Fresh & Easy Neighborhood Market Goes 'Outside the Box,' Adds Natural Gas-Fueled Trucks to Delivery Fleet

'Green' Food and Grocery Retailing

El Segundo, California-based Fresh & Easy Neighborhood Market is going outside the box - its 10,000 square-foot grocery markets and 800,000 square-foot distribution center in Riverside County, California specifically - in its latest environmental conservation and sustainability initiative.

The Tesco-owned chain has inked a deal with Ryder System, Inc., its transportation, logistics and supply chain partner, to lease 25 compressed natural gas (CNG) delivery trucks, which it will add to its fleet of diesel fuel-powered vehicles and use to deliver fresh foods and groceries to its 176 stores in California, Nevada and Arizona from its Southern California distribution center. Fresh & Easy currently leases 71 vehicles from Ryder Systems, which it uses to deliver product to its stores in the three Western States.

Fresh & Easy Neighborhood Market has taken delivery of the first 15 of the CNG delivery vehicles, according to Cindy Hass, a spokesperson for Ryder Systems. The remaining 10 delivery trucks will be delivered to the grocery chain in October, she says. The CNG vehicles are the fist of their kind for Fresh & Easy's delivery truck fleet.

Tesco's Fresh & Easy is what Ryder Service, Inc. calls one a "Dedicated Contract Carriage" customer, which means the company provides a full menu of transportation, logistics and supply chain services to the grocer.

Those services include: providing the delivery vehicles and related equipment on a lease basis, along with engineering and logistics support services; supplying the drivers and management expertise. In other words, it's a full outsourcing-type arrangement between Fresh & Easy Neighborhood Market and Ryder.

Ryder Systems is making the compressed natural gas vehicles available to Tesco's Fresh & Easy as part of an agreement to reduce emissions the transportation company has made with the San Bernardino Associated Governments (SANBAG) in Southern California. San Bernardino County neighbors Riverside County, where the grocery chain's distribution center is located.

The agreement between the transportation company and SANBAG is part of a $38.7 million public/private partnership between the U.S. Department of Energy, the California Energy Commission, the Southern California Association of Governments Clean Cities Coalition, and Ryder System, Inc.

The key elements of the project include putting 202 of the CNG-powered delivery vehicles on the road in Southern California, making upgrades to three maintenance facilities for the servicing of natural gas vehicles, and the construction of two compressed natural gas fueling stations in the region.

Compressed natural gas is about 40% cheaper than diesel fuel, base on today's price. Additionally, experts estimate the CNG-fueled delivery vehicles produce in the neighborhood of 25% less emissions than diesel fuel does.

Geologist, entrepreneur and oilman T. Boone Pickens has for the last couple of years been advocating a nationwide government/private sector partnership that would have as its focus the conversion of the nation's entire diesel fuel-powered commercial trucking fleet to compressed natural gas, arguing doing so would be cheaper, reduce carbon emissions, help lower U.S. dependence on foreign oil and create jobs. According to Geologists, the U.S. and Canada have the greatest amount of natural gas reserves in the world.

Pickens has spent over a million dollars of his own money on a pubic relations program and lobbying Congress and the President to enact legislation designed too enable the massive conversion of the U.S. trucking fleet from diesel fuel to natural gas but has yet to see his "Pickens' Plan" become public policy.

United Kingdom-based Tesco, which owns Fresh & Easy Neighborhood has a major climate change/carbon reduction initiative that was started a few year ago by former CEO Terry Leahy, who retired in March of this year, and is being continued by the board of directors and new CEO Philip Clarke, who took over for Leahy in March.

Tim Mason, the CEO of Fresh & Easy, was named to the additional position of Tesco group deputy CEO in March. In that position, which reports to Clarke, Mason has overall responsibility for Tesco's global climate change/carbon reduction initiative, along with heading up Tesco's global marketing and branding efforts, as well assisting Clarke in a number of other initiatives.

"We are committed to reducing our impact on the environment, and incorporating natural gas vehicles into our fleet is a natural step to help us reduce emissions even further," Mason says. "Ryder has been an excellent partner in this effort, supporting our efforts to save our customers money and to be a good neighbor."

The reduction in  fuel costs should also provide some needed cost savings for Fresh & Easy Neighborhood Market as long as the cost of compressed natural gas remains significantly lower than diesel fuel.

"When we can reduce our operating costs through more efficient transportation technologies like natural gas, we can pass those savings on to our customers," Mason says. "This natural gas vehicle initiative directly supports our efforts to offer fresh, wholesome food at affordable prices."

The addition of the 25 CNG delivery vehicles to its fleet should provide a significant contribution by Tesco's U.S. Fresh & Easy chain towards the global retailer's goal and strategy of reducing its carbon footprint over the coming years in the 14 countries where it has its operations, stores, distribution facilities and delivery fleets, because of the reduced emissions the natural gas-fueled delivery trucks provide.

Related Stories

December 8, 2010: Fresh & Easy Neighborhood Market to Install Solar Energy Systems Atop Nine Arizona Stores in March 2011

May 12, 2010: Brighter Looking Fresh Foods, 'Greener' Stores on Tap at Tesco's Fresh & Easy Neighborhood Market

December 31, 2008: 'Green' Retailing: Tesco Scores Second Overall, Number One Among Food and Drug Chains, in Ceres Coalition's Climate Change Corporate Scorecard

September 8, 2008: Tesco PLC CEO Terry Leahy: 'We Must Go Green'

April 4, 2008 Fresh & Easy Buzz Redux: Fresh & Easy Neighborhood Market Should Mimic Tesco UK's Penny-A-Bulb Compact Fluorescent Light Bulb Promo for Earth Day USA

Additionally, click here for more related stories.

Fresh & Easy's key "green" grocer initiatives

Since it opened its first stores in November 2007, Tesco's Fresh & Easy has been making making continuous improvement towards its goal of becoming a "green" (as in more sustainable) grocer.

In fact, the retailer's sustainable initiative started before opening the stores. For example, when Tesco constructed the 800,000-plus square-foot Fresh & Easy Neighborhood Market distribution center in Riverside County it included a massive solar energy array on the building's roof. In the peak summer months, like now, the system provides up to 30% of the facilities energy.

Fresh & Easy's most recent "green" initiative at store-level is the replacement of the coffin-style reach in frozen food display cases n the stores with upright units that have glass doors, which is something we were the first publication to report in this story: The grocer is currently in the process of replacing the coffin case freezer cases with the upright units with glass doors in about a third of its 176 stores.

Key sustainability/energy conservation initiatives Tesco's Fresh & Easy currently practices in its stores:

>Uses LED lighting in its outdoor signs an in its frozen and refrigerated product display cases inside the stores;

>Uses above standard (in energy efficiency) display cases for perishable foods'

>Recycles the display packaging it ships to its stores, returning it back to the distribution center in Riverside County;

(However, unlike most grocers Fresh & Easy does pre-package most of its fresh produce, thereby creating added packaging that's sent home with customers who purchase the items. The grocer also offers free single-use plastic carrier bags only rather than a choice of paper or plastic like most if not all of its competitors do. If Fresh & Easy offered its customers a choice it would be more sustainable because single-use plastic bags are recycled at far-lower rates then paper grocery sacks are, although the grocer does a good job at encouraging the use of reusable shopping bags in its stores.)

>Has recycling bins in all its stores for single-use plastic carrier bags and other types of recyclable packaging. This is the law in California, where the grocer has 127 of its 176 stores. But is not required in Arizona, where Fresh & Easy has 27 units, or Nevada, where there are 21 stores. However, Fresh & Easy neighborhood Market has the bins in its stores in those states anyway;

>Started installing solar panel arrays on nine Fresh & Easy stores in Arizona in March of this year.

Tesco's Fresh & Easy and it's 'Value Proposition:' We Asked, They Answered; Discussion, Deconstruction and Fresh & Easy Buzz Analysis

In this piece," Las Vegas Region Market Report: Signs of Recession in Usually Immune Las Vegas; Why Isn't Tesco's Fresh & Easy Touting its 'Value Proposition'?," Fresh & Easy Buzz once again asked the question we've often asked in stories in the blog: Why doesn't Tesco's Fresh & Easy Neighborhood Market tout and reinforce it's value proposition, especially in these bad economic times in its respective U.S. market regions, which could be a way to create additional new business in its current 61 small-format, combination basic grocery and fresh foods-oriented, price and value-premised grocery stores?

On Monday (June 16, 2008) Tesco's Fresh & Easy Neighborhood Market essentially offered its first try to answer that question in this press release designed to garner media attention (and thus reach consumers and other stakeholders) with this press release titled: "Fresh & Easy Keeps it Simple and Keeps Prices Low." The release attempts to reinforce Fresh & Easy's value proposition by describing a "new" distribution model the grocery chain has adopted, also touting the environmental benefits that go with doing so.

Here's what the supermarket industry trade publication Progressive Grocer wrote this morning in the opening paragraph of it's brief report on the press release (the rest of the PG report is essentially a reprint of the press release:

"In an ongoing public relations campaign to reinforce its value position, Tesco-owned Fresh & Easy Neighborhood Market yesterday said it and its suppliers have streamlined their distribution models to reduce direct store deliveries, which saves money on fuel and allows the retailer to pass these savings on to customers."

Read the entire Progressive Grocer report here.

Here is what the food and grocery industry blog Morningnewsbeat.com had to say about the press release:

"Tesco’s US operation, Fresh & Easy, said yesterday that it is working with its supplies to streamline its distribution model “to reduce direct store deliveries, which saves money on fuel, allowing the company to pass these savings on to customers. This innovative, yet simple, distribution model also helps the environment by reducing the amount of CO2 emissions, fuel consumption, as well as neighborhood traffic congestion and noise that multiple deliveries create … To eliminate extra and unnecessary delivery trips, Fresh & Easy has created a new way of stocking stores with these same products with fewer deliveries by asking the company's suppliers to deliver directly to the company's centralized distribution center.”

Here's Morningnewsbeat.com editor Keven Coupe's comment on the Tesco Fresh & Easy press release:

KC's View: Sounds like the tweaking taking place at Fresh & Easy HQ is more than just brightening up the stores…Of course, cynics will say that this is just another way for the company to slow down its hemorrhaging expenses…

And here is what a Morningnewsbeat.com reader, Bob Reynolds, offered about the press release in an email to Morningnewsbeat.com which was reprinted in the blog:

Bob Reynolds: I know you are tired of Fresh & Easy stuff. However, maybe this is a bit of a different twist.

I was in four LA F&E's last week, I had been in some of the same stores in February.

Some perspectives I have not read from others:

• Out-of-stocks are a very visible problem. And, the out-of-stocks appear to be concentrated in promotional items.

• Because the SKU count is small in these stores, out-of-stocks stick out like a sore thumb. Little or no opportunity for a consumer to do a brand switch.

• Same items were out-of-stock in more than one store, suggesting a distribution problem.

• While I have no objective data, it appeared that there were more national brand items in the store last week than in February. The product selection is still dominated by F&E brand products

• Perishables and ready-to-eat, ready-to-cook products are bland and uninteresting. They don't say "buy me." Color is badly needed in this bland environment.

• Many perishable, code-dated products were at or near code dates. Products dated the Wednesday I was in the stores, were marked 1/2 off.

• All self-checkouts -- One employee at front end to assist customers -- This system eliminates many non-tech-savvy potential customers.

• While I did not do an objective price survey, my impression was "no bargains here."

• All four stores faced nearby competition from conventional name brand supermarkets. So much for the "under-served neighborhood" concept.

• I saw little reason for a consumer to shop F&E rather than its familiar near-by competitors.

• Stores were lightly shopped on the Wednesday, midday that I visited.

• I also visited the Safeway/Vons "The Market" small format store in Long Beach. Store has been open about a month.

This store is right at the beach, 100 yards from the Belmont pier. Looks like a miniaturized version of Safeway's Lifestyle store format with all major perimeter departments. Lots of grab-and-go stuff. Large wine and liquor dept. Good looking deli and bakery. Service meat. Limited selection of dry groceries. Attractive but small produce selection. Good selection of refrigerated non-alcoholic beverages.

Looked like a great beach store but was lightly shopped at Wednesday, 11 AM.

I liked this store a lot. Bought my lunch there.

[Note to Bob Reynolds, much of what you observed has been covered, and is regularly covered in Fresh & Easy Buzz. We hope you find the blog if you haven't yet.]

Read both pieces directly on Morningnewsbeat.com here.

Lastly, the food and grocery industry website Retailwire.com currently has an ongoing discussion about Tesco Fresh & Easy's value proposition in the form of CEO Tim Mason's comments in Sunday's Financial Times piece, which we ran the other day, that the retailer is now combining a high-low promotional strategy along with its EDLP strategies, which forms the basis for Fresh & Easy's merchandising policy as a neighborhood grocery store for all consumers. [You can read a transcript of the Financial Times' interview with Tim Mason here.]

You can view the ongoing discussion at Retailwire.com here. There's also a reader poll which currently shows 44% of those who have thus far responded say price and value (the value proposition) are key to Tesco Fresh & Easy's success, an argument Fresh & Easy Buzz has been making since late last year. Only 2% thus far say the value proposition is unimportant.

The 'Value Proposition:' Fresh & Easy Buzz Analysis

Below (in italics) is the text of Monday's press release issued by Tesco's Fresh & Easy Neighborhood Market:

Fresh & Easy Keeps it Simple and Keeps Prices Low
Streamlining distribution saves fuel, reduces prices and helps the environment

EL SEGUNDO, Calif., June 16 /PRNewswire/ -- Fresh & Easy Neighborhood Market and its suppliers have streamlined their distribution models to reduce direct store deliveries, which saves money on fuel, allowing the company to pass these savings on to customers. This innovative, yet simple, distribution model also helps the environment by reducing the amount of CO2 emissions, fuel consumption, as well as neighborhood traffic congestion and noise that multiple deliveries create.

(Photo: http://www.newscom.com/cgi-bin/prnh/20080616/AQM550)

A traditional grocery store receives many deliveries a day, including fresh and frozen food, produce and direct store deliveries from numerous suppliers. To eliminate extra and unnecessary delivery trips, Fresh & Easy has created a new way of stocking stores with these same products with fewer deliveries by asking the company's suppliers to deliver directly to the company's centralized distribution center.

"By keeping our distribution model simple Fresh & Easy is able to save fuel and offer honest, everyday low prices on all our products," said CEO Tim Mason. "Reducing fuel consumption is also consistent with our commitment to be a good steward of the environment."

To further conserve fuel, Fresh & Easy has employed state-of-the-art technology in its shipping fleet. Fresh & Easy trailers feature a hybrid refrigeration vector unit which minimizes the amount of diesel used to safely cool and transport store products. The trailers also include automatic refrigeration shut-off when optimum temperature is reached inside the cooling chamber as well as a complete engine shut-off once parked at the stores. Electrical stand-by technology also minimizes the impact on the environment by using no diesel fuel to run refrigeration units on the trailers while parked at the distribution center.

First, regarding the press release itself, as you can tell by reading it, it's targeted (either intentionally or not) to the food and grocery industry trade press, at least based on the way it's written and its intended or unintended target. There isn't much of an angle in the way it's written to excite a consumer or business publication editor to run a story based on the release. We aren't criticizing the release or Tesco's Fresh & Easy because of that, just stating a fact of public relations.

Now, regarding the content of the press release: What Tesco's Fresh & Easy Neighborhood Market is talking about in the first paragraph, the "streamlining of their distribution model," might be new for Fresh & Easy but its old hat in the U.S. food and grocery retailing industry. It's essentially what's called cross-docking, something numerous U.S. supermarket chains ranging from Safeway Stores, Inc. to regional players like Northern California-based Save Mart, Inc. (and numerous other U.S. chains) have been doing with various vendors in various categories for decades.

For example, both Safeway and Save Mart (California-headquartered chains) cross-dock all of their specialty and natural foods category items/orders with their respective distributors. (Safeway self -distributes much of its specialty/natural foods category items but uses a distributor as well.) The distributor sales representative writes the specialty/natural foods category item orders in the stores (in some cases store-level employees write the orders) and then transmits the orders back to the distributor's headquarters via computer modem on the reps hand-held computer.

The distributor then picks and builds the orders and delivers them to the respective retail chain's distribution centers for the respective region the stores are located in. The retailer then bundles the orders with the warehouse direct grocery orders being delivered to the given store and ships all the pallets together. This is called cross-docking.

These two chains do the same thing with other categories besides specialty and natural foods. These are multimillion dollar categories for both chains annually. In return for doing this, the specialty and natural foods distributors, as do other vendors, give the grocery chains a flat rate discount such as 5% off invoice on total purchases. Most of the stores receive at least two, and often three, deliveries per-week in these two categories, which also include ethnic food products like Hispanic-targeted consumer goods and Asian foods.

Fresh & Easy is correct that cross-docking--a vendor shipping to a food retailer's central distribution center and then the retailer bundling various orders and shipping them together to the stores--can save on fuel consumption (although not really for the retailer), carbon emissions and noise in neighborhoods where stores are located due to frequent daily DSD deliveries.

DSD delivery also has an important place in U.S. food and grocery retailing however, especially in the case of highly-perishable and labor-intensive product categories like fresh breads and bake goods, especially those brands which are niche items in the category. These items need near-daily rotation and crediting out (labor intensive) and often are low volume (specialty,artisanal and gourmet breads and baked goods for example). The DSD system has generally proved to work best in these categories from both freshness for the consumer and overall store-level operations perspectives.

There's also the issue of store-level labor. Nearly all of the major supermarket chains in the Western U.S. where Tesco has its Fresh & Easy stores are union shops, which means a full-time store employee with one year's experience makes about $20 hour, compared to the $10 hour Tesco pays Fresh & Easy store clerks. Tesco Fresh & Easy Neighborhood Market, like Trader Joe's, Whole Foods Market, Inc. and Wal-Mart, is non-union.

Additionally, these unionized chains offer store employees what is among the best health benefits package in U.S. business (of any kind or level), which the union chain's and the UFCW union agrees adds about $10 hour to the workers' hourly pay. In other words, the fully-burdened hourly wage of these unionized store-level workers is close to $30 hour with the benefit package. Tesco's Fresh & Easy offers store-level workers who work 20 hours or more a week a health insurance package. However, like is the case with nearly every other non-union grocery chain's plans, it isn't as comprehensive or as inexpensive to the worker as the union supermarket's plan is.

As a result of this fact, union supermarket chains, with the UFCW union's blessing (most of the DSD vendors like bread companies also are unionized), like to have some DSD in critical perishable categories (read labor intensive) because it is very expensive to have near $30 an hour clerks doing these tasks. If they did, the cost would have to be reflected in retail prices to consumers, which would make for some serious competitive difficulties for the union chain's, which already is the case because they pay much more than non-union competitors.

These union chains do deliver their store brand(s) fresh bread and related baked goods items directly to their stores, bundling with regular grocery and perishables direct store shipments from the distribution center.

However, many of the fresh bread and related items the stores carry--including specialty, artisanal and ethnic products--come from small, niche vendors, and it makes little sense to have these vendors ship direct to the retailer's distribution centers since the volumes are small and the labor to stock the goods at store-level time consuming based on the sales return they offer the retail chain.

In terms of fresh produce, most U.S. grocery chains supply the majority of produce to their stores directly from their own distribution centers. Therefore, there really isn't much DSD activity at store-level in the category. There is some, which is primarily because many chains are now putting a major emphasis on locally-grown produce to augment their basic offerings. In some cases this local produce is delivered DSD. Although, much of it is cross-docked in the way we've described above.

Lastly, we like the hybrid system Tesco is using for its Fresh & Easy trucking fleets. It's a wise decision. However, it isn't anything new in American food distribution.

For example, distributors like United Natural Foods, Inc. and Tree of Life, Inc., having been using such hybrid dry grocery/refrigerated/frozen truck and trailer units since the 1980's in the U.S. These distributors regularly deliver dry, refrigerated and frozen natural, organic and specialty foods directly to stores and adopted the hybrid system nearly 30 years ago to primarily save having to make multiple trips (a dry grocery run and then a perishables run) to the same store. The secondary benefit was that it saved energy and thus costs. Other U.S. distributors and direct distributing grocery chains do the same thing, and have for decades.

Additionally, for the vast majority of self-distributing American supermarket chains, combining dry grocery and perishable items in the same tractor-trailer just won't work. These stores carry too many skus and do too high of volume to make it feasible.

For example, take a typical, modern 55,000 -to- 60,000 square foot Safeway Lifestyle supermarket, or any grocery retailer's similar version. These stores require multiple weekly deliveries in each of the three categories--dry grocery, frozen, refrigerated--just to keep the stores stocked. Each of the deliveries generally requires the full cube of a standard tractor trailer just to hold the amount of product ordered. In other words, seldom will you see an order arrive at one of these supermarkets in which the trailer isn't full.

Therefore, there is no waste in terms of utilizing the space in the trailer for the product delivery. The chains make sure of that. Further, if the entire trailer isn't used--say in the case of frozen which isn't uncommon--they will make sure it is full, delivering to multiple stores in the same area one after another. It takes generally no more than three stores to cube-out the trailer. There is no delivering half a trailer to a store then going back to the distribution center.

Interestingly, Safeway and other supermarket chains, as well as home delivery-only grocers like FreshDirect on the east coast, use trucks similar to what Fresh & Easy is describing--dry, frozen and refrigerated combined--to deliver Internet-ordered grocery orders to customers homes. Safeway began its home delivery service in California in the early 1990's using such trucks and continues to use them to this day, as do the other U.S. grocers who offer this service.

So the "innovation" is one for Tesco's Fresh & Easy internally, compared to how they were doing things in part in the past, but it's old hat in the U.S. food and grocery distribution industry. It could help Tesco's Fresh & Easy internally to enhance it's value proposition, but as you can see from our analysis above, it offers no competitive advantage since American grocery distribution and retailing has been doing the same for a rather long time in most cases.

We take nothing away from Tesco for making the change, and wanting to communicate it. In fact we congratulate them--especially if it works well and saves money as well as contributes positively overall to the environment.

However, since it isn't a new industry innovation in the U.S., it isn't going to offer Tesco's Fresh & Easy Neighborhood Market any competitive advantages in the main vis-a-vis its competitors, which could result in creating an enhanced value proposition for consumers at retail. That has to be done on a retailer-to-retailer competitive basis elsewhere for Tesco.