Tesco's Fresh & Easy Neighborhood Market at 175 (Stores): Three New Stores Open in Northern California Today

News/Analysis

Fresh & Easy Neighborhood Market opened three stores today in Northern California, giving the small-format fresh food and grocery chain, owned by United Kingdom-based Tesco, a total of 11 units in the region. [See - April 26, 2011: Behind the Buzz: Tesco Opens Three New Fresh & Easy Neighborhood Market Stores in Northern California Tomorrow.]

The three new stores, in Hayward (Mission Boulevard and Rousseau Street), San Jose (Saratoga Avenue and Payne Avenue) and Napa (Imola Avenue and Jefferson Street), are the last batch of the 11 Fresh & Easy markets Tesco-owned El Segundo, California-based Fresh & Easy has to date announced it will open in Northern California in early 2011.

However, as we've reported, Tesco's Fresh & Easy is preparing additional stores for spring-to-summer openings.

On March 15, 2011, we reported here - San Francisco, Antioch and Fairfield Stores Next Up in Northern California For Fresh & Easy Neighborhood Market - that Fresh & Easy Neighborhood Market has four stores next in line for Northern California openings. Two of the stores are in San Francisco - at Third Avenue and Carroll Avenue and 32nd Street and Clement. The other two units are in Antioch and Farfield. (See the story linked above for details.)

As of today, Tesco's Fresh & Easy hasn't announced new store openings for May, including in Northern California.

Based on our reporting, the two San Francisco stores noted above will be the first of the group to open, possibly at the end of May, but more likely in June. (We'll have more on this development in an upcoming story.)

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

Below is a breakdown of the 175 units, by market region, as of today.

Fresh & Easy stores, by the numbers:

Southern California/San Diego
= 101 units

Northern California
 = 11 units

Central Valley, California/Bakersfield Metro
= 7 units

Central Valley, California/Fresno Metro
= 7 units

Southern Nevada/Metro Las Vegas
= 21 units

Metro Phoenix, Arizona
= 28 units

Total = 175 stores

Tesco has opened 21 Fresh & Easy grocery markets so far this year - 11 units in Northern California and 10 stores in Southern California.

In a December 30, 2010 piece - Seven Predictions For Tesco's Fresh & Easy Neighborhood Market For 2011 - we said Tesco would open 40-50 Fresh & Easy stores in calendar year 2011.

On April 19, Tesco said it would open 50 Fresh & Easy grocery markets this year, noting it is a few more than it originally planned on opening for 2011. [See - April 19, 201: Tesco's Fresh & Easy Neighborhood Market Posts Biggest One-Year Loss Yet - $307 Million Loss on Sales of $818 Million.]

April 19 was the first time Tesco or its Fresh & Easy chain mentioned how many stores it would open in 2011. It doesn't usually announce new store opening numbers at all.

Based on the 50 new stores' number, and having opened 21 units so far this year, that means Tesco plans to open an additional 29 Fresh & Easy fresh food and grocery markets this year.

Based on information from our sources, all, or nearly all, of the 29 or so new stores set to be opened in the remainder of 2011 will be in California.

No new Fresh  Easy stores have been opened so far this year in Nevada or Arizona.

No new stores in either region are planned for what's left of April.

Tesco has six less Fresh & Easy stores than it had six months ago in both Southern Nevada and metro Phoenix, Arizona, having closed six stores in each market region in November 2010. [See here for details.]

According to our sources, Fresh & Easy Neighborhood Market isn't planning on opening any new stores in Nevada or Arizona in May, either.

On April 19, Tesco reported a 2010/11 fiscal year loss of $307 million (on revenue of $818 million) for Fresh & Easy Neighborhood Market. It's fiscal year ended February 26, 2011. There were 164 Fresh & Easy stores open at the end of Tesco's fiscal year. Tesco is currently in its 2011/12 fiscal year, which ends February 2012.

On October 5, 2010, when Tesco reported its mid-year financials, the retailer said it planned to have 400 Fresh & Easy stores open and operating by the end of its 2012/13 fiscal year because it needed the sales volume from that number of units open to break-even by February 2013, when that fiscal year ends. [See - October 5, 2010: Philip Clarke's Early Welcome to America: Tesco Logs $151 Million Half-Year Loss For Fresh & Easy Neighborhood Market.]

But last week, on April 19, Tesco CEO Philip Clarke said the retailer has revised the 400-store number down, saying it plans to break-even with Fresh & Easy Neighborhood Market by February 2013, having 300 stores open and operating, 100 less units than it said would be needed seven months ago.

The downward revision from 400 to 300 stores didn't come as a surprise to us here at Fresh & Easy Buzz, since we said in the October 5, 2010 story linked above, when the 400-store metric was announced, that it was not a realistic number of new Fresh & Easy stores for Tesco to open between then and February 2013. We were correct.

For example, from November 2007 to today, a period of three-and-a-half-years, Tesco has opened 175 Fresh & Easy stores. That would mean it would have had to open 225 stores between now and February 2012, a period of less than two years, in order to hit 400 units. That's opening 40 more stores over a 22 month period than the 175 units it's opened since November 2007 (3.5 years.)

Even hitting 300 stores by February 2013, which means opening 125 new units over the next 22 months, is a pretty tall order, from simply a logistics standpoint, although Fresh & Easy can do it, based on its history.

If it opens the 50 stores this year it will end calendar 2011 with 204 units open, which means it will need to open 94 new stores from January 2012 to February 2013. A tall order - but achievable.

But at what cost in doing so? Tesco already has more Fresh & Easy stores in poor locations than it can afford to have. The 13 stores Tesco closed in November 2010 are a perfect example of this fact.

And, having so many stores out of the current 175 in poor locations is directly related to opening too many stores too rapidly, although that's only one of a handful of major mistakes Fresh  Easy Neighborhood Market has made when it comes to choosing store locations.

For example, the grocer has a number of stores in Arizona, Nevada and Southern California that are completed but have been sitting empty for up to two years. It also has store sites it hasn't even started construction on yet, and not just in Northern California, where it opened its first two stores on March 2. These are store sites primarily in metro Las Vegas, metro Phoenix and the Bakersfield, California region that it's possible Tesco will never even open stores at but is paying for.

This brings up another decision Tesco CEO Clarke will have to make, either at the end of this year or in early 2012. That decision: How many of the current under-performing Fresh & Easy stores should he close? If Tesco used the same performance criteria it used to close the 13 poor-performing stores in November 2010, it could close another 13 units and still have change leftover in terms of additional stores not doing much better than the 13.

Getting to 300 Fresh & Easy stores by February 2013 is achievable for Tesco. But it's far from the most important metric involved in breaking-even its Fresh & Easy Neighborhood Market, which Tesco CEO Philip Clarke says will happen by then, with 300 Fresh & Easy stores open and operating.

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

Breaking Buzz - News/Analysis

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

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

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

Fresh baked bread and bread-bakery front and center

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

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

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

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

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

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

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

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

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

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

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

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

Going mobile with the 'Kitchen Table'

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

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

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

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

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

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

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

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

Fresh flowers front and center

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

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

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

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

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

New meat, deli-prepared foods refrigerated cases

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

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

A season of change

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

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

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

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

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

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

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

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

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

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

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

Behind the major changes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Are the changes the right ones?

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

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

Stay tuned.

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

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

Additonal Suggested Related Reading

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

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

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

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

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

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

Fresh & Easy Neighborhood Market Preparing For A Spate of New Store Openings Beginning in August

The next Fresh & Easy store to open is (above) at 3rd and Carroll in San Francisco. [Photo credit: Fresh & Easy Buzz.]

Breaking Buzz: New Stores

Fresh & Easy Neighborhood Market has to date announced it will open one store in August - its second unit in San Francisco - which is in the 5800 Third Street condominium development at 3rd Street and Carroll Avenue in the city's Bayview District.

However, the 176-store Tesco-owned grocery chain is queuing up a number of stores for openings in August and the following months, Fresh & Easy Buzz has learned.

We broke the news in this May 14, 2011 story [Breaking Buzz: Fresh & Easy Neighborhood Market Plans August 24 Opening For Third & Carroll Store in San Francisco's Bayview District] that Tesco's Fresh & Easy planned to open the new store at 3rd Street and Carroll Avenue in San Francisco on August 24. [Also see - May 10, 2011: Breaking Buzz: Fresh & Easy Neighborhood Market Plans to Open First San Francisco Store at 32nd and Clement June 22.]

Two weeks later, on May 23, Fresh & Easy Neighborhood Market confirmed our report by announcing in a press release it would open its first store in San Francisco - at 32nd Avenue and Clement Street in the Outer Richmond District - June 22, and its second unit, the 3rd Street and Carroll Avenue store, August 24, just as we reported in the May 10 story.

[See - May 23, 2011: Fresh & Easy Neighborhood Market Confirms Our Reports First Two San Francisco Stores to Open June 22 and August 24, 2011. Also read - June 22, 2011: Tesco's Fresh & Easy Neighborhood Market Opens First Store in San Francisco - in Outer Richmond District.]

Fresh & Easy Neighborhood Market doesn't normally announce store opening dates until three-to-four weeks prior to the given date of the opening. However, sources at the grocery chain tell us since we reported the opening date of the 3rd Street and Carroll store in early May, the retailer decided in part based on that to announce the date, along with the June 22 store opening, even though it was more than three months in advance of the August 24 opening, because it was receiving numerous inquiries, asking if the date we reported was correct.

In addition to the 3rd Street and Carroll Avenue store's August 24 opening date, we reported earlier this year Fresh & Easy is queuing up three additional stores, all in Northern California, for openings soon.

Those three stores are in the cities of Hayward, Antioch and Fairfield. You can read the details and get the addresses of the stores in the two stories linked here - March 15, 2011: San Francisco, Antioch and Fairfield Stores Next Up in Northern California For Fresh & Easy Neighborhood Market; and May 15, 2011: Breaking Buzz: Tesco's Fresh & Easy Neighborhood Market Plans to Open Second Store in Hayward, California August 10.

In addition to correctly reporting the planned August 24, 2011 opening of the 3rd Street and Carroll Avenue Fresh & Easy store in San Francisco's Bayview neighborhood on May 10 (as well as the June 22 opening of the Outer Richmond District store), we reported in the May 15 story linked above that the Hayward store, located at A Street and Hesperian Boulevard, will open August 10.

The store will be the grocer's second unit in the East Bay Area city. Tesco opened its first Fresh & Easy store in Hayward - at Mission Boulevard and Rousseau Street - April 27, 2011.[See - April 27, 2011: Tesco's Fresh & Easy Neighborhood Market at 175 (Stores): Three New Stores Open in Northern California Today.]

We (and you) should know in a couple weeks or so if our reporting on the Hayward store's opening date is correct because if it is opening August 10, Fresh & Easy Neighborhood Market will announce it 3-4 weeks in advance.

We stand behind the reported date. But as we always say in the blog, new store opening dates are fluid and dynamic at Tesco's Fresh & Easy. Therefore, the dates are always subject to change, as has been the case since the first units were opened in November 2007.

In addition to the San Francisco and Hayward stores opening in August - currently we're looking for August-to-October opening dates for the Fairfield and Antioch units - Fresh & Easy Neighborhood Market is now preparing a fifth store in Northern California for an opening in the coming months. That store is at Tasmine Drive and Fair Oaks Avenue in Sunnyvale, making five units in Northern California at the top of the upcoming new store opening list at Tesco's Fresh & Easy.

Southern California

Fresh & Easy Neighborhood Market is also queuing up four stores in Southern California for the next round of openings, which will start in August.

The locations of the stores in Southern California next up are:

City/Address

>Anaheim - Euclid and Broadway

>Long Beach - Long Beach Boulevard and 5th Street

>Long Beach - Atlantic Avenue and 33rd Street

>Los Angeles - Coldwater Canyon Avenue and Sherman

This makes nine new Fresh & Easy stores set to open soon in California, based on our reporting to date. Fresh & Easy has so far only announced the opening date (August 24) of the store at 3rd Street and Carroll Avenue in San Francisco.

Fresh & Easy Buzz is the first and only publication that's reported these stores are next up to open.

Tesco said in April it plans to open about 50 Fresh & Easy stores this year, confirming our reports far in advance of that date, in which we said it would open 40-50 Fresh & Easy fresh food and grocery markets this year. [See our April 19, 2011 report here for details.]

So far this year Tesco has opened 22 Fresh & Easy stores - 12 in Northern California and 10 in Southern California. That leaves 28 Fresh & Easy units to be opened from August through December to hit the 50-store mark.

No Fresh & Easy stores are being opened this month.

One store, the unit at 32nd and Clement in San Francisco, was opened in June.

The 22 Fresh  Easy stores were opened between January and April of this year.

No new stores were opened in May.

We correctly reported in late 2010 and early 2011 that California would be the focus of Tesco's new store openings for 2011. It has been the case so far this year - and it will be for the remainder of 2011. For example, read this January 14, 2011 story: Tesco 'Banking' on California in 2011 For Fresh & Easy Neighborhood Market USA.

Tesco currently has 176 Fresh & Easy stores in California, Nevada and Arizona.

The stores are about 10,000 square-feet and offer about 5,000 SKUs of fresh foods - produce, meats, fresh-prepared foods - packaged food and grocery items, perishables, frozen foods, wine and beer (and liquor in some stores) and a limited selection of health and personal care and general merchandise products.

Of the 176 stores, 127 units are in California. There are 101 stores in Southern California, 12 units in Northern California, and seven stores respectively in the Bakersfield and Fresno metro regions in the Central Valley.

Additionally Tesco has 28 stores in metropolitan Phoenix, Arizona and 21 units in metro Las Vegas, Nevada.

Fresh & Easy Neighborhood Market hasn't opened any new stores in Arizona this year.

No new units in either state are set open this month. Thus far, based on our reporting, no new Fresh & Easy store openings are planned in Arizona and Nevada for August either.

In fact, Tesco closed six under-performing stores in Nevada and in Arizona in November 2010, along with one unit in Southern California, giving it 12 fewer stores in the two states combined than it had nine months ago. [See here.]

A Four Month Pause: No New Fresh & Easy Neighborhood Market Stores Set to Open Until September 2010

News/Analysis/Commentary

Tesco's Fresh & Easy Neighborhood Market currently has no plans to open any new stores in either July or August, Fresh & Easy Buzz has learned. Our source information is strong enough on this that if Fresh & Easy were to open a store, say in August, it will be because the grocer decided to do so after today.

The next batch of new Fresh & Easy stores will likely open in September 2010, according to our information. Look for as many as 9-10 new store openings in September.

There are currently 159 Fresh & Easy stores open and operating.

Tesco's Fresh & Easy hasn't opened any new stores since April 2010, despite having numerous units in California, southern Nevada and Metropolitan Phoenix, Arizona completed and sitting empty.

If the next new store opening doesn't come until September, as we're reporting, that will mean the grocery chain has taken a four month new store opening pause - from May -to- August 2010 - which is similar to what the grocer did for about three months back in March 2008, just five months after its first store opened in November 2007. [See - March 29, 2008: Tesco's Fresh & Easy 'Taking a Pause' From New Store Openings: A Full Review In the Works] [ April 14, 2008: Commentary: Fresh & Easy Should Use its New-Store Opening 'Pause' in Part to Further Train, Develop and Reward its Store-Level Employees.]

Fresh & Easy started calendar 2010 off with a new store opening big bang. The grocer opened five stores in January, nine units in February, Three in March, and 11 Fresh & Easy food and grocery markets in April., for a total of 28 new stores in the first quarter of calendar 2010. However, with no new stores set to open in the second quarter, the total will remain at 28 new Fresh & Easy stores opened in the first half of calendar 2010.

Tesco's Fresh & Easy continues to publicly say, via its corporate spokesman, that it's taking a slow and cautious approach to opening new stores because of the continuing recession, which has hit the states of California. The economy in all three states is improving though.

But this argument, which is nearly two years old, really begs the question, in our analysis. That question, or central proposition is:

If you're a major global retailer like Tesco, the third largest food and grocery retailing company in the world, and you say you still believe strongly in your U.S. format and chain, Fresh & Easy, which Tesco says it does, and you have many stores completed and sitting empty, which you're paying monthly rent on, why, recession or not - and the economy is without a doubt improving significantly - would you not open those stores, particularly a few of the completed 18 stores in Northern California's San Francisco Bay Area, a region where the economy is considerably better (and improving faster) than it is currently in Southern and Central California, southern Nevada and Metro Phoenix, Arizona, the market regions where Fresh & Easy has its current 159 stores?

Further, since one of the key positioning points of the Fresh & Easy format and stores is that they're affordable - Tesco has even claimed the prices are at least 10% lower than Fresh & Easy's supermarket competition, and that's not including the regular 20% off discount store coupons the grocer regularly distributes - one must then also logically ask why such a format, Fresh & Easy as described by Tesco, wouldn't be the perfect answer for shoppers during a recession? And since it's not, what's wrong?

We aren't going to answer the question in this piece. But if you read through Fresh & Easy Buzz, which we've been publishing since late 2007, you'll be able to derive some answers, at least based on our close observation, research, reporting and analysis of Tesco's Fresh & Easy for nearly three years.

This question, or central proposition, though is the one Tesco needs to ask itself internally. It should also seek some outside, unbiased and objective counsel on the question as well. Answering the question honestly, then moving forward with changes based on those answers, is the first key step the grocer needs to take in order to have a chance of real success - breaking even, then profits, and ultimately growth - with Fresh & Easy Neighborhood Market.

In April of this year Tesco CEO Terry Leahy said the company will open about 50 new Fresh & Easy stores in its fiscal year 2009/10. That fiscal year started at the end of February, which means 14 of the 28 new stores opened so far in calendar year 2010 were opened in Tesco's 2009/10 fiscal year, leaving 36 new stores to be opened between now and the end of February 2011, when the fiscal year ends.

That's an eight month period, which works out to opening an average of between four -to- five (four some months, five others) new stores a month. That's a decent pace. However, in Northern California alone, Tesco has 37 store locations which have been confirmed since 2008, more that we've reported on but aren't confirmed by the grocer. Most of the Northern California stores aren't completed. Work hasn't even started on many. But a couple, like the store in Pacifica, California near San Francisco, are completed and sitting empty.

In Southern and Central California, southern Nevada - where a new Fresh & Easy store hasn't been opened in nearly a year - and Metro Phoenix, Arizona, the grocer has probably as many or more than 36 stores that are either completed and sitting empty or could be completed rapidly, but has put construction on hold.

A new CEO, current director of international operations and IT Philip Clarke, will be taking over for Tesco CEO Terry Leahy in early March 2011. As such we don't expect to see any change in the number of Fresh & Easy stores opened this year, over Leahy's estimate. In fact, if anything, perhaps fewer.

Because Tesco has a strong culture of succession planning, Philip Clarke is already working with CEO Leahy in the corner office at Tesco corporate headquarters in the United Kingdom, in addition to doing his current job. Clarke has had little if any involvement in how Fresh & Easy has been run to date, that's been done by Tesco director and Fresh & Easy Neighborhood Market CEO Tim Mason, under CEO Leahy's supervision and support.

But come March 2011, CEO Clarke will have to decide what he wants to do regarding Fresh & Easy, which lost $253 million in fiscal year 2009/10 and $208 million in fiscal year 2008/09. In addition, Tesco is estimating a loss in that same $253 million range for fiscal year 2010/11. These are operating losses and don't include the hundreds of millions of dollars in start up investment Tesco has made for Fresh & Easy USA.

The most significant, in a challenging way for Tesco, aspect of the higher loss in 2009/10, compared to 2008/09, is that the loss of $45 million more in 2009/10 came with a substantial increase in sales at Fresh & Easy. (See the links above.) Why is this important? Because a key part of Tesco's strategy with Fresh & Easy is predicated on an assumption that as scale and sales increase, losses will narrow. But the opposite happened in 2009/10 over 2008/09.

Additionally, Tesco is predicting an increase in sales of 50% in fiscal year 2010/11, over 2009/10. But it's also projected a loss of about $253 million, the same as 2009/10. This means that increased scale - the significant predicted year-over-year 50% increase in sales - does absolutely nothing to decrease the loss at Fresh & Easy, based entirely on Tesco's own numbers and estimates. For those who know even just a little bit about the food and grocery retailing business, this is a serious problem.

Tesco also just spent what Fresh & Easy Neighborhood Market CEO Tim Mason says is in the "tens of millions of dollars" to buy and takeover its produce supplier, Wild Rocket Foods, and its fresh meat and prepared foods ingredient supplier, 2 Sisters Food Group. The takeover is over adding what CEO Mason says is about 750 employees to the Tesco Fresh & Easy Neighborhood Market payroll.

Tesco's line, which most all of the grocery industry trade press and mainstream business press has published in its stories on the takeover, is that the company is doing this because it demonstrates confidence in Fresh & Easy... ect.

But Tesco intentionally brought Wild Rocket and 2 Sisters with it to the U.S. as part of a strategy of outsourcing its fresh produce and meat supply functions in order to achieve cost savings. In other words, built into the financial assumptions for Fresh & Easy's breaking even is having the two companies there as independently-owned supply partners to absorb labor costs. Adding 750 new employees to the Tesco Fresh & Easy payroll by taking over Wild Rocket and 2 Sisters blows those break-even assumptions right out of the water, most probably. Tesco can probably take some sort of an accounting charge over the cost of buying the two companies.

You do the math. Assume the fully-burdened cost per employee is $30,000, which is reasonable. Multiple that by 750 added employees to the Tesco Fresh & Easy payroll. Since Wild Rocket Foods and 2 Sisters Food Group both only had Fresh & Easy as their respective U.S. customers, there's no other revenue source for Tesco regarding its ownership of the two companies. That means the added labor cost of these 750 new employees has to come from current and future Fresh & Easy Neighborhood Market revenue. (We suspect layoffs of some sort will come soon at both Wild Rocket and 2 Sisters.) This could blow Tesco CEO Leahy's projected $253 fiscal year 2010/11 loss for Fresh & Easy out of the water, possibly meaning an even bigger loss for the fiscal year which ends in February 2011.

Terry Leahy will be leaving the CEO position on March 11, 2010, and Tesco won't report it's fiscal year 2010/11 sales and earnings, including its loss for Fresh & Easy until the following month, April. Therefore he won't be around to have to deal with the numbers - be they less than $253 million, around $253 million, or possibly more.

But new CEO Philip Clarke will be there in April 2011, just a little over a month into his new job as CEO of Tesco. And you can bet he's already thinking about what he's going to say, and do, about it. We also doubt if opening new stores is the primary thing on incoming CEO Clarke's mind right now - or at the top of his "to do list" - regarding Fresh & Easy Neighborhood Market.

Linkage

June 1, 2010: No New Fresh & Easy Neighborhood Market Stores Likely This Month

May 1, 2010: No New Fresh & Easy Neighborhood Market Stores Set to Open This Month

March 30, 2010: Tesco Set to Open 11 New Fresh & Easy Neighborhood Market Stores in April

March 29, 2010: Tesco's Fresh & Easy Set to Hit 150-Plus Store-Count Mark on April 7

March 16, 2010: A New Fresh & Easy Store Opens in Las Vegas Tomorrow on St. Patrick's Day; Will Tesco CEO Sir Terry Leahy's Proud Irish Eyes Be Smiling?

March 7, 2010: Three New Fresh & Easy Stores Opening This Month; First Opening March 10 in Palm Springs, California

January 27, 2010: February New Store Opening 'Big Bang' For Tesco's Fresh & Easy; Nine New Stores So Far

February 24, 2010: Fresh & Easy Store Opens its Doors in South Los Angeles

April 19, 2010: Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait

April 13, 2009: Despite Postponing its Northern California Launch Again Earlier This Year Tesco's Fresh & Easy Planning Third San Francisco Store; First Stockton Unit

January 14, 2010: UFCW Union Launches Informal Boycott of Fresno CA Fresh & Easy Stores Today; One Day After the Stores Open

April 20, 2010: Strong Group Revenue & Profit For Tesco... But $253 Million Loss at Fresh & Easy

June 23, 2010: Tesco Fresh & Easy Neighborhood Market CEO Tim Mason Gets Big Stock Award Featuring a Singular Twist

June 4, 2010: Every Little (Bit) Helps: Tesco Fresh & Easy Neighborhood Market CEO Mason Paid $6.188 Million For 2009]

June 21: The Missing Link in Tesco's Purchase of Fresh & Easy Neighborhood Market Meat Supplier '2 Sisters Food Group'

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

Pictured above are two very recently introduced value-oriented merchandising plays by Tesco's Fresh & Easy: Its 98-cent value-priced fresh produce packs (at top) and its "Everything under $1 store-within-a-store sections in its stores (above). [Photo Credit: Tesco Fresh & Easy Neighborhood Market.

The Wall Street Journal has a story today, "Tesco Tries to Hit a U.S. Curveball," in which it interviews Tesco Fresh & Easy Neighborhood Market CEO Tim Mason.

[Note, the Wall Street Journal quotes Tesco in the story as saying Fresh & Easy Neighborhood Market's current overall sales-per-square-feet for its 114 stores is $11. If so, that's 21-cents per square-foot below the U.S. supermarket industry average, which is $11.21 per-square-feet in weekly sales, according to the most recently published statistics by the Food Marketing Institute (FMI) we can find here.

Also, Tesco bases its $11 per square-feet average sales number, and has since day one, on using 10,000 square-feet as the average store size. The problem with this is that we aren't aware of any Fresh & Easy stores smaller than 10,000 square-feet. But there some stores with over 10,000 sqaure-feet of selling space, some up to about 13,000 square-feet. This fact gives us a bit of a problem with using 10,000 square-feet as average store size. But we welcome an analysis from Tesco Fresh & Easy of the selling space square-footage of all of its 114 stores that adds up to the 10,000 square foot average store size.]

The focus of the Wall Street Journal's piece is about Tesco Fresh & Easy's attempts to change its positioning to a value-based food retailing model in which it offers lower prices in store and in media promotions like its advertising fliers (more of a high-low model), including deep discounts; is introducing more value-based and priced items across all product categories, including its fairly new Buxted store brand discount fresh meat line; promotes and advertises heavily with a price and value focus -- both using its print media fliers (and more frequent issuing of the ad fliers), selected radios spots and the Internet -- and overall is attempting to now position, market and promote Fresh & Easy as a value-oriented grocery chain.

The thing is, Tesco always claimed Fresh & Easy was a value-based grocer, among other things touting from day one that it offers food and groceries it claims are 10% -to- 20% cheaper in rice everyday than its competitors offerings. For a variety of reasons we've detailed in Fresh & Easy Buzz, shoppers haven't bought it. The main reason consumers haven't bought it is that Fresh & Easy hasn't really been, nor is at present, a value-based grocer.

We've been writing about Tesco Fresh & Easy change in the value direction for a few weeks now, including our recent stories about CEO Tim Mason's comments in the Sunday London Times article.

This move by Tesco's Fresh & Easy to a value-approach, including most of the specifics mentioned by CEO Mason in the Wall Street Journal piece, come in part right out of the pages of Fresh & Easy Buzz, as we've been suggesting beginning as early as 14 months ago that it is the value-based model Tesco needs to adopt, develop and then communicate consistantly to consumers, as the focus of the Fresh & Easy stores. We call value the positioning hub for Fresh & Easy, with all other merchandising aspects of the chain and stores then being the spokes of that hub. [You can read the story here in today's Wall Street Journal.]

We've also suggested, going back to March of 2008, that Tesco should use selective radio advertising as part of an integrated marketing mix and program, which it recently started doing (using radio but not yet integrating its marketing strategy fully), and is mentioned as doing in the Wall Street Journal piece.

We've also been suggesting, beginning about a year ago, and often since, that Tesco's Fresh & Easy needs to distribute it once-every-three-weeks advertising flier more frequently, or distribute supplemental fliers, which it recently has started doing in an aggressive way.

For example, Fresh & Easy has issued at least three supplemental advertising-promotional fliers since issuing its most recent regular once-every-three-week flier, which amounts to a promotional flier being mass mailed about once a week over the last month.

That frequency increased shortly after we published this piece: [Tesco Fresh & Easy's 'New' Advertising Flier: Minimalism Without Thought or Design Does Not A Retail Advertising Communications Piece Make] on January 27, 2009. In the piece we questioned the design (or lack of) of the flier for its too simple black ink on plain white paper look, as well as its crowded layout. Since then all of the Fresh & Easy ad fliers thus far have included color, and have a much improved (work still needs to be done on them though) design layout.

Fresh & Easy also has stepped up the discount pricing (hotter) in the ad fliers, which we've been suggesting it needs to do for many months.

For an example of the grocery chain's deeper discount promotional pricing, read this February 13, 2009 piece [The Valentine's Day (Retail Promotional Price) War of the (Dozen Long-Stemmed) Red Roses: And the Winner Is... Tesco's Fresh & Easy] we wrote about the Valentine's Day-themed flier.

Fresh & Easy also tied-in the red roses promotion in the ad flier with radio ads, something we first suggested the grocer do (integrate selected promotions in the ad fliers with radio spots on a selective basis) a year ago. [See the linked posts under Fresh & Easy Buzz Redux: Tesco's Fresh & Easy & radio advertising below.]

In its most current supplemental ad flier, Fresh & Easy is featuring whole chickens under its fairly new Buxton value-positioned fresh meats category store brand for 69-cents a pound, which is currently among the hottest promotional prices in California, Nevada and Arizona for the whole birds. Read our comparitive analysis of one of Tesco Fresh & Easy's ad fliers in an October 1, 2008 piece here: ['The Promotional Pundit:' Fresh & Easy Buzz Analyzes, Offers Suggestions and Grades Tesco Fresh & Easy's Bi-Weekly Advertising Flier.]

We also wrote the paragraph reprinted below in italics in the October 1 piece:

"We do suggest the grocery chain go from a fortnightly (one flier every two weeks) to a weekly ad flier. It's the norm in U.S. food and grocery retailing. Especially for those chains that aspire to the "big time." It also creates more excitement in the stores -- more in-an out deals, ect." [Historically the Fresh & Easy direct-mail paper fliers have come out every two -to- three weeks. The online versions every three weeks. Our comments about liking the flier design were about the original Fresh & Easy designed flier, before they changed it to the plain white paper version, which as we mentioned above has now been upscaled a bit, adding color, and getting better.]

Below, under the heading "Fresh & Easy Buzz Redux," we list a partial (there are many more stories on the topics in the Fresh & Easy Buzz archives), linked bibliography of stories offering analysis, arguments and suggestions put forward by Fresh & Easy Buzz regarding Tesco's need to move towards the value propostion with its positioning, merchandising, operations and marketing of Fresh & Easy Neighborhood Market USA.

Additionally, we include a few links in which we suggested in stories that Tesco's Fresh & Easy should include selective radio advertising in its marketing mix, and needs to offer better promotional price points in its advertising fliers, along with issuing those fliers on a much more frequent basis. Both, along with the overall value proposition, are elements which the grocery chain is now attempting to incorporate into its merchandising, marketing and operations.

>Fresh & Easy Buzz Redux: On the Fresh & Easy value propostion and value-oriented positioning imparitive. A sampling of past stories from Fresh & Easy Buzz:

February 21, 2008: A Look At Fresh & Easy @50 (Stores): An Analysis and Some Suggestions For Going Forward. [Click here to read.]

April 3, 2008: Our 'Fresh & Easy Stores' Lack A Sense of Place' Theory is Growing; Read What We and Others Are Saying Tesco Needs to Do With Fresh & Easy

June 8, 2008: Las Vegas Region Market Report: Signs of Recession in Usually Immune Las Vegas; Why Isn't Tesco's Fresh & Easy Touting its 'Value Proposition'?

June 18, 2008: Tesco's Fresh & Easy and it's 'Value Proposition:' We Asked, They Answered; Discussion, Deconstruction and Fresh & Easy Buzz Analysis

June 8, 2008: Arizona Region Market Report: First Signs of A Weakening Might Be Starting to Show in the 'White-Hot,' 'Super-Competitive' Arizona Market

March 29, 2008: Tesco's Fresh & Easy 'Taking a Pause' From New Store Openings: A Full Review In the Works

August 4, 2008: The Value Proposition: Whole Foods Market's New Focus on 'Value' Demonstrates the Importance of the Value Proposition Currently in U.S. Food Retailing

June 30, 2008: Southern California Region Market Report: The Coming 'Store Wars' in the High Desert Market; Kroger Co.'s Ralphs Lowers Prices, Ups Value Proposition

May 4, 2008: Aldi USA, the Fastest-Growing Small-Format Grocer in the U.S. Promotes Everything But the Kitchen Sink (and Maybe That's Next) In its Weekly Store Ads

November 24, 2008: A Single Bird in the Ad (Even Wrapped in Bacon and Sage) Does Not Make For A Good Thanksgiving Promotion For A Neighborhood Grocer For 'Everybody'

November 20, 2008: Analysis & Commentary: Fresh & Easy Neighborhood Market and Tesco's Lowered Expectations

November 12, 2008: Breaking News: Tesco's Fresh & Easy Considering Two Major Changes, One Physical the Other Design Oriented, to Increase Sales in its 100 Stores

November 16, 2008: November 16, 2008: Tesco Fresh & Easy CEO Tim Mason Says He's 'Deliriously Happy' With the Chain's Progress Thus Far; We Prefer Andy Grove's 'Only the Paranoid Survive'

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

October 1, 2008: 'The Promotional Pundit:' Fresh & Easy Buzz Analyzes, Offers Suggestions and Grades Tesco Fresh & Easy's Bi-Weekly Advertising Flyer

November 12, 2008: November 12, 2008: Analysis: Hard Times at Fresh & Easy - Northern California Expansion to Be Postponed or Shelved Do to Economy; But its Only a Symptom Not the Cause

December 15, 2008: Food & Grocery Retailing in the Recession: Wal-Mart CEO Describes Changes in Consumer Behavior-More Cheap Basics, More Cooking at Home; More Leftovers

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

January 30, 2009: Breaking Buzz: Tesco's Fresh & Easy Distributes its First Promotional E-Mail Alert Today; Has the Grocer Been Reading Fresh & Easy Buzz This Week?

[Click here for more related stories regarding the value proposition, needed pricing model, ect. for Tesco's Fresh & Easy Neighborhood Market.]

>Fresh & Easy Buzz Redux: Tesco's Fresh & Easy and radio advertising:

Linked below are a few pieces suggesting strongly that Tesco's Fresh & Easy should use selective radio advertising as part of its marketing-media mix, particualrly putting a focus on the value proposion. Note we first offered the selective radio advertising suggestion as part of our analysis of Tesco's Fresh & Easy over one year ago.

February 21, 2008: A Look At Fresh & Easy @50 (Stores): An Analysis and Some Suggestions For Going Forward. [Click here to read.]

April 1, 2008: Supermarket News' Fresh & Easy Cover Story: Industry Analysts and Others Agree With Our Multi-Month Argument That Fresh & Easy Stores Need Local Focus

April 17, 2008: Vegas Baby!: Tesco Announces Ten More Fresh & Easy Grocery Stores For The Las Vegas Metro Region; it's All About 'Critical Mass'

>Fresh & Easy Buzz Redux: On Tesco Fresh & Easy's need to promote deeper price discounts, create value, and issue more frequent advertising fliers and implement other promotional vehicles.

[Click here for a selection of stories/posts from Fresh & Easy Buzz on these related topics.]

Value isn't just discount prices

If you read through the Fresh & Easy Buzz archives, you will notice the concept of the value-proposition informs many of the analysis pieces we've written and published in the Blog, along with informing our merchandising, marketing and operations suggestions for Tesco's Fresh & Easy Neighborhood Market.

It is important to point out, as we always do, that value does not merely mean offering deep- discount prices on items. It is though a key part of the process, and one that is important, particularly right now from a price-impact basis.

Value proposition is a comprehensive strategy

Value is the offering of low, everyday prices as well as promotional prices. But that's just one tactic in the strategic value proposition strategic mix. Good promotional pricing is a tactic, the value proposition is the overall strategy that informs the various tactics, including good promotional pricing and discounting.

Value means creating a grocery chain in which consumers not only perceive that it's a solid place to shop for low-priced food and grocery items but also where they believe can obtain the best overall "value" for their food and grocery shopping dollars.

Among other criteria, achieving value means offering the best price-to-value (quality) formula in the market. For example, cheap chickens only offer value if they are of a certain level of quality -- the price/value ratio. Safeway last week offered Foster Farms brand whole chickens for 77-cents a pound. Fresh & Easy offered its value store brand whole birds at 69-cents a pound last week and this week. Consumers will determine the price-to-value-ratio in that eight cent per-pound difference. The market is wonderful in that regard.

Also, great prices like Fresh & Easy's $9.99 per-dozen bunches of long-stemmed red roses for Valentine's Day last month are only good if a retailer is able to maintain a decent in-stock level on the product. It's OK to run out of the red roses on the holiday. But many if not most Fresh & Easy stores ran out of the $9.99 a dozen red roses pretty much everyday at noon beginning the very first day of the promotion, according to reports we received from a number of store-level employees and customers. (At that price people weren't just going to buy them for Valentine's Day, after all.) Read the comments in the comments section as well here: [The Valentine's Day (Retail Promotional Price) War of the (Dozen Long-Stemmed) Red Roses: And the Winner Is... Tesco's Fresh & Easy.]

A simple solution to this chronic out-of-stock problem would have been to only offer the $9.99 dozen long-stemmed red roses deal on the Friday before, and on Valentine's Day, which was on a Saturday. That also would have added store foot traffic on those two specific days.

Tesco's Fresh & Easy has to be careful not to repeat such mistakes (it was a corporate buying problem) because such chronic out-of-stocks actually take away from the value proposition despite the item pricing being so hot. What value is it to a shopper if they are unable to buy the $9.99 roses even three days before Valentine's Day after two trips to their local Fresh & Easy store in an attempt to do so? The answer: zero value.

There is a need for better coordination and communication between corporate merchandising and the stores at Fresh & Easy -- particularly from headquarters in listening to the store-level employees. For example, we know many store managers were telling headquarters to load up on the $9.99 red rose bunches because sales were going to be massive. But it didn't happen. The result: numerous unhappy shoppers. Value lost.

Towards the value proposition and value-based positioning?

We see Tesco's Fresh & Easy moving closer to the value-based positioning we started suggesting it needed to do a year ago with its "dollar sections" in the stores, value-priced produce and meat packs, beginnings of more frequent item promotions and more advertising fliers and use of other media like radio and the Internet. It's our analysis that each of these introductions has been a positive one for Fresh & Easy. And we like the 98-cent value produce packs and the $1 sections in the stores, for example, from the perspective of building that value postion.

But the grocer needs to do much more. And most important, it needs to create take all of these tactics and combine them in that overall value proposition in its merchandising, marketing and operations, and integrate them -- value as the hub, all else as the spokes.

We are seeing a movement in the right direction though in terms of the increased focus on the value proposition by Tesco Fresh & Easy.

And over the last 3-4 weeks we've seen a difference in the customer counts at a number of Fresh & Easy stores we've monitored over many months, as well as having received reports from regular Fresh & Easy Buzz correspondents in California, Nevada and Arizona that they have in some cases been seeing the same thing in the specific stores they monitor for the Blog.

We will be covering where this beginning goes, as always, in Fresh & Easy Buzz.

Fresh & Easy Buzz Analysis: Tesco Plans to Open At Least 30 New Fresh & Easy Stores Over Next 90 Days Beginning On July 2

Tesco plans to open between 30 -to- 37 new Fresh & Easy Neighborhood Market grocery stores over a 90-day period beginning on July 2 when it opens its first new store, in Manhattan Beach, California (pictured above), since taking a three month new store opening pause which began in Early April, Fresh & Easy Buzz estimates based on information the retailer published in this press release yesterday.

[Click on the title link to read our June 6 report and photo essay, "Manhattan Beach First Look: Fresh & Easy Buzz Has First Photos of First New Fresh & Easy Grocery Store Set to Open After the Three Month Pause."]

Tesco currently has 61 of its small-format (10,000 -to- 13,000 square foot) combination basic grocery and fresh foods grocery markets open in Southern California, the Phoenix, Arizona Metropolitan region, and in the Las Vegas, Nevada Metropolitan market area.

In the press release, Tesco announced it will hire an additional 750 new employees over the next 90 days for the new Fresh & Easy Neighborhood Market stores it plans to open during this time period. Most of those new employees will be at store-level.

Additionally, in the press release, Tesco says it employs an average of 25 workers per store.

[Note: In all its previous press releases, Tesco's Fresh & Easy Neighborhood Market has said it employs and average of 20 workers per-store. We assume the average is 20 -to- 25, and the retailer has decided to use 25 rather than 20 now. If not, it would then appear Fresh & Easy Neighborhood Market has either revised the average, or has recently increased the number of employees it has on a per-store basis. You will see below why we mention this. It's not to knit-pick.]

Based on this data in the press release--hiring 750 employees over the next 90 days; the majority of which we know to be store-level hires from our sources--it's a good estimation that Tesco will be opening about 30 -to- 37 new Fresh & Easy stores beginning on July 2 and for the 90-day period following that.

Here's the math: 25 employees per-store on average; hiring 750 new employees over the next 90 days; equals 30 new stores during that three month period. At 20 employees average per-store, it works out to about 37 new stores. Therefore, we estimate Tesco will open between 30 -to- 37 new Fresh & Easy grocery stores over the next 90-days beginning on July 2.

This data confirms what Fresh & Easy Buzz has been reporting since we were one of the first publications to report on March 29 in this piece, "Tesco's Fresh & Easy 'Taking a Pause' From New Store Openings: A Full Review In the Works," that Tesco's Fresh & Easy Neighborhood Market USA was taking a three month new store opening pause from early April until the end of June.

What we've been reporting since then is that beginning in early July, Tesco would resume its rapid new store opening pace with Fresh & Easy at roughly the same frenetic clip it's been opening the stores at since November, 2007, which has been the opening of a new Fresh & Easy grocery store about every two and one-half -to- three days.

Numerous publications have written during the current three month new store opening pause that it was likely Tesco would open fewer stores once the break ended. However, Fresh & Easy Buzz has stated all along that would not be the case.

Rather, we've said, as the data from yesterday's press release and our analysis indicates, Tesco would start its rapid-fire new store opening machine back up once the three month pause ended and resume opening new Fresh & Easy stores once again on the average of about one new store every two and one-half -to- three days, which opening 30 -to- 37 new stores over the next 90 days in fact equates to. I other words, the pipeline is full and ready to be opened.

With a current store count of 61 Fresh & Easy stores, opening about 30 -to- 37 new stores over the next three months will give Tesco 91 or slightly more Fresh & Easy stores by early fall, 2008, with about three more months to go in the year still remaining to open more.

Initially, Tesco said it planned to have 200 Fresh & Easy stores open and operating in the Western USA by the end of 2008. Earlier this year the company revised that number downward, saying it would have more like 150 stores opened by the end of 2008.

In large part, Tesco revised that number down from 200 to 150 stores because initially it planned to start opening the nearly 50 Fresh & Easy stores Fresh & Easy Buzz has identified thus far that will open in the new markets of Bakersfield, Fresno, the Sacramento Metropolitan region and the San Francisco Bay Area, this year. However, the retailer has said those stores won't start opening until early 2009.

Tesco has confirmed 19 stores in the Sacramento region and 18 stores in the Bay Area. Fresh & Easy Buzz has reported on five stores to open in Bakersfield and five in Fresno, as well as three new stores (in addition to the 18 already confirmed) we've discovered in the Bay Area: two in the city of Vallejo and one in the city of Pacifica.

Even if Tesco has 100 Fresh & Easy stores open by say October 1, that would still leave 50 new stores to be opened between October 1 and December 31, in order to achieve the 150 stores open by the end of 2008 estimate.

In our analysis that's not likely to happen for a couple reasons.

First, it would mean opening a new store nearly every day, which we don't think Fresh & Easy plans to do; one every three days is hectic enough.

Second, October -to- December is the holiday shopping season--Thanksgiving and Christmas--which is the busiest time of the year in food and grocery retailing, making it difficult if not near- impossible to open that many, or close to that many, stores during the season.

We do believe it possible Tesco could open an additional 30 new stores during those remaining months of 2008 however, which would give the retailer in the neighborhood of 130 stores opened by the end of the year, which is close enough to 150 for even the most ambitious food retailer or pickiest analyst.

As we've mentioned numerous times on Fresh & Easy Buzz (which includes on its team more than one U.S. food retailing historian), we can't recall another grocery retailer in modern food retailing history that's embarked on as rapid of a new store opening blitz as Tesco has with its Fresh & Easy Neighborhood Market USA venture, especially in a concentrated market region like the Western U.S. In fact, in only three Western USA states--California, Arizona and Nevada thus far--for that matter, limiting the geographic region even more.

Of course, doing so is key to Tesco's Fresh & Easy retail marketing and positioning strategy for the small-format Fresh & Easy grocery stores. It's what we call a "critical mass" store opening and location strategy: opening up as many stores within two miles or so of each other in selected markets as fast as possible with the goal of becoming in a sense the de facto neighborhood grocer in those cities and neighborhoods.

The question is: Has the three month new store opening pause given Tesco's Fresh & Easy Neighborhood Market enough time to improve and optimize its marketing, merchandising and operations in its stores so as to better compete for primary shoppers along with creating the means to generate needed new consumer trial?

Our analysis is no it hasn't. However, Tesco is viewing Fresh & Easy as a work in progress. Therefore "getting it right" right now isn't as important as getting more stores open "right now" is for the retailer. Remember, "critical mass" is crucial to Fresh & Easy's overall strategy.

Of course so are sales, margins and profits, as they must be to any food retailing chain. But the logic within Tesco in the main is those will come later.

Also what will have to come later in our analysis is a re-evaluation of many of the Fresh & Easy Neighborhood Market store locations in all three current market regions--Southern California, Las Vegas and Phoenix, Arizona Metro market.

Most of these Fresh & Easy stores are located in retail store buildings formerly owned and operated by supermarket chains like Albertsons and Ralph's, and in former Rite Aid drug stores, as well as in various former big box retail stores of various retail types.

These various stores were closed by their respective retail operators for various reasons; among them being sales underperformance in the locations.

Fresh & Easy, being a different format than say the Albertsons and Ralphs stores could eventually perform well in these locations. Additionally, in those former non food retailing locations, a food retailer might succeed where a non-food retailer failed. However, we know many cases in which Fresh & Easy stores in these locations aren't currently performing very well, particularly in the Las Vegas market, but in the other two markets as well.

That's not Tesco's primary concern at present however. Rather, "critical mass" is the focus, which is why starting once again on July 2, with the opening of the new Fresh & Easy grocery store in Manhattan Beach in Southern, California, followed by one new Fresh & Easy grocery market opening about every three days for the 90-days following that, Tesco will once again be on a Fresh & Easy Neighborhood Market new store opening tear.