promotional purposes -- these being Tesco Fresh & Easy's competitors -- might they collectively all not be on to something? Might the rule therefore be good retail operations strategy and the acception -- Tesco Fresh & Easy's no manufacturers' coupon policy -- be a bad one? We think so, as does the marketplace.

[Editor's Note: We've included links to the original Google Trends graphs for each of the graphs pictured in this post. Since the search data is dynamic, there will be changes in the original 2009 linked graphs over time compared to the 2009 graphs pictured in this piece. That's because as new search data is incorporated by Google into its search trends data base, the graph trend lines change. The 2009 graphs pictured in this post therefore are a snapshot in time, that time being when this piece was published this afternoon.]

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