Major Changes Coming to Tesco's Fresh & Easy Neighborhood Market Stores

Breaking Buzz - News/Analysis

Tesco's Fresh & Easy Neighborhood Market is preparing to make some major and significant changes inside it small-format fresh food and grocery markets, including adding bakery ovens it will use to bake its artisan breads in-store throughout the day, Fresh & Easy Buzz has learned.

Current plans at United Kingdom-based Tesco and its El Segundo, California-based Fresh & Easy Neighborhood Market chain call for rolling out the changes to as many as 100 stores by the end of this year.

Below are the key changes Tesco will soon start making to some of its 175 Fresh & Easy stores in California, Nevada and Arizona.

Fresh baked bread and bread-bakery front and center

The first and most significant change Tesco's Fresh & Easy plans to make is to install bread-baking ovens in the stores. The ovens will be used to bake Fresh & Easy's artisan breads in-store throughout the day. The grocer is also considering using the ovens to bake other selected items.

As part of its plans to install the bakery ovens and bake the artisan breads in-store, Fresh & Easy Neighborhood Market plans to relocate the bread and bakery sections and shelves from their current locations in the rear of the stores to the front of the store, as a way to showcase what it hopes will become a key offering, led by the fresh-baked breads and related merchandising, in the small-format fresh food and grocery markets

The addition of the ovens and the relocation of bakery to a more prominent, up-front location in the stores is part of an overall plan to attempt to create a warmer feeling and improved "sense of place" in the small-format (10,000-12,000 square-foot) Fresh & Easy stores, which feature a spartan "small box" design including cement floors, warehouse-style grocery shelving and utilitarian fresh and frozen food product display fixtures.

In April Tesco's CEO, Philip Clarke, said during his presentation of the UK-based global retailer's fiscal year 2010/11 financial results that later this year the Fresh & Easy stores would begin opening an hour earlier - at 7 a.m. - than their current 8 a.m opening time and concurrent with that change the stores will start offering fresh-brewed coffee and pastries in-store, hoping to become a morning destination stop for commuters and others.

Around five of the 175 Fresh & Easy stores currently open later than 8 a.m. - at 10 a.m. A couple of those same stores also close earlier than the regular 8 p.m. closing time. Fresh & Easy made the changes last year.

The planned addition of the in-store bread-baking ovens and relocation of the bread and bakery section to the front of the Fresh & Easy grocery markets is related in part to the earlier store opening time and new coffee and pastry offering Clarke mentioned last month, although it was in the works before then.

As part of the relocation of the bakery section, the installation of the in-store bread-baking ovens and the upcoming offering of fresh coffee and pastries, some of the Fresh & Easy stores will also get "mini-cafe" areas featuring seating of some type and/or a coffee bar where customers can drink their coffee and eat pastry, muffins, fresh-baked bread and other items in the store, according to our sources.

[You might find this February 21, 2008 story from Fresh & Easy Buzz - A Look at Fresh & Easy at @ 50 (Stores): An Analysis and Some Suggestions for Going Forward - this piece from March 24, 2008 - The Analysis of Tesco's Fresh & Easy From Piper-Jaffray's Mike Dennis in This Interview Published Today Sounds A Lot Like Ours For the Last Few Months - and these stories interesting and informative.

Yes. We first suggested serving coffee, offering "mini cafes" and much more in the Fresh & Easy stores in February and March 2008 (see the linked stories above) and have written about it and other changes designed to create an improved "sense of place" (and for other top and bottom line reasons) in the stores since then. For example, here's a story from September 2010 we suggest you take a look at: September 14, 2010: Eight Plus One: Napa Unit Added to Eight Fresh & Easy Neighborhood Market Stores Opening in Northern CA in Early 2011.]

According to our sources, how many of the stores will get such sit-down options hasn't been determined yet by Tesco and Fresh & Easy Neighborhood Market.

Essentially, the overall plan is to make the front-of-store bread and bakery section and the coffee and pastry offering the first thing customers see - and in the case of the fresh bread baking and coffee brewing, the first thing shoppers smell - when they enter the stores, something Clarke and Mason hope will help create a warmer feeling, more inviting in-store experience and better first impression from shoppers - along with selling some coffee, pastries and fresh-baked artisan bread - according to our sources.

The multiple top and bottom-line goals of the change and new additions are to help increase customer counts, gain more repeat shoppers, increase sales, and ultimately improve Fresh & Easy's margin, which is currently a rock-bottom negative-38%.

Going mobile with the 'Kitchen Table'

A second major change planned for the Fresh & Easy stores is to eliminate the in-store area called the "Kitchen Table," which is used primarily and regularly for product sampling, and replace it with a mobile unit that can be wheeled throughout the store so food products can be sampled next to where they're located in the stores -  in the condiment aisle, produce or meat department and the like - rather than being done at a fixed location, which is what the "Kitchen Table" currently is in the stores.

We've pointed out more than once in Fresh & Easy Buzz just this limitation with the fixed location "The Kitchen Table" food sampling station.

It's going away, to be replaced by a mobile version that can be used anywhere in the store, allowing food demos to be done right where the product being sampled is shelved or displayed.

The Fresh & Easy stores will also gain valuable product display space by removing "The Kitchen Table" and taking it mobile.

The square-footage currently taken up by the food sampling kiosk is "dead space" from a sales-per-square-foot perspective.

An example: If "The Kitchen Table" currently takes up 100 square-feet, that's 100 square-feet in the 10,000-12,000 square-foot Fresh & Easy stores that's not producing sales. Conversely, if product was displayed in the 100 square-feet space, which will soon be the case, whatever dollar amount of sales that space generates contributes to the total average sales per-square-foot of the store, resulting in a net-plus for the grocery chain.

Small-format stores like those operated by Tesco's Fresh & Easy can't afford to waste precious and valuable sales square-footage with permanent installations like the soon to be mobile "Kitchen Table," as we've pointed out previously in the blog.

Current plans call for turning the space where the "Kitchen Table" is now located in the stores into an end-cap to be used for product display purposes, our sources tell us.

Fresh flowers front and center

Another significant planned change for the Fresh & Easy markets is the moving of the fresh flower displays from the current location in the stores to a front-of-store lobby location.

Similar to the strategy behind moving the bread and bakery items up-front, this change will put the fresh flowers in a more prominent location in the stores, perhaps providing some of that warmth and better "sense of place" (our phrase and useage and not his) Tesco CEO Clarke, who just took over in March, would like to see in the Fresh & Easy stores.

Visualize it this way: Fresh flowers (which tend to evoke warm and fuzzy feelings in people), bread and baked goods (a warm and wholesome fresh food offering) will be among the first things customers will see (visual) as they enter the store. Along with that visual, those with decent-to-good olfactory senses will smell the scent of fresh coffee being brewed and artisan bread being baked, something that shouldn't be too difficult to do because the Fresh & Easy stores are small.

Many of the Fresh & Easy stores already merchandise a selection of fresh flowers and plants at the front-end of the stores and even outside, particularly those units that have outdoor patio areas.

For example, a Fresh & Easy Buzz senior correspondent visited the store in Pacifica, California, which was opened March 9 of this year, today and saw an assortment of potted plants merchandised on the outside patio area by the left-front entrance of the store, a display of fresh cut flowers located up-front near the front doors, and a selection of orchids displayed at the front-end checkout stands.

New meat, deli-prepared foods refrigerated cases

Tesco is also planning to replace the utilitarian open shelf-style refrigeration display cases it currently uses in the Fresh & Easy stores to display fresh meats and deli-prepared foods products with new, closed-in style fixtures that not only are much more attractive than what's currently in the stores but also have much higher energy efficiency than the existing open-style cases do.

The new refrigerated display cases fit into Tesco's overall desire to create a warmer and more inviting look and feel in the Fresh & Easy stores - that needed improved "sense of place" we've been writing about in the blog regularly since February 2008 - along with offering the energy-saving benefits.

A season of change

Tesco is planning a few other changes as part of the overall makeover we're reporting on in our story today.

However, those we've detailed above are the major and most significant changes Tesco is planning to soon start implementing in some of its Fresh & Easy stores.

Neither Tesco or its Fresh & Easy Neighborhood Market chain have publicly announced the plans or any of the changes we're reporting on today. The only mention has been of the planned 7 a.m opening time and the serving of coffee and pastries in the stores, which CEO Clarke noted in April.

Additionally, based on a comprehensive search of the three major search engines - Google, Yahoo and Bing - prior to publishing this story, no other publication has to date reported on any of the plans we're reporting on exclusively today.

We also know this to be true because of how closely and comprehensively we cover Tesco and Fresh & Easy Neighborhood Market.

Therefore, if you see stories on the changes we're reporting on today published in other publications in the following days and weeks, as Fresh & Easy Buzz readers you'll know it was reported here first, and will be able to say you first read the news here.

Current plans at UK-headquartered Tesco and and at Fresh & Easy Neighborhood Market, which is based in El-Segundo, California, call for the grocery chain to start rolling out the changes we're reporting on today to selected stores soon.

Tesco and its Fresh & Easy chain hope to have the changes detailed in this story, along with a few others, implemented in up to 100 of the 175 Fresh & Easy grocery markets by the end of this year, our sources tell us.

Fresh & Easy Neighborhood Market is currently testing the various new features we're reporting on today in one of its stores.

We're very familiar with the store where the test has been and is going on. However, we've decided not to disclose the location at this time.

The test, along with a couple other variables, has led Tesco CEO Philip Clarke, to "green light" the changes to what could be up to 100 stores by the end of 2011.

Behind the major changes

As we've previously reported in Fresh & Easy Buzz, although he's only been CEO since March 2011, having officially taken over March 3 from Terry Leahy who retired, Clarke, who was formerly head of Tesco's European retail operations and corporate information technology and who's been with the company for over three decades, has already made at least two trips to the U.S. to Fresh & Easy's corporate offices in El Segundo, its distribution center facility in Riverside County and to visit selected stores in California, Nevada and Arizona.

Clarke's first visit was in February of this year, before he officially assumed the CEO position. (See the story linked at the end of this piece.)

Tesco announced Leahy's retirement and Clarke's appointment as CEO in June 2010, and Clarke worked closely with Leahy from that time until taking over in March as part of the global retailer's succession plan strategy.

His second and most recent U.S. Fresh & Easy-related visit was in early April, when, according to our sources, Clarke made the final decision

The new CEO is under significant pressure from major institutional investors to right the Fresh & Easy Neighborhood Market ship.

For example, Warren Buffet and partner Charlie Munger, who through their Berkshire-Hathaway holding company and investment arm own about 3% of Tesco plc stock, spoke out publicly about Fresh & Easy for the first time at the recent Berkshire annual meeting in Omaha, Nebraska, which was attended by our 'The Insider' columnist, suggesting to Tesco - and CEO Clarke - that the UK-based retailer should take a very close look at its U.S. operation and seriously consider if it might not be time to pull the plug on Fresh & Easy, which has racked up losses of nearly $1 billion since the first stores opened in November 2007.

Last month Tesco reported a loss of $300 million for Fresh & Easy in its 2010/11 fiscal year which ended February 26, 2011.

We've been covering and writing about Warren Buffet and Berkshire-Hathaway since 2008, as it relates to the 'Oracle of Omaha' and partner Munger being one of Tesco's major institutional investors.

Based on our extensive coverage, we can report with a fairly high degree of confidence the recent comments by Buffett and Munger are the first time either has spoken out publicly in any way that casts doubt on Tesco's decision to continue forward with Fresh & Easy or its ability to succeed with the U.S. chain.

In fact, less than a year ago Buffett bought additional Tesco plc stock, and at the time wasn't concerned about Fresh & Easy Neighborhood Market being a drag on Tesco's value. He's concerned it is now, which is the primary motivation behind the statements he and Munger recently made.

Clarke said shortly after taking over as CEO and again in April he has faith in Fresh & Easy Neighborhood Market succeeding going forward.

The current strategy signed off on by Clarke is to have 300 Fresh & Easy stores, all being distributed to out of the Riverside County facility in Southern California, open and operating by the end of Tesco's 2012/13 fiscal year, which ends in February 2013.

Philip Clarke, is on the record as saying with the 300 stores open by then, Tesco will break-even with Fresh & Easy when it reports its 2012/13 financial results in April 2013.

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

Tesco said in April it plans to open 50 new Fresh & Easy stores this year, all in the existing three states.

So far this year the retailer has opened 21 Fresh & Easy grocery markets - 11 in Northern California and 10 in Southern California.

No new Fresh & Easy stores are set to open in May. That means from June-to-December of this year Tesco needs to open 29 Fresh & Easy stores to hit its 50 store target.

The 21 new units were opened from January -to- April of this year, so opening 29 Fresh & Easy stores over the next seven months is achievable for the retailer, based on what's its done to date so far in 2011 and its past new store opening track record.

But it's going to be more difficult for Tesco to get to the 300 store number by the end of its 2012/13 fiscal year.

For example, if it opens the 50 new Fresh & Easy units this year, it will have 225 stores open and operating as it goes into 2012, leaving the retailer with 75 new stores to open from December 2012 -to- mid-February 2013.

The goal is achievable but not easy - particularly making sure the 75 stores are in prime locations, which is something Tesco has not done with Fresh & Easy in the three and a half years its been opening stores.

The reality is, far too many of the current Fresh & Easy stores are in poor or mediocre locations, which is something Tesco began to remedy when it closed 13 poor-performing stores - six units each in Nevada and Arizona and one grocery market in Southern California - on November 2010. There are stores currently doing as poorly from a sales perspective as those 13 were when the decision was made to close them last year.

But for the analyst at the London, UK investment firm and any others who are currently suggesting to the media and others they have the inside track on knowing Philip Clarke plans to pull the plug soon on Fresh & Easy, the major changes we're reporting on today serve as a counterfactual, not to mention empirical, refutation of those assertions, which in at least the one case are being made as part of a publicity campaign.

They're statements and not arguments because the assertions are backed by very little knowledge (and the hard work required to obtain that knowledge) about what's actually going on at Tesco's Fresh & Easy, accept for what they read in Fresh & Easy Buzz and perhaps elsewhere.

The informaton and work product from an objective publication like Fresh & Easy Buzz is then appropriated wthout permission and intentionally used to support an a priori determined conclusion - and also because it's easier than doing the hard work themselves - without informing their primary audience and the writers and editors of the publications they're seeking publicity from where they obtained the information. [See May 4, 2011 here and May 6, 2011 here, for an example.]

[Also read this story we wrote and published over three years ago in Fresh & Easy Buzz - March 24, 2008: The Analysis of Tesco's Fresh & Easy From Piper-Jaffray's Mike Dennis in This Interview Published Today Sounds A Lot Like Ours For the Last Few Months.]

After all, would Tesco be making what will be a considerable financial investment in implementing the changes we're reporting on if

The answers are - no. No yet. And not in 2011, according to our research and reporting. That doesn't mean Clarke and Tesco's board won't pull the plug on Fresh & Easy before the end of Tesco's 2012/13 fiscal year however. Doing so remains a distinct possibility.

The major changes reported in our story, along with a few more to come, are, as noted earlier, set to start being rolled out to selected stores, beyond the current single test unit, soon.

Are the changes the right ones?

Will the major changes be enough to help Tesco right the Fresh & Easy Neighborhood Market ship?

We plan to address those propositions and a couple others in an upcoming piece.

Stay tuned.

[Editor's Note: The changes detailed aren't the only major and significant ones coming to Tesco's Fresh & Easy. Read our exclusive report from April 12, 2011 here: Fresh & Easy Neighborhood Market to Shrink Health & Body Care Sections in Stores; Add Candy and Snack Items.]

[Readers: Click on the following links - sense of place, store design, local retailing, neighborhood retailing, sense of place theory, localism, localization, localizing Fresh and Easy to neighborhoods, Fresh and Easy sales performance, store average weekly sales, store sales analysis,Warren Buffet, Philip Clarke,Sir Terry Leahy, Tim Mason - to see some related stories.]

Additonal Suggested Related Reading

May 11, 2011: CEO Philip Clarke Launches A New 'Vision and Strategy' For Tesco

April 19, 2011: Tesco's Fresh & Easy Neighborhood Market Posts Biggest One-Year Loss Yet - $307 Million Loss on Sales of $818 Million

February 23, 2011: Incoming Tesco CEO Philip Clarke Visits America - And Fresh & Easy Neighborhood Market

October 8, 2010: Incoming Tesco CEO Philip Clarke Needs to 'Imagine' When it Comes to Fresh & Easy Neighborhood Market USA

September 13, 2010: Reading Philip Clarke's Tea Leaves: Might A Mixed Corporate/Franchise Model Be in Fresh & Easy Neighborhood Market's Future?

June 12, 2010: Will Phil Clarke Shake Things up at Fresh & Easy Neighborhood Market USA When He Becomes Tesco CEO in 2011?

USA Today Discusses Themes We Sound Off On Here at Fresh & Easy Buzz Near-Daily: Neighborhood, Community and 'Sense of Place' in American Retailing

USA Today business writer Bruce Horovitz--who rumor has it reads Fresh & Easy Buzz on occasion--has a brief piece in the just hot off the press (well, cyberpress) edition of America's national newspaper, which talks about three of our favorite (and very often written about) retail themes in relation to retail grocery stores: neighborhood, community, "localism" and sense of place.

As F&E Buzz readers know, we discuss all these related concepts often in terms of what our analysis tells us Tesco's Fresh & Easy small-format, convenience-oriented, combination basic grocery and fresh/specialty foods grocery markets lack. We also offer numerous suggestions on how Tesco can better create that sense of place, community and neighborhood in its Fresh & Easy stores.

In fact, one of our favorite (and yes, most used) sayings is that Tesco Fresh & Easy Neighborhood Market needs to put the "neighborhood" in its Neighborhood Markets by creating a better sense of place in its stores.

On of the key variables we argue the retailer needs to foucus on in order to achieve this needed result (more sense of place and "neighborhood" in the grocery stores) is "localism," which we define as the need for Tesco's Fresh & Easy to achieve a greater understanding of the history, culture, behavior (of residents) and demographics of the people who live in the neighborhoods where the stores are located--and then to customize certain design elements and features of the grocery markets to these respective neighborhoods--along with greatly increasing the "local" food and grocery product mix in the stores, as well as customizing (neighborhood merchandising) the product mix (on top of the stores basic mix) to each neighborhood.

What we suggest is far from a foreign concept or strategy in U.S. food and grocery retailing.

Give Mr. Horvitz's USA today piece--"It's A Beautiful (Shopping) Day in the Neighborhood," a read here.

By the way, We think Mr. Neighborhood himself, Fred Rogers, would agree with our arguments on "neighborhood," "community," "localism" and "sense of place" as they relate to grocery retailing. We think he also would like Mr. Horovitz's title, and "neighborhood-oriented" retailing piece.

A Look at Fresh & Easy at @ 50 (Stores): An Analysis and Some Suggestions for Going Forward

Fresh & Easy Not Achieving Sales Goals: Consultant

From: Supermarket News, February 21, 2008

BOCA RATON, Fla. — Fresh & Easy Neighborhood Markets have not yet come close to achieving the sales levels Tesco officials were originally hoping for, according to an industry consultant here. Speaking yesterday with investors in the U.S. and the United Kingdom in a conference call sponsored by New York-based Citigroup, Jim Prevor said the 52 Fresh & Easy stores that have opened since November are averaging weekly sales volumes of $50,000 to $60,000, or about $5 a square foot — below the goal of $200,000 a week and $14-$22 in sales per square foot the company had projected. A spokesman for Fresh & Easy declined comment when contacted by SN. Prevor said the volume estimates are based on discussions with competitors, vendors, industry observers and Fresh & Easy store managers, "who all confirm each other." Prevor also said Fresh & Easy is paying rent on stores in the Bay Area in Northern California after deciding to open them early in 2009 instead of later this year as originally planned. The Tesco spokesman told SN the company never intended to move into the Bay Area until 2009. In other comments, Prevor said Fresh & Easy is not laying off employees but is not replacing any who leave. The company spokesman declined comment on that assertion.

Our Analysis: The State of Fresh & Easy Neighborhood Market @ 50 Stores

The above report on Tesco's Fresh & Easy Neighborhood Market's store performance to date is from today's issue of the supermarket trade publication Supermarket News.

Our sources (industry analysts, commercial real estate agents, suppliers, food brokers, consumers, store-level workers, and others) have been telling us similar things--and more--regarding the Fresh & Easy store's overall sales performance to date. Our regular readers know we've written about this fact--and that we've suggested some possible solutions in past pieces based on our research and analysis.

Regarding weekly Fresh & Easy store sales, we've heard from our sources weekly figures as low as those Mr. Prevor reported at the industry conference, and as a high as around $100,000 per-week for some of the stores. In particular, we've been told by two good sources the Glassell Park neighborhood Fresh & Easy grocery market in Los Angeles is doing about $100,000 in average weekly sales. However, we don't disagree in the main with Mr. Prevor's overall sales numbers. Even if all the stores were averaging $100,000 per-week, which they aren't, that would be far from what they should be doing.

Of course, it's important to keep in mind that the longest-open Fresh & Easy store, which is store number one in Hemet, California, has only been open since late October, 2007, which is less than four months. Further, many of the stores have only been open for one month. In other words, if Tesco's estimates for the Fresh & Easy grocery stores really is $200,000 per-week in start-up mode (which sounds close to right based on our research) they were too high to begin with, which is something we mentioned months ago.

The plain fact is, however, the stores' need to do at least $200,000 per-week--and do so in a time not too far down the road--to be viable. This is even more true because Fresh & Easy's retail prices on the stores' basic grocery items are relatively low, thus meaning they earn relatively lower gross margins overall than say Whole Foods Market or even Trader Joe's.

Since the bulk of the stores' total sales will come from these private label and national brand basic grocery items, the only way the retailer can make up for the low gross margins is to sell more; something the Fresh & Easy stores aren't currently achieving. Brisk sales of higher margin prepared foods will help increase overall margins, but it isn't enough all by itself. Unfortunately for Fresh & Easy, logistics problems, which in-turn is suppressing prepared foods' sales makes it all the more difficult at present to boost those overall gross margins.

In terms of the labor issue, that "Fresh & Easy isn't laying off employees, but isn't replacing those who leave", we are hearing a bit of a different twist on why this is the case from our sources, who include current store-level employees.

We're being told that in Southern California especially, but also in Arizona and Nevada, Fresh & Easy stores are having a difficult time finding employees who will work for the starting salary of $10.00 hour the retailer is paying. Additionally, with the exception of a couple full time store-level managers, Fresh & Easy is only offering employees a maximum of 20 hours a week. [Although, in those stores where workers have left, employees who want extra hours are being given them, but they still aren't 40 hour a week jobs. And the extra hours are only temporary and not guaranteed week-to-week.]

We aren't saying Prevor is wrong that Fresh & Easy is trying to cut back on store-level labor by not hiring replacements at times when employees leave. Rather, we're just adding an additional twist we recently learned from our sources. Further, we believe it's this hourly wage/labor issue that's key, not only in the case of replacement workers, but in an overall labor case as well for the retailer. We see Tesco having to raise entry-level wages, especially when they open stores in the San Francisco Bay Area of Northern California, beginning late this year or in 2009.

Part of this labor problem is that especially in Southern California, $10.00 hour isn't a particularly decent starting wage. The state of California's minimum wage is currently $8.00 hour. It was raised beginning last year, and again this year, from a minimum wage of $6.75 just two years ago.

With the exception of Whole Foods Market, Inc., Trader Joe's, Wal-Mart Supercenter and Fresh & Easy Neighborhood Market, all of Southern California's (and Arizona's too) major supermarket chains and independents are union shops.

Entry-level retail clerks start off at a far-higher hourly wage than they can get at Fresh & Easy, and have a health benefits packaged that's more than twice as good in both quality and employee contributions as the one currently offered by Tesco. (Fresh & Easy offers all employees who work 20 hours or more a week a minimal health insurance plan. It has far higher employee contributions across the board compared to the union clerks' plan.)

These union supermarkets in Southern California include: Market share leader Ralph's (owned by Kroger Co.), Safeway Stores, Inc.'s Von's chain, Albertsons (owned by SuperValu, Inc.), Stater Bros., Bristol Farms (also owned by SuperValu, Inc.), Gelson's--and frankly nearly every other chain and independent in the region accept those listed above and some small, family-owned markets and the mom and pop stores, which aren't union. It's estimated union shop supermarkets make up about 85% of the total grocery dollar market share in Southern California, according to the California Grocers' Association, based in Sacramento.

Most of the chains and independents in Arizona and Nevada are union as well. The retail clerks in those states' union shops make slightly less per-hour than those in Southern California, but have the same health plan. Their hourly salary is still far higher than the $10.00 hour Fresh & Easy is paying however.

Additionally, the clerks in the union shop supermarkets have a clear career path if they choose. A clerk with the equivalent of one year of hourly experience (this generally takes about one year for a full-timer and two years for a part-timer to achieve) makes about $21.00 hour in Southern California, and about $19.00 hour in Arizona and Nevada. In addition, they get the excellent union health benefits plan, which is one of the best private sector plans in the U.S.

Most of the union shop supermarket chains also offer discount stock purchase programs (if public companies) or profit-sharing plans (if privately held), and the retail clerks' union has a retirement plan, which employers pay into in addition to workers. A union clerk with 25-30 years of experience upon retirement can get about $35,000 -to- $40,000 per year in union retirement benefits in addition to collecting Social Security.

It's not only union supermarkets that Fresh & Easy is competing with on the labor front. In Southern California, for example, Starbucks, major retail department stores and many other retail stores pay a starting wage of more than $10.00 hour. Even McDonald's pays $10.00 hour in Southern California. Then there are receptionist jobs, administrative assistant jobs--the types of jobs that don't generally require a post high school education--that also pay over $10.00 hour in the region. We recently saw an advertisement in the Los Angeles Times' for "character mascots" at Disneyland. The hourly pay was $12.00.

Fresh & Easy Neighborhood Market 2.0

Based on the data offered by Mr Prevor, and the information we continue to get from our sources, along with much personal participant observation in the Fresh & Easy stores, we suggest Tesco needs to do at least the following three things in terms of their Fresh & Easy grocery store retail operations to help create success:

1. Solve the frequent fresh foods' out-of-stocks problem

In the last eight weeks we've interviewed at least 100 shoppers inside and outside of Fresh & Easy grocery stores in Southern California and Arizona. In addition, we've read at least 100 reviews of the grocery markets' on online review boards like yelp and others. Using basic content analysis research methodology, we've scored the most frequently made consumer complaints by category and subject.

One of the most often repeated consumer complaints we've identified is frequent store-wide out-of-stocks of fresh, prepared foods and fresh produce in Fresh & Easy stores. This is particularly the case beginning in the late afternoons and into the evening nearly every day.

Further, we've seen this situation with our own eyes in over a dozen Fresh & Easy grocery stores. In the evenings we've observed the prepared foods' refrigerated case shelves with many out-of-stock items, and in some instances the shelves were nearly empty. Unfortunately, this fact has more to do with logistics problems than massive sales.

Not only are Fresh & Easy stores losing sales from this serious logistics problem, the grocery chain is losing customers as well. This is especially the case as it concerns first time shoppers. And, since all of the stores have only been open for a short time, new shoppers means most shoppers. These shoppers' come to the store in their neighborhood for the first time--in many cases because they've heard about the markets' extensive prepared foods offerings--see the out-of-stocks, and often don't return for a second visit. A grocer can never build a strong core of primary shoppers with these kinds of logistics problems. This is something Tesco's Fresh & Easy needs to fix right away, before it defines the retailer.

2. Spread the Fresh & Easy message: Targeted radio advertising

While it's true Tesco's Fresh & Easy Neighborhood Market has obtained lots of "free media" or publicity for its new venture and stores, the fact is most of that publicity has been either in grocery trade publications--which consumers don't read--or has been in local newspapers, which if one checks newspaper company financials' these days, will notice aren't being read by people in very large numbers. Further, most of this publicity in the local newspapers happens when a new Fresh & Easy store opens in a city. After that, there isn't much mention of the stores.

In our research interviews with consumers, we've frequently been asked, "Why doesn't Fresh & Easy advertise more, other than sending out it's mass-mailed product advertising circular?" We've been asking that same question to ourselves for some time. The fact is, despite all the newspaper articles--and some television coverage--about new store openings, consumer awareness of Fresh & Easy in Southern California, Arizona and Nevada is low.

A start-up venture on the scale of Fresh & Easy can't rely on this minimal publicity to create the awareness needed to drive shoppers to its stores. The three states where the grocer currently has stores--(Southern) California, the metropolitan Phoenix region in Arizona, and the Las Vegas, Nevada metropolitan area, are all "car culture," commuter cities. People spend hours in their cars in these places daily. They generally commute by automobile back-and-forth to work, use their cars to even run the shortest of errands, and in many cases even eat while driving since they spend so many hours of their day in the car.

The other thing these millions of commuters do is listen to the radio while spending all these hours in their automobiles. Tesco's Fresh & Easy Neighborhood Market is missing a huge opportunity to reach and communicate with all these potential new customers by not running frequent, and high-quality, 30-second radio spots in these regions.

The great thing about radio advertising is that it can be targeted. For example, in Arizona it can be focused only in the Phoenix metro and suburban areas where the retailer has its stores. The same is the case in Nevada. Radio ads can be targeted only in the Las Vegas metro area and not elsewhere in the state.

For Southern California, where the grocer has a more spread-out store base, the radio ads can still be focused, and the time bought accordingly. For example, Orange Country, Los Angeles and San Diego can all be selected as separate radio advertising markets, and time buys made on that basis.

Compared to other mass media, radio is cheap. It also can be micro-targeted. Most importantly, in the regions' where Tesco has Fresh & Easy stores, the radio spots will reach potential customers where they live--in their cars. Tesco needs to create awareness of the Fresh & Easy brand and most importantly its stores. We believe the retailer is making a big mistake by not using radio extensively as a media tool in its marketing toolbox.

3. Create A sense of place: Put the 'Neighborhood' in the 'Neighborhood Markets.'

It's our analysis that a major problem with the Fresh & Easy grocery stores is they lack a sense of place. The stores' are positioned as neighborhood grocery markets--places where local residents will do most of their shopping rather than just shopping them like they would a convenience store.

The fact is though, based on our research, consumers are doing just that: shopping the Fresh & Easy neighborhood markets more like they shop convenience stores rather than using them as their primary--or even in most cases secondary--neighborhood grocery store. If this becomes the norm, the format will fail. It's not a format (or business) based on a convenience store operating model.

We believe one of the primary reasons consumers are shopping the stores in this manner (against the format positioning) is simply because the grocery markets' lack a sense of place, or neighborhood feel. The Fresh & Easy store's need more warmth. They need to offer more reasons for shoppers to linger in them and to spend time buying more of their groceries once in the store. They are called "Fresh & Easy," rather than "Quick & Easy," after all.

We have two suggestions on how Tesco can create more of a sense of place in the grocery stores, or how it can put the "neighborhood" in its neighborhood markets:

First, add a small in-store "Fresh & Easy Cafe" to the store format. This can be a 600 or so square foot in-store cafe, serving coffee drinks, smoothies, fresh-baked goods and the like. It's nothing new. It just has to be created on the scale to fit the store's 10,000 -to- 13,000 square foot size, which is why we suggest about 600-700 square feet.

The "Fresh & Easy Cafe" needs to reflect the neighborhood. It also needs to offer a good selection of food and drinks at reasonable prices. But there's no need to low-ball on those prices.

Such an in-store feature will provide a place for neighborhood residents to come to, and to spend time in, while shopping the store. Many will even come to the cafe when not shopping. And that's part of the point. When the cafe becomes a "third place" for neighborhood residents, you can bet they'll end-up doing much more of their grocery shopping there, and more often too. It's a proven fact such in-store features create more primary customers. They also extend shoppers time in a store, which generally leads to purchasing more groceries. It's all about getting primary shoppers, along with growing that average customer ring.

[Note to Fresh & Easy Neighborhood Market executives: We suggest the following to you: First, do a Google search using the keyword Third Place. (We even linked it for you.) Read some of the many articles about third place theory as it relates to American (and British for that matter) culture, society and retailing. One key book on the subject is: "The Great Good Place," by Ray Oldenburg. It's really must reading for any company trying to create a neighborhood-oriented grocery store chain, cafe chain or other "neighborhood-oriented" retail businesses.

Starbucks has often been sited by you (Fresh & Easy executives) as a model for Fresh & Easy. Starbucks uses "third place" theory and practice extensively in its store design and operations. In fact, it's a key to the chain's success. Whole Foods Markets, Inc. has employed third place theory very well in food retailing. In fact, at home in the UK, Tesco plc. does a decent job of it in some of its stores, using among other things its popular in-store "Tesco Cafe."]

Second, in keeping with this need to create more of a sense of place in the Fresh & Easy stores--and thus increase the average customer ring and create more primary shoppers--we suggest Fresh & Easy Neighborhood Market take a cue from its parent company, Tesco. But that's too logical you say?

In the UK, most Tesco stores (it varies depending on the particular format) offer a wide variety of basic everyday-type services to customers and potential customers. You could call these basic services "neighborhood-oriented" needs in fact. Among these basic "neighborhood" sevices include: mobile phone sales and mobile phone plan sales, insurance services, internet service plans, postal-type services, and other similar everyday services one would love to have available to them right in their own neighborhood grocery store.

Taking that cue from its parent, Fresh & Easy might consider, for example, setting up small neighborhood service centers in the grocery stores. These small centers would offer postal services like sending packages via UPS or Federal Express, the use of fax machines for a nominal fee, perhaps a computer or two with free internet use for customers, and a few other services. The store centers' might even want to get into the automobile and other insurance segment businesses down the road, perhaps leveraging on the Tesco plc. model. Fresh & Easy doesn't even have to operate these centers themselves if they don't want to. Rather, they could carefully outsource them to someone like the "UPS Store," which has similar freestanding franchises all over the U.S.

The specifics of what these in-store "Neighborhood Service Centers" offer isn't what's significant at this point. Rather, it's that the concept of having such centers helps to achieve the much needed goal of creating a better sense of place in the Fresh & Easy grocery stores. And, as we've said, we believe doing so will lead to the ability to better achieve two key metrics in the retail grocery business: increasing the average customer store-purchase ring, and creating primary shoppers.