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

Holiday 2011 Merchandising & Promotion

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

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

Fresh-prepared foods in abundance

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

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

Baked goods, desserts and more 

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

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

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

Holiday meals - online ordering option

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

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

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

Fresh & Easy hungry for holiday dollars

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

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

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

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

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

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

Deep discounts: coupons, bonus points

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

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

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

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

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

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

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

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

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

Holiday sales period key

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

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

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

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

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

Right now its all about selling.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Analysis & Commentary

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

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

That merchandising strategy has changed completely.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Related Stories

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

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

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

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

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

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

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

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

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

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

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

The coupons and profit/loss

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

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

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

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

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

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

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

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

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

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

The coupons and margins

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

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

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

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

The coupons and Northern California

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

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

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

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

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

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

The coupons and breaking even

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

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

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

Related Stories

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

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

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

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

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

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

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

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

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

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

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

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

Metro Phoenix, Arizona Market region
News/Analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Related Stories

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

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

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

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

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

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

Analysis

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

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

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

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

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

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

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

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

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

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

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

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

Fry's store coupon Jujitsu

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

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

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

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

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

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

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

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

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

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

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

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

Broader implications of Fresh & Easy's store coupon trap

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

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

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

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

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

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

Added struggle in Arizona

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

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

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

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

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

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

Tesco's Fresh & Easy Neighborhood Market has issued another one of its discount store-coupons.

However, the just-issued (yesterday) store coupon is a $10-off total purchases of $50 or more discount voucher, unlike the typical $5-off purchases of $20 or more and $6-off purchases of $30 or more discount store coupons the grocery chain normally distributes to shoppers.

Additionally, instead of having a multi-week (nearly one month) shelf-life like the $6-off purchases of $30 or more direct-mailed paper coupon that Fresh & Easy distributed on April 28, the new $10-off ($50) store coupon is good only for about one week. The $6-off coupon mentioned above expires on May 25. [See- May 1, 2009: Fresh & Easy Brings Back $6-Off Deep-Discount Store Coupon; Latest Version Good For Nearly One Month; New Promo Strategy Didn't Last Long.]

Fresh & Easy posted the new $10-off total store purchases of $50 or more discount coupon on its Web site yesterday. The store coupon, posted on the grocer's Web site here, expires on May 24.

Perhaps Tesco's Fresh & Easy's senior management read Fresh & Easy Buzz's two recent stories about the grocery chain's once again aggressive distribution of its discount store coupons, along with our past pieces in which we suggested that two key elements of using discount store coupons as promotional vehicles are:

>To increase shopper market basket size -- achieved by making the minimum purchase amount required to redeem the coupon more than $20 or $30 -- and;

>Duration -- that instead of having a nearly one month shelf-life like the April 28 -to- May 24 $6-off Fresh & Easy store coupon does, making the expiration date about three days -to- one week, so that an incentive is created for the shopper to use the coupon within a shorter period of time, which is what grocery retail promotions are designed to do in the main.

The new $10-off purchases of $50 or more store coupon meets both of our criteria: It pegs the minimum customer purchase required to redeem the store coupon at $50 rather than a mere $20 or $30, and the coupon's shelf life is for about one week, rather than for two, three or even nearly four weeks, time periods most typically used by Tesco's Fresh & Easy.

You can read our two recent stories on the topic at the links below:

>May 1, 2009: Fresh & Easy Brings Back $6-Off Deep-Discount Store Coupon; Latest Version Good For Nearly One Month; New Promo Strategy Didn't Last Long

>May 7, 2009: 'They're Back' in Full-Force: Tesco's Fresh & Easy Adds New $6-Off Online Coupon to Just-Recently Direct-Mailed $6-Off Coupon; Tough to 'Terminate'

As you can clearly read in the stories, we even suggested a $10-off purchases of $50 or more value store coupon as one of the recommended options. Both the $10-off ($50) and the $6-off ($30) coupons provide a 20% discount to shoppers if they purchase the minimum amounts -- $50 and $30. But the $10-off ($50) discount store coupon provides Fresh & Easy with an added $20 in total purchases if a shopper desires to use the coupon.

In our stories, particularly the May 7, 2009 piece, we also said that the discount store coupons would be back in force for Fresh & Easy. And they are. Back-to-back in fact.

The new coupon comes on the heels of one of the two $6-off purchases of $30 or more Fresh & Easy store coupons reported on in our May 1 and May 7 stories that's still out there and alive. That coupon doesn't expire until May 25, actually one day after the new $10-off ($50) store coupon expires.

In addition to posting the $10-off store coupon on its Web site yesterday, as well as alerting members of its "Friends of Fresh & Easy" e-mail data base to the offering, the grocery chain promoted the new $10-off store coupon this afternoon on its Twitter.com feed with this "tweet:"

Hello Savings! hello coupons! http://tinyurl.com/pyznotabout 7 hours ago from Netvibes, directing its Twitter followers to the online coupon on its Web site.

From early February until April 28, Tesco's Fresh & Easy attempted to dramatically reduce the volume of the discount store coupons it distributes, both via its paper fliers direct-mailed to consumers homes and on its Web site, as we discussed in our May 1 and May 7 stories linked above.

During this time period, we are aware of only about three store coupons having been issued by Fresh & Easy. They all were either $5-off ($20) or $6-off ($30) coupons. (See our May 1 and May 7 stories for more details.)

That may still sound like a significant number of the discount coupons for the grocer to issue in a three month period. But compared to the past -- from the time the first batch of Fresh & Easy stores opened in November 2007 until early February 2009, the grocery chain almost always had these discount store coupons circulating, mostly mailing them to residential households every couple weeks (often including two or three in one flier), posting the coupons online, and even handing them out to shoppers in multiples in the stores until the end of 2008. Store coupon mania would be a fair term for the practice.

Tesco Fresh & Easy's senior management members and its company spokespeople even said in early 2009, via the company Web site Blog and on its Twitter.com feed, that the grocer was cutting back and perhaps even eliminating the discount store coupons completely.

As we said in our two early May stories -- the store coupons are back. The plans to dramatically reduce or eliminate distributing the coupons obviously hasn't work.

The 20% store coupon's 20% discount comes out of Tesco Fresh & Easy Neighborhood Market's profit margins. This is unlike the case with manufacturers' "cents off" item coupons, which virtually every grocery store excepts but not Fresh & Easy, the discounts of which are paid for by the maker and marketer of the given product.

With manufacturer-issued "cents off" item coupons, grocers send the coupons to a clearing house on a regular basis and are paid back the face value of the coupon (50-cents or $1) plus a three cent or so per coupon handling charge, by the company that issued the coupon.

Expect to see more of the discount store coupons throughout the summer because Tesco's Fresh & Easy needs the sales they bring to its stores, which is why the discount store coupons are back in force.

[Follow Fresh & Easy Buzz around on Twitter.com at www.twitter.com/freshneasybuzz.]

'They're Back' in Full-Force: Tesco's Fresh & Easy Adds New $6-Off Online Coupon to Just-Recently Direct-Mailed $6-Off Coupon; Tough to 'Terminate'

News & Analysis: Fresh & Easy's Deep-Discount Store Coupons

On May 1, 2009 Fresh & Easy Buzz reported that after taking a break from regularly distributing its $5-off (purchases of $20 or more) and $6-off (purchases of $30 or more) deep-discount store coupons for most of February, March and part of April (2009), Tesco's Fresh & Easy Neighborhood Market direct-mailed a $6-off store coupon good for nearly one month to consumers in neighborhoods surrounding its 120 Fresh & Easy grocery and fresh foods stores in California (Southern and Bakersfield), southern Nevada and Metropolitan Phoenix Arizona.

[Read our May 1, 2009 story here: Fresh & Easy Brings Back $6-Off Deep-Discount Store Coupon; Latest Version Good For Nearly One Month; New Promo Strategy Didn't Last Long.]

Tesco's Fresh & Easy has now followed-up on that household direct-mailed store coupon drop by offering one of the $6-off purchases of $30 or more store coupons on its freshandeasy.com Web site. The online coupon is here. The store coupon was posted yesterday on the Web site.

The $6-off online deep-discount coupon is good until May 10. As mentioned, the $6-off store coupon in the flier distributed on April 28 is good until May 25, 2009.

Tesco's Fresh & Easy also is promoting the online coupon's availability using its Twitter.com feed. For example, below are two promotional "Tweets" informing its fresh_and_easy Twitter followers of the coupon's posting on the Web site:

>This promotional "Tweet" is from yesterday, Wednesday, May 6:
Dont forget your coupons this week! http://tinyurl.com/dhb3snabout 23 hours ago from Netvibes.

>And this one is from earlier today:
@DollhouseCSMTCS did you get the latest coupon in the email? http://tinyurl.com/dhb3snabout 7 hours ago from Netvibes in reply to DollhouseCSMTCS.

Based on the fact Tesco's Fresh & Easy distributed a paper version $6-off store coupon on April 28 via direct-mail, which is good for nearly a month until May 25, along with it's now promoting of the online $6-off purchases of $30 or more store coupon good until May 10, it appears the grocer is back in the store coupon game in full force.

Store coupons and everyday merchandising

As we previously reported, Fresh & Easy was trying to wean itself off of the regular use of the deep-discount store coupons, the use of which for many shoppers has become a regular part of their Fresh & Easy grocery shopping behavior.

For all or most of February, March and April the grocer didn't distribute any of the deep-discount store coupons via direct snail mail, which is a practice Tesco's Fresh & Easy has done regularly since the first stores opened in November, 2007.

Instead, the grocery chain issued just a few online coupons good for no more than three days -to- one week in duration. We are aware of no more than three online store coupons being distributed from February -to- early April 2009.

Fresh & Easy's marketing people also told consumers requesting the discount store coupons on its company Blog and Twitter feed that it was no longer regularly distributing the coupons as it had been in the past, saying on more than one occasion that it was now something the grocer would do infrequently, if at all.

Tesco's Fresh & Easy also changed its advertising flier, which it posts as an online version on its Web site and direct-mails (paper version) to residential households, from a once-every-three-week promotional vehicle to a weekly flier on March 4. As part of that change the grocer has offered hotter promotional prices in its now weekly advertising flier since March 4, compared to the promotional offerings prior to that.

This strategy -- going to a weekly advertising flier (which is something Fresh & Easy Buzz suggested over a year ago, by the way) and offering deeper-discount promotional price-points on the advertised items in the flier, clearly was an attempt by Tesco's Fresh & Easy to change its strategy from the chronic use of the deep-discount store coupons and instead put the focus on the weekly advertising flier and hotter-priced promoted items in the flier. [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.]

The overall promotional merchandising strategy in doing this being to go from offering an across the board discount (a certain percent off whatever is purchased) -- the store coupons -- to a more item-based promotional scheme, similar to what nearly all of its competitors do.

But with the distribution of the $6-off paper store coupon good for nearly one month, along with the now online $6-off coupon, it appears that strategy isn't producing sufficient sales for Fresh & Easy. Why else go back to the discount coupons, including issuing one good for nearly a month, which is seldom if ever done in the retail grocery business.

On the rare occasions when grocers do issue such coupons, they almost always are good for three or four days only. (Duration is a key element in "promotion.") This is the case because the purpose of such coupons is to (1) stimulate sales over a short period of time and (2) to serve as a promotional vehicle to bring new customers into grocers' stores.

Whenever a food retailer issues such a coupon for such a long period of time -- three weeks, four weeks -- it generally means that grocer has a strong need to create sales and therefore decided to do so using the short-term device of a deep-discount store coupon. The use of deep-discount store coupons are considered a "quick fix" promotion (read need sales) in the retail food and grocery industry.

It's important to note that such coupons aren't really marketing vehicles, as their complete focus is on price.

Consumer perception and pricing realities

Additionally, when such coupons are used regularly by a grocer, and have long expiration dates on them, that grocer creates a perception among shoppers that the coupons are a part of the retailer's overall merchandising practice; that without the coupons perhaps that grocer's everyday prices are just too high. Consumers' perceptions are reality, even if incorrect.

It's our analysis, as we written about before in Fresh & Easy Buzz, that Tesco's Fresh & Easy has done just that with its regular use of the deep-discount store coupons: It's created a perception among a significant segment of its shoppers that the coupons are needed in order to gain value in the form of good prices at the stores.

The reality is that when there are no Fresh & Easy deep-discount store coupons, sales go down and shoppers complain to the retailer about the lack of coupons.

This is a self-inflicted problem for Fresh & Easy. The grocer created the perception and thus problem by its chronic distribution of the store coupons.

Evidence of this shopper perception is that from February -to- early April numerous customers complained to Fresh & Easy via its company Blog and on Twitter.com about the lack of the coupons. The record is there.

Shoppers also complained about it on other Blogs such as the one written by Orange County Register reporter Nancy Luna. Her popular Blog is called the "Fast Food Maven." In fact, even Ms. Luna complained to Fresh & Easy about the lack of the store coupons during that period, perhaps offering a voice for her readership in Southern California's Orange County. [Have a read here, for example.]

Tesco's Fresh & Easy responded to these numerous shopper complaints by offering online coupons good for a few days at a time a few times in February and March. It's clear by following the Blog and Twitter trail that doing so was a response to the coupon-less shoppers' complaints.

It's our analysis that with its latest round of $6-off store coupons, Tesco's Fresh & Easy will find itself in a bind -- well an even tighter bind than it already is in regarding the store coupon issue. The previously unhappy store coupon-hungry shoppers are now being satisfied with a new round of $6-off coupons. But that will only make the customers hungry for more when these expire.

Seeing that Fresh & Easy has issued this new coupon round, including the $6-off store coupon good for nearly one month, shoppers are likely to think that once again the deep-discount store coupons are back as a regular feature at Fresh & Easy. And perhaps they are?

But if they aren't back as a regular feature at the grocery and fresh foods chain, it isn't going to take long, perhaps a month without any of the coupons, for that shopper-base to once again voice its complaints via the Blogs and on Twitter. One Fresh & Easy Buzz reader e-mailed us about the lack of the store coupons in February, calling them "Coupon Crack," for example. He wanted them now.

No-frills, low price model: Why deep-discount coupons?

If a shopper buys the $30 minimum purchase using the $6-off store coupon, that's a 20 percent discount off the regular price of the items that comprise grocery order. That 20% comes out of Tesco Fresh & Easy's margins.

In the penny-profit food retailing business a grocer can only do a couple things if it's regularly giving shoppers 10% -to- 20% off of their store purchases: It can raise the everyday prices in its stores to make up the difference, it can figure out a way to cut costs to achieve that percent difference, or it can do some combination of the two. In reality doing so is impossible.

{We did notice in Fresh & Easy's weekly ad flier that ended yesterday that the grocer was promoting a number of items at higher prices than it has recently, prior to issuing the store coupons. An example is the Buxted store brand Boneless, Skinless Chicken Breasts, which in the just-ended ad flier were priced 20-cents per pound higher (still a decent promotional price at $1.97 pound though) than they were in two or three previous fliers, when they ran the chicken breasts at $1.77 pound. Perhaps this is because of the discounts represented by the deep-discount store coupons? The April 28 $6-off coupon was distributed that same week.}

The entire deep-discount store coupon fixation situation is particularly odd for Tesco's Fresh & Easy because its positioning with the small-format grocery and fresh foods markets is as a convenient, no frills, everyday low-price-focused neighborhood grocery market. That's the model.

Tesco has touted that Fresh & Easy's prices are about 15% lower everyday than those at supermarkets operated by its competitors in California, Nevada and Arizona. Does that mean with the $6-off coupon the prices are now 35% cheaper than the competitions, assuming a shopper buys the $30 coupon purchase minimum?

You see the problem. Why does a food and grocery retailing model or format (Tesco's Fresh & Easy) that is no frills, low price need (or want to) to regularly distribute deep-discount store coupons to get sales? Hint: It's not because of the recession.

Fresh & Easy does have good everyday prices in its stores. It's competitive on price with its retail competitors across the board. But it has gotten itself into a position where it must regularly distribute deep-discount store coupons worth up to 20%-off a total grocery order purchase in order to get sales.

That's a problem. And the root of the problem has to do with the Fresh & Easy format itself, the retailer's operations practices, and its merchandising and marketing, more so than it does with the current economic recession, in our analysis. [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. 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.]

Bringing back the $6-off store coupons with such a long expiration date -- from April 28 -to- May 25 -- plus adding an online version good until May 10 -- suggests to us that the deep-discount store coupon isn't going away anytime soon at Tesco's Fresh & Easy.

Fresh & Easy shoppers are delighted, and they should be, it's their job to get the best deals they can on groceries in these difficult economic times. They need not and should not concern themselves with retailer margins, sales and the like. That's not in the grocery shoppers' manifesto.

But we find it hard to believe that the senior management at Tesco isn't aware of the bind it has gotten itself into with the chronic use of the deep-discount store coupons.

No other grocery chain uses them anywhere near as frequently as Fresh & Easy has and does. In fact, most grocers don't use the coupons at all, for the reasons described above. They are margin killers and should only be used as short term promotional tools. And of course they create dangerous consumer price perceptions when used chronically like Tesco's Fresh & Easy has.

Perhaps Tesco hopes that once it gets its Fresh & Easy stores closer their sales targets (about $200,000 per store per week in average sales), if it does, that it can then just stop distributing the deep-discount store coupons completely.

That could happen. But only if the retailer comes up with a solid, comprehensive merchandising, marketing and promotional plan that positions the stores in a way that shoppers want to shop at them even without the regular availability of the $5-off and $6-off store coupons.

Since average sales per store are nowhere near that $200,000 per store per week target at present with the regular deep-discount store coupon distribution, Tesco's Fresh & Easy has a long road to travel in order to eliminate the use of the coupons, something it said in February of this year it was essentially doing.

But the store coupons are back -- and in full force -- online and via direct mail.

And it's our analysis that although the retailer will likely try to hold back on distributing the $5-off and $6-off deep-discount store coupons for as long as it can after the current $6-off coupon expires on May 25, it won't do so for very long.

And the funny thing is that by issuing a store coupon like that for so long of a shelf life, nearly a month, it's actual power as a promotional vehicle is greatly reduced. As we said earlier, duration (or time) is a key element in any promotion, including store coupons.

The idea behind using such coupons is to give shoppers a limited amount of time -- three days, four days, a week tops -- to use the coupons so that they will rush to a grocer's stores and save money. If you snooze... you lose.

In contrast, a nearly four week expiration date, like is the case with the $6-off Fresh & Easy store coupon that runs until May 25, allows for plenty of shopper snoozing before using. And the coupon's long duration builds an expectation on the part of shoppers that the coupons are a normal part of a retailer's merchandising practice. Why issue a coupon for almost a month if its is something special?

Coupons going to be tough for Tesco to 'Terminate'

Since Tesco's Fresh & Easy wants to eliminate the store coupons, and attempted to earlier this year, it's clear its desire isn't to have them as a part of the its normal course of doing business, despite distributing them in a way that says the opposite. Maybe the coupons are "Fresh & Easy senior management crack," as well as shopper "coupon crack," as our e-mailer referred to the $6-off store coupons?

It will be interesting to observe what happens after the latest deep-discount store coupon expires on May 25.

We're rather certain of this though: To paraphrase current Governor of California and former Hollywood movie star Arnold Schwarzenegger's famous catch phrase -- "I'll Be Back" -- from the movie "The Terminator" -- after May 25 the Fresh & Easy deep-discount store coupons "Will Be Back."

[Follow Fresh & Easy Buzz around on Twitter.com at www.twitter.com/freshneasybuzz.]