Fresh & Easy Neighborhood Market Kicks Off 2011 With an Appeal to 'eatwell'

Private Brand Showcase

In August 2010 we reported that Tesco's Fresh & Easy Neighborhood Market had extended its 'eatwell' healthy foods private brand into the dry grocery category, from an initial launch of the brand in the fresh-prepared foods category earlier in the year, by creating a canned turkey chili item. [See - August 18, 2010: Fresh & Easy Neighborhood Market Extending 'eatwell' Healthy Foods' Private Brand Into Dry Grocery Category

We followed that exclusive report up a month later in early September with a story - September 10, 2010: Fresh & Easy Neighborhood Market Extending its 'eatwell' Healthy Foods' Brand Into Frozen Food Category - detailing how Tesco's Fresh & Easy planned to further extend the 'eatwell' brand into the frozen foods category. And in this piece a couple weeks later - September 27, 2010 - First Items in Fresh & Easy Neighborhood Market's 'eatwell' Brand Frozen Foods Line Arriving in Store Freezer Cases This Week - we documented our September 10 report.

Today, many months later, Tesco's Fresh & Easy Neighborhood Market is formally announcing and promoting the new 'eatwell' canned turkey chili and its "new" line of 'eatwell' frozen meals, in its "Friends of Fresh & Easy" e-mail newsletter, which you can view here. The e-mail promotional piece went out today to members of "Friends of Fresh & Easy."

In the promotional piece, pictured at top, Tesco's Fresh & Easy says: "We expanded our eatwell line to make eating better even better. So you'll now find more ready meals, salads, sandwiches, and soups, along with all-new items like snacks and frozen meals. Each eatwell item is made with 25% or less of the daily recommended value of calories, total and saturated fat, and sodium.* Best of all, they're just as affordable as they are delicious."

The frozen meals line and canned turkey chili in the promotional piece are the items Fresh & Easy Buzz reported on five months ago.

Some of the new 'eatwell' brand fresh-prepared foods items in today's 'Friends of Fresh & Easy" promotional piece were introduced late last year. However, most of the refrigerated ready-tp-eat and ready-to-heat items are brand new, being introduced for the first time this week. Fresh & Easy Buzz was the first publication to report on Fresh & Easy Neighborhood Market's plans to launch the 'eatwell' brand last year. [See - April 1, 2010: Tesco's Fresh & Easy to Launch New 'EatWell' Brand Lower-Sodium, Fewer-Calorie Prepared Foods Line and April 2, 2010: Fresh & Easy's New 'EatWell' Healthier Fresh, Prepared Foods Brand to Hit Stores on April 7.]

In our September 2010 stories about the extension of the 'eatwell' brand into the frozen foods category, we noted that Fresh & Easy Neighborhood Market planned to introduce additional fresh-prepared foods items under the healthy foods' brand in early 2011. The ready-to-eat and ready-to-heat items mentioned above are the first of those new items for the new year.

Fresh & Easy is also working on additional 'eatwell' brand items in the dry grocery and frozen foods category, according to our sources, including shelf-stable snacks and potentially condiments and dressings.

Additionally, the grocer is considering extending its 'eatwell' private brand into perishable foods other than ready-to-eat and ready-to-heat and frozen. Such items could include refrigerated dairy, salad dressing and similar items.

As we've noted in past stories, Fresh & Easy's brand strategy behind 'eatwell' is to make it a multi-category healthy foods' brand similar to what Safeway Stores has done with its 'Eating Right" brand, which Safeway uses across all product categories, including dry grocery, perishables, prepared foods/deli, produce and fresh meat.

Apparently, Fresh & Easy wasn't ready to announce or promote the 'eatwell' frozen food line last year - instead saving it perhaps for the beginning of the new year so it could use it as a "Healthy New Year" promotional hook, which is exactly what it's doing with the "Friends of Fresh & Easy' promotional mailer today. Additionally, as a heads up, look for many of the 'eatwell' healthy foods items to be in Fresh & Easy's new weekly advertising circular, the first one for 2011, which comes out tomorrow.

Readers of Fresh & Easy Buzz, didn't have to wait until now though, or until they visited a Fresh & Easy market, to learn about the 'eatwell' brand dry grocery and frozen category brand extensions because we reported the news, along with providing analysis and added information, in August and September of 2010. We call that "private brand intelligence."

[Private Brand Showcase is a regular feature of Fresh & Easy Buzz. In it we report on, write about and offer analysis and commentary on the fast-growing private or retailer brand (sometimes called private label) movement, along with featuring various private brand products being offered by Tesco's Fresh & Easy Neighborhood Market and other food and grocery retailers. This is our first 'Private Brand Showcase' piece for 2011. Below is a selection of 2010 stories.]

December 23, 2010: New Items Show Fresh & Easy Neighborhood Market's Niche-Specialty Category Private Brand Development Focus

December 21, 2010: New 'Marketside' Brand Fresh Food Items From Walmart - Part Deux

December 18, 2010: Walmart Launches New 'Marketside' Fresh Food Lines - Plus A 'Fresh' Campaign to Create Brand Buzz

December 13, 2010: House (Sparking) Cider Rules at Fresh & Easy Neighborhood Market

October 30, 2010: Raley's Launches New 'Raley's TO GO' Pre-Packaged, Refrigerated Fresh-Prepared Foods Line

October 16, 2010: Fresh & Easy Neighborhood Market 'Bags' the Humble and Nutritious Plantain For A New Snack Chip Item

October 16, 2010: Fresh & Easy Neighborhood Market's Private Brand Kids' Cereal Wins Bronze 'Pentaward' in 2010 Packaging Design Competition

October 9, 2010: 'Use Me': Should Reusable Packaging Be Part of Tesco's Sustainable Private Brand Offering? A Student-Designer Thinks So

September 27, 2010: First Items in Fresh & Easy Neighborhood Market's 'eatwell' Brand Frozen Foods Line Arriving in Store Freezer Cases This Week

September 4, 2010: Fresh & Easy Neighborhood Market Unveils New fresh&easy 'goodness' Brand Items and Packaging

August 29, 2010: Fresh & Easy Neighborhood Market Expanding its fresh&easy 'goodness' Co-Branded Line; Launching Numerous New Items

August 18, 2010: Fresh & Easy Neighborhood Market Extending 'eatwell' Healthy Foods' Private Brand Into Dry Grocery Category

July 21, 2010: 'Sipsational' & 'Quenchtastic': Safeway Introduces New 21-Flavor Line of Soft Drinks Under 'refreshe' Private Brand

July 17, 2010: New Fresh & Easy Neighborhood Market Clock-Shaped Private Brand Candy Line Hits the Shelves at Fresh & Easy

July 12, 2010: Tesco Launches Private Brand 'Lasagne Sandwich' in the UK Today...With No Apologies to The Earl of Sandwich

June 24, 2010: New Fresh & Easy Clock Logo-Shaped Candies Are A Pretty Sweet Idea

May 11, 2010: Tesco Might Want to Get 'fresh & naked' at 'fresh & easy'

April 2, 2010: Fresh & Easy's New 'EatWell' Healthier Fresh, Prepared Foods Brand to Hit Stores on April 7

April 11, 2010: When it Comes to Fresh, Prepared Foods, New York City's Duane Reade is Simply 'deLish' for Walgreens

February 22, 2010: Food, Drug Retailers With Stores in California, Nevada & Arizona Honored for Private Label-Store Brands' Excellence

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

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

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

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

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

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

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

The coupons and profit/loss

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

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

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

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

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

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

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

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

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

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

The coupons and margins

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

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

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

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

The coupons and Northern California

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

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

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

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

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

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

The coupons and breaking even

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

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

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

Related Stories

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

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

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

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

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

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

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

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

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

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

'Friends' Card Problems Make it Even More Difficult to Earn A Little 'Loyalty' at Fresh & Easy Neighborhood Market

Analysis & Commentary

On June 30 of this year we broke the news in this story [Tesco's Fresh & Easy Neighborhood Market Developing Loyalty Card Program it's Planning to Launch This Year] that Tesco's Fresh & Easy Neighborhood Market would be launching a customer loyalty-rewards program and card this year.

On July 18, 2011, the grocery chain confirmed our report in a press release, announcing its plans to test such a card in its seven stores in the Bakersfield, California region in October, with a chainwide roll out to follow before the end of the year.

Fresh & Easy "tested" its "Friends" loyalty-rewards card very briefly in the Bakersfield-area stores in early October, deciding to launch the card, which offers customers points they can then redeem for cash discounts in the stores, shortly thereafter, saying the brief test went so well they decided to take the card chainwide earlier than originally planned.

As part of our detailed June 30, 2011 story, we noted the comments below, which came from a source in a good position to speak about the loyalty/rewards program's development at Tesco's Fresh & Easy:

"In fact, one of our sources who's familiar with Fresh & Easy's loyalty program tells us, from the source's perspective, the program lacks expertise from a marketing, information technology and software delivery standpoint. And when it comes to loyalty programs, IT, software performance and marketing are about all that matters. Therefore, in the source's view, Fresh & Easy's loyalty program is far from ready for prime time." (Read the entire story for the full context of the paragraph above.)

Our source was, as they like to say across the pond ... "spot on."

Fresh & Easy Neighborhood Market's launching of the card has been plagued by problems, some of which we've tweeted about periodically on our Twitter feed since the October launch.

Since the launch last month, we've heard from numerous readers who've experienced various problems signing up for the card online, along with, in the case of those who didn't give up on the online sign-up process completely, having problems loading the digital points on the card, and for those who achieved that, then redeeming the cash reward points in-store.

We've also observed the problems first-hand in various Fresh & Easy stores we've visited, where we've talked to both customers and employees about the card's introduction and problems.

We also conducted an online sign-up process in-house here at Fresh & Easy Buzz to test it. The result: Numerous problems, most of which are described in this piece.

Fresh & Easy customers who've signed-up for the card in-store have reported a less painful process than those attempting to do so online, based on our reporting.

We haven't written about the problems with Fresh & Easy's loyalty card - the first heads up which was given in our June 30 story - in the blog until now for two reasons - (1) we haven't had a chance to yet (it's been a busy month), and (2) we wanted to give the grocer a decent period of time to fix the problems, which are at their most basic and most immediate technological, but also are systemic with the loyalty card scheme itself, in our analysis.

That systemic aspect has at its heart two things: The rewards points are just too low from a relative perspective, and the entire card scheme is way to complicated. Both can be fixed - and should be soon.

Nancy Luna, a writer-blogger for the Orange County Register newspaper in Southern California has been hearing similar complaints from her readers, along with experiencing the technological and related problems with the "Friends" card directly.

She wrote about her own experiences with the card today (see here). In her piece Luna also offers a number of comments from readers about their experiences signing up for and using the "Friends" card.

For her story, Fresh & Easy Neighborhood Market's corporate spokesman tells the writer that the main problem with the loyalty card has been a faulty magnetic strip on the back of the physical card, which he says the grocer is fixing with the next batch of plastic cards it orders.

But the problems we've identified since the October launch go far beyond just the magnetic strip on the plastic card.

Those problems include: difficulty with the online sign-up (Fresh & Easy's twitter feed has been filled with customer requests for assistance with this process since the card was launched in October, for example), not getting proper discounts in-store and a number of others, many of which are the same complaints voiced by Ms. Luna's readers in her piece today and communicated to use by readers of Fresh & Easy Buzz and others.

Tip: One reader told us he's solved the magnetic-strip problem by using the scanner-price gun at the checkout stand to read his "Friends" card because the card reader won't read it when it's swiped.

Fresh & Easy's loyalty-rewards card was developed in-house and by its Dunnhumby firm in the United Kingdom, which it now owns 100% of. Dunnhumby has an office in the U.S., in Ohio, but could not develop the card for Fresh & Easy because the U.S. branch has an exclusive loyalty card program deal with Kroger Co., as we noted in our June 30 story.

It's clear our source was correct in June when he said the technology behind Fresh & Easy's loyalty card was not ready for prime time, evidenced by the numerous problems consumers are having signing up for it and using it in the stores.

We should say the rank-and-file employees at Tesco's Fresh & Easy - from the people answering the many complaints and questions on Twitter to the workers in the stores - have been working hard and doing their best to fix the problems and make the card work for customers.

But we should also say: They shouldn't have to be using their time to do so. Senior management and CEO Tim Mason should have made sure the card, the technology behind it, and the launch was "ready for prime time."

Why then did CEO Tim Mason decide to launch the "Friends" card chainwide in October?

He was made aware of the potential technological problems, our sources say, including the one who gave the heads up in June. And, of course, the caution was right there in our June 30 story, for all to see. The blog does get a number of daily hits from the El Segundo, California USA zip code.

We can't answer that question fully, although a prime motivator behind the card is the hope among senior management that it will allow Fresh & Easy to stop issuing its deep-discount store coupons on a chronic basis.

That hasn't been the case so far this month however. The grocer has issued online coupons good for $10-off purchases of $50 or more coupons via its "Friends" e-mail program four times this month. The first one coming out November 2, followed by another voucher on November 9, a $10-off-$50 coupon on November 16, and another of the same value today. Fresh & Easy has also distributed the coupons in its paper-version advertising circulars this month.

But specific motivations aside, this isn't the first time Fresh & Easy has launched a program it wasn't ready to handle, although this is the first major instance of doing so in a big way in the Philip Clarke era.

Clarke replaced Terry Leahy as CEO of United Kingdom-based Tesco in March of this year. Fresh & Easy Neighborhood Market was Leahy's baby, and was launched in the U.S. in 2006, the first stores opening in November 2007. There are currently 184 Fresh & Easy markets in California (135 stores), Nevada (21 units) and Arizona (28 stores).

Since becoming CEO of parent company Tesco, Clarke has taken a very hands-on approach with Fresh & Easy, which in his previous positions as head of corporate IT and chief of European and Asian retail operations at the United Kingdom-based retailer he had virtually no involvement with from 2006-2010.

For example, Clarke visits Fresh & Easy's corporate headquarters in El Segundo, California and the distribution campus in Riverside County near-monthly, along with visiting stores regularly when he's in Southern California. Three of his regular stops, for example, are the Fresh & Easy markets in Manhattan Beach, Burbank and Whittier, where he talks with employees regularly.

Clarke has also initiated numerous changes at Fresh & Easy, the in-store bakeries and coffee bars being installed in about 100 of the 184 stores being two of the most significant, since becoming CEO of Tesco in March.

The loyalty card is also something he promoted, as it takes as its inspiration Tesco's ClubCard, which has proven to be very successful for the retailer in the UK. Leahy, Clarke and Mason are all big fans of the Tesco card.

But the Fresh & Easy "Friends" card is a card of a different matter - it's a different type of loyalty card (100% rewards) for a different type of grocery chain (small-format only; Tesco operates multiple formats in the UK) that's located in another country (the U.S. and not the UK.)

The "Friends" card program problems we describe and those described in the Orange County Register story have existed since the first day of the chainwide launch in October. Whatever test there was in Bakersfield obviously didn't serve any real purpose. Tests are supposed to spot such technological problems, after all.

We've talked to a number customers who like the card despite the problems - although most tell us they feel it's too complicated a scheme, and that the points aren't high enough relative to purchase amounts to make the savings significant.

For example, it takes 500 points to equal a $5 discount.

We don't think this is a particularly insignificant discount, based on our experience in the industry. However, Fresh & Easy shoppers are used to getting coupons from the grocer for $5 off purchases of $20 or more, so their frame of reference regarding it taking 500 points, which requires a shopper to spend $100 to obtain, is based on the coupon value they've been getting regularly for years in the "friends of Fresh&easy" e-mail-based program, which the loyalty card is now the central aspect of. From that perspective, we understand why many customers feel requiring 500 points to get a $5 cash discount is too low in terms of the spend-to-points ratio.

Fresh & Easy has heard this complaint from customers because it's now offering two-times the regular point value on the card between now and the end of the holidays. However, come January 1 the grocery chain is going to have to figure out what to do about the point value, because it is something many shoppers are not happy with.

Additionally, the more points Fresh & Easy offers on the card, the more discounts it gives out. Those discounts to customers don't come out of thin air or from the Tesco Santa Claus. Instead, the discounts come out of Fresh & Easy's gross margins.

For example, Fresh & Easy is offering Jenni-O frozen turkeys for 39-cents pound, which is already at or below the grocer's cost. Last week they gave 500 bonus points to "Friends" card holders who bought one of the birds, which is a $5 cash discount that can be redeemed in-store.

But Fresh & Easy also issued a $10-off $50 store coupon the same week, which can be used to turn a $50 purchase, which might include a frozen Jennie-O turkey or two, into a $40 purchase.

The point: All these discounts come out of margin, which at Fresh & Easy must be raised demonstrably from its current negative 30%-plus level (trading margin) in order for Tesco to meet its objective of breaking even with the chain by February 2013, the goal CEO Clarke has set. Heavy discounting like that described above makes achieving that extremely difficult.

These technological problems with the "Friends" card can be fixed, although its late November and they haven't all been fixed yet. But damage has already been done.

In terms of the overall loyalty/rewards card scheme, simple and significant are two key variables for any successful program. Therefore, Fresh & Easy must make its program more simple overall and make the points system more significant to shoppers, if it wants the card to do what it hopes it will do. And it needs to do that soon.

Meanwhile, as we were the first to report in this story on November 10 [Chief Marketing Officer Uwins Out in Top-Level Reshuffling at Tesco's Fresh & Easy Neighborhood Market], Simon Uwins, who was Fresh & Easy's cheif marketing officer and had ultimate responsibility for the launch of the loyalty card program, has left the grocery chain.

Responsibility for the loyalty scheme now falls to John Burry, who has taken on the marketing responsibility at Fresh & Easy, along with keeping his previous responsibility as the grocer's chief commercial officer (head of buying and merchandising). His new title is chief customer officer.

Burry, who had a very full plate already - the center of which features a heaping serving of gross margin improvement as job one - must now make room on that plate for fixing the loyalty card program, which was Uwins' ultimate responsibility before he left two weeks ago.

We will offer some detailed analysis on the loyalty card program at Fresh & Easy in an upcoming story.

But for now the difficulties couldn't come at a worse time for the chain. The October-December holiday sales period is a key selling season for all grocery chains, and particularly for Fresh & Easy because it needs to hit sales goals that have been set relatively high for the period.

Fresh & Easy's employees need to be focused 100% on merchandising and in-store customer service for the Thanksgiving and Christmas period, which are the top two sales holidays in the grocery business in the U.S., rather than having to spend valuable time dealing with technological problems related to what was too early of a chainwide roll-out of its loyalty card, which is something the source in our June, 2011 story made clear for all to read - offering it as an intentional heads up.

Related Stories

November 18, 2011: Fresh & Easy Neighborhood Market Combining Big Seasonal Foods Assortment With Promos and Discounts to Lure Holiday Shoppers

July 17, 2011: Send in the Clowns: Did You Hear the One About Fresh & Easy Neighborhood Market Launching A Customer Loyalty Program?

June 30, 2011: Tesco's Fresh & Easy Neighborhood Market Developing Loyalty Card Program it's Planning to Launch This Year

February 2, 2010: Dunnhumby; Trial Balloons By Media; and Fresh & Easy's Loyalty Card Marketing Trap

December 8, 2009: Analysis: Why A Loyalty Club Card Program Makes Zero-Sense For Tesco's Fresh & Easy USA.

Fresh & Easy Buzz Redux: Tesco's Fresh & Easy Says 45,000 Consumers Sign-Up For its E-Mail Alert Program; We Suggested Such A Program 11 Months Ago

Promotional Merchandising: Online Marketing & Promotions

In this piece [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] way back on May 4, 2008 Fresh & Easy Buzz said Tesco's Fresh & Easy Neighborhood Market was missing the promotional merchandising boat by not having an e-mail alert program similar to what small-format, hard-discount chain Aldi USA has had for a considerable amount of time -- and uses well. (Numerous other grocery chains, including Safeway Stores, Inc. also use e-mail alerts, particularly to distribute their weekly advertising circulars directly each week to consumers' e-mail boxes.

Below (in italics) is a paragraph from our May 4, 2008 story:

"Additionally, although we searched for it, we can't seem to find a function on the Fresh & Easy website in which a customer or potential customer can put in their email address and receive the online advertising circular in their email box like one can with Aldi. Adding this function is cheap to do, and Fresh & Easy is missing the boat by not having such a simple yet powerful tool on its website. [If there is such a feature, and we missed it, it means it's hard to find because we searched all over the site for it.]"

[Related reading: September 26, 2008: Tesco's Fresh & Easy Neighborhood Market Experiments With A $1-Off Online Discount Coupon; But its Paper Coupons Offer More Than Twice the Value.]

On December 22, 2008, Fresh & Easy Buzz was the first publication to report that Tesco's Fresh & Easy had launched just such an e-mail alert system or program. [ Read the piece here: Marketing: Tesco's Fresh & Easy Launches E-Mail Promo Alert Program; Something Fresh & Easy Buzz First Suggested it Do Many Months Ago.]

We believe we were the first to report on the development since (1) we can find no reports from other publications before our December 22 piece (there is one the very next day though), and (2) Tesco's Fresh & Easy sent out a press release on the e-mail alert program a few weeks after we reported on it, and then numerous other publications ran stories on the development.

As a follow up, in this piece [Breaking Buzz: Tesco's Fresh & Easy Distributes its First Promotional E-Mail Alert Today; Has the Grocer Been Reading Fresh & Easy Buzz This Week?] on January 30, 2009, we reported that Fresh & Easy had distributed it's first e-mail alert since creating the program in December, 2008.

A Tesco Fresh & Easy e-mail alert announcement

Last week (on March 10) Tesco's Fresh & Easy Neighborhood Market distributed a press release announcing it has signed-up 45,000 consumers to its e-mail alert program since it was launched in December, 2008.

Below we reprint the March 10, 2009 press release (in italics):

Fresh & Easy Email Program Attracts More Than 45,000 Customers in Less Than Three Months
Customers sign up as 'friends of fresh&easy' to receive news and exclusive promotions

EL SEGUNDO, Calif., March 10 /PRNewswire/ -- In December, Fresh & Easy Neighborhood Market launched "friends of fresh&easy," an email program aimed at keeping customers informed with the company's latest news as well as exclusive offers and special deals. More than 45,000 customers have registered to receive emails since the program launched less than 3 months ago.

The "friends of fresh&easy" program was launched as a response to customer feedback. The company started an online survey last year to better understand how visitors were using the Fresh & Easy website (www.freshandeasy.com). One of the key takeaways from the survey was people are interested in receiving correspondence from the company via email. Starting in April, Fresh & Easy will further promote the campaign in stores through signage and handouts to encourage even more customers to sign up.

"More than 5,000 customers are currently signing up as 'friends of fresh&easy' each week," said Simon Uwins, Fresh & Easy's chief marketing officer. "This program is designed to give our customers news about Fresh & Easy as well as offer special promotions and exclusive offers. 'Friends of fresh&easy' has been well received by customers and is proving to be an exciting new promotional tool for us."

The most recent "friends of fresh&easy" email alerted customers to Fresh & Easy's Shop for Schools fundraising program, which is helping local schools raise money for what they need most. The email also included current product deals and an exclusive coupon.

In terms of our story 11 months ago suggesting why Tesco's Fresh & Easy was missing the boat by not having such an e-mail alert program and suggesting in the piece that it implement one, and the fact the grocery chain has now done so, we will just say...interesting.

It's also interesting that Fresh & Easy mentions that its last e-mail alert was about its "Shop for Schools" program. What it doesn't mention is, based on our tracking system, the "Shop for Schools" alert is only the second e-mail alert the grocery chain has sent to consumers' in-boxes since beginning the program in December, 2008. That sort of "alertness" isn't going to keep those 45,000 consumers who signed -up for the program very "alert" to what's happening at Fresh & Easy. [You can view Fresh & Easy's latest (and second since December, 2008) e-mail alert, which it sent on February 25, 2009, here.]

We were the first publication we can find that reported on Tesco Fresh & Easy's "Shop for Schools" program. We did so in this December 17, 2008 piece: Fresh & Easy Neighborhood Market Launches 'Shop for Schools' Fund-Raising Program to Aid Schools Near its Stores. [Related reading: January 23, 2009: Fresh & Charitable: Tesco's Fresh & Easy Extends Deadline For Schools to Register For School Fundraiser Program. February 9, 2009: Grocers & Community: 769 Schools in Southern California, Nevada and Arizona to Participate in Tesco Fresh & Easy's 'Shop For Schools' Program.]

As we suggested in our piece way back in May, 2008 -- that Fresh & Easy is missing the boat by not using an e-mail alert system to directly distribute it advertising flyer to the inboxes of consumers who sign-up -- the grocer continues to miss that boat since it hasn't been doing that despite the fact it says it's signed-up 45,000 consumers and the e-mail alert program is now three months old.

As we reported on March 11, 2009 in this story [Fresh & Easy Buzz Redux: Tesco's Fresh & Easy Changes its Promotional Advertising Flyer to 'Weekly;' Something We've Been Suggesting For About A Year], Tesco's Fresh & Easy has now changed its promotional merchandising-marketing policy and is offering a weekly advertising flyer.

This change to the weekly ad flyer format now offers Fresh & Easy the opportunity to distribute the digital version of its weekly advertising flyer to the 45,000 (and growing) consumers in its e-mail alert data base every week. The time to do so is now. Doing so right away is a "no-brainer." It's a logical tie-in. Good marketing and promotions is all about good integration, including media integration.

We really don't know if signing-up 45,000 consumers in a little over three months is an achievement or not. After all, there are about 30 million people in the three markets Tesco's Fresh & Easy Neighborhood market has its 116 stores in: Southern California, Metro Las Vegas, Nevada and the Phoenix, Arizona Metropolitan region. Viewing it that way, 45,000 consumers out of that population base isn't a huge number.

On the other hand, that's a mere population statistic. And the fact that thus far Fresh & Easy has only promoted the e-mail alert program via its Web site (and on MyPoints.com, as we've reported), as well as getting publicity via articles like those in Fresh & Easy Buzz and other publications that have written about the program, 45,000 consumers signing -up in the three month period sounds fairly good, from that perspective.

The grocery chain says in the March 11 press release that beginning in April is plans to promote the e-mail alert program using signage and other communications materials in its stores. It should then be interesting to see how many more consumers sign-up for the alerts once that in-store communications program starts. We would suspect it should add considerably to the current (and growing) 45,000.

But while the sign-ups are essential, getting consumers to read the alerts and not delete them is key. That's one reason why the weekly advertising flyer should be distributed via the e-mail alert program each week. Aldi, for example, distributes its weekly ad flyer every Sunday to its list of consumer e-mail addresses. Others, such as Safeway Stores, Kroger and Raley's (to name just three) do it on Monday nights or Tuesdays, when there weekly advertising circulars come out.

Grocery shoppers shop weekly ads. Knowing the weekly Fresh & Easy Neighborhood Market advertising flyer will arrive in the e-mail inbox each week will be something consumers see as a service from Fresh & Easy, just as it is from the many other grocers that distribute their weekly advertising circulars via e-mail. Shoppers compare these weekly ads right on line. Any grocery chain not offering the e-mail distribution option for the weekly ad flyer is at its own self-inflicted competitive disadvantage vis-a-vis- those food retailers that do so.

But in the final analysis it's good to know that it appears those consumers surveyed by Tesco's Fresh & Easy were on the same cognitive wave link that Fresh & Easy Buzz was on 11 months ago when we wrote that the grocery chain was missing the boat by not having such an e-mail alert system, and suggested they create and implement one. They have now done so.

Of course, the proof is in the use of such a system. Since December (there's only been two e-mail alerts that we and our trackers have collected), the grade for Tesco's Fresh & Easy with its e-mail alert program has been one of failing, if not non-use, in our analysis.

It appears Tesco's Fresh & Easy Neighborhood Market is now preparing to better use the e-mail alert system. We will watch closely with interest.

Tesco's Fresh & Easy Joins Kroger Co. in Holding Earth Month-Earth Day Reusable Bag Design Contest

"Imitation is the sincerest form of flattery."

The old saying above came to mind earlier today when we discovered Tesco's Fresh & Easy Neighborhood Market is launching a Design-A-Bag contest, beginning on April 19, and running until May 31.

The Design-A-Bag contest, which is timed to tie-in with Earth Month (April) and Earth Day(April 22), works this way: Shoppers design a reusable grocery shopping bag for Fresh & Easy as explained here. The chief criteria is the designer's own creativity. Participants then submit their reusable bag design to Tesco's Fresh & Easy by May 31, 2010.

Members of Fresh & Easy Neighborhood Market's "Friends of Fresh & Easy" e-mail group will vote on the finalists, which will be chosen by a panel of judges that's been selected by Fresh & Easy. There will be up to ten finalists, according to Fresh & Easy. The one receiving the most votes from the "Friends of Fresh & Easy" will bag the first place title.

The winning reusable bag will be offered for sale in all the Fresh & Easy stores.

Lastly (but far from least), the winning reusable bag designer will receive free groceries from Fresh & Easy for a year, in the form of $5,000 worth of the grocer's gift cards. The semi-finalists, those chosen by the judging panel but not named the winner by the "Friends of Fresh & Easy" folks, will each get a $100 Fresh & Easy neighborhood Market gift card.

[The full details of Fresh & Easy's bag design contest are here. Sign-up information is here.]

Now for the "imitation is the sincerest form of flattery" part.

Fresh & Easy Neighborhood Market competitor Kroger Co. - which operates the Ralphs and Food 4 Less chains in Southern and Central California; Fry's in Arizona; and Smith's Food & Drug in Nevada (the three states where Tesco has its Fresh & Easy stores) - has been conducting a shopper 'Design a Reusable Bag' contest for the last three years.

In fact, we wrote about Kroger Co.'s reusable bag design contest last year in Fresh & Easy Buzz. [Story link - May 1, 2010: Competitor News: Kroger Co. Launches Chainwide 'Design Your Own Bag' Contest Promotion; Invites Shoppers to Be 'Part of the Solution']

Kroger's 2010 contest began on April 12, and runs until May 21, at the chains listed above, along with all of its other U.S. banners

The retailer provides this section and complete template and tools on its website for consumers to use in designing their reusable shopping bags.

The winning reusable bag designer gets a $1,000 gift card. In addition, Kroger will sell the winning bag in its stores.

Along with the first place prize, Kroger Co. awards the top four bag design contest finalists a $250 Kroger gift card. Additionally, the five runners-up will receive a $100 Kroger gift card.

All contest participants receive a free electronic coupon for 99 cents, which they can use at any Kroger-owned store to obtain a free reusable shopping bag.

[Full information on how to participate in Kroger's reusable bag design contest is here.]

Tesco's Fresh & Easy has upped the first-place prize money on Kroger however - $5,000 from Fresh & Easy, compared to $1,000 offered by Kroger Co.

Fresh & Easy Buzz is a proponent of increased consumer usage of reusable shopping bags as a way to decrease the use of single-use plastic and paper grocery bags at retail.

Contests like Kroger's - and now Fresh & Easy's - serve to create greater awareness of the issue of single-use bags and their environmental negatives, and hopefully lead to higher shopper usage of reusable bags.

And when it comes to programs by grocers designed to reduce their respective carbon footprints and improve the environment, imitation is not only the sincerest form of flattery, it also can have power in numbers.

Pictured above is the first-place winning design in Kroger's 2009 bag design contest. The bag was designed by Sherri N of Columbus, Ohio. Click here to view the first place bag, along with the four finalists and five runners-up in last year's contest

[Readers: Click here for a complete selection of posts on the reusable shopping bag topic and issue from Fresh & Easy Buzz.]

Analysis: Why A Loyalty Club Card Program Makes Zero-Sense For Tesco's Fresh & Easy USA

Yesterday (December 7) the Financial Times reported here that Tesco is planning to bring its successful loyalty card program from the United Kingdom (UK) to its Fresh & Easy Neighborhood Market chain in the Western U.S., siting as its source "A recent advertisement for a new marketing position at Fresh & Easy’s US headquarters in the Los Angeles area [which] lists '2010 planning for loyalty programme' amid the job responsibilities."

The position in question however has to do with Fresh & Easy's existing "Friends of Fresh & Easy" e-mail-based marketing program rather than the grocer having any immediate plans to import the successful loyalty club card scheme from the UK to Tesco's fledgling Fresh & Easy chain.

Fresh & Easy Buzz was surprised to read the Financial Times' report yesterday for two major reasons: First, according to our (good) sources, Tesco's Fresh & Easy has no such near-term plans to begin a loyalty card program like the very successful 'Tesco Clubcard' in the UK and, second, the intellectual and operational "brains" behind Tesco's UK loyalty card program, the firm Dunnhumby, is unable to administer such a program for Tesco Fresh & Easy USA because the firm is prohibited from doing so due to a contract it has in the U.S. with the Kroger Co. supermarket chain, even though Dunnhumby is majority-owned by Tesco.

This Financial Times' report apparently struck the editors and reporters at the supermarket industry trade publication Supermarket News as a surprise like it did us here at Fresh & Easy Buzz.

Today, Supermarket News' reporter Julie Gallagher reported in this story that, according to Fresh & Easy Neighborhood Market spokesman Roberto Munoz, Tesco has no current plans to start-up a loyalty card program at its Western USA-based chain of 130 Fresh & Easy small-format grocery and fresh foods markets located in California, Nevada and Arizona.

In the report, spokesman Munoz told Ms. Gallagher the job advertisement in question is for Fresh & Easy's e-mail-based "Friends of Fresh & Easy" marketing program, which it started earlier this year, and which Fresh & Easy Buzz suggested in concept the grocer create 11 months before that.

What Fresh & Easy Buzz does know is that the topic of importing the loyalty club card program from Tesco UK to the Fresh & Easy USA outpost has been a topic of discussion for a considerable amount of time between Tesco corporate brass in the UK and Tesco Fresh & Easy senior management at its Southern California headquarters.

For example, we were told as far back as 2007 and again in 2008 by a former Tesco Fresh & Easy headquarters employee who was in a position to know that discussions on importing the loyalty card program (or not) were held more than once by the grocery and fresh foods chain's senior management, as well as being discussed with members of Fresh & Easy's buying and merchandising team at the El Segundo, California headquarters.

The decision then, and now, has been to not institute a loyalty card program for Fresh & Easy. The two key reasons for not doing so being (1) the Dunnhumby-Kroger Co. dilemma and (2) the simple fact that it's been believed by the chain's senior management that it's far too soon in Fresh & Easy's development to consider a club card program because of not wanting to create any type of program that might perceptually or actually serve to restrict business, particularly the encouragement of much needed new shoppers to the stores. A grocer has to create loyalty before it rewards it after all.

Analysis

Our analysis here at Fresh & Easy Buzz is that it makes no sense at this point in time for Tesco's Fresh & Easy Neighborhood Market to get into the loyalty club card business for three key reasons:

1. Loyalty card programs tend to work best for large chains with significant market share such as Tesco in the UK and Safeway Stores, Inc. in the U.S. Fresh & Easy has little or no share of the market in its three key market regions: Southern California, Metropolitan Las Vegas, Nevada and Metro Phoenix, Arizona. A grocery chain needs a significant and strong customer base in order to make a loyalty card program work. Fresh & Easy has neither at this point in time. Therefore, adopting a loyalty card program makes little sense.

2. Fresh & Easy Neighborhood Market already has too many self-imposed retail operations' policies that serve to restrict potential shoppers. These include: not accepting manufacturers' cents-off coupons, paper personal checks and WIC Vouchers in any of its 130 stores. Having a 100% self-service checkout system also is a restriction to customers who prefer full-serve checkout or at least being offered the option of having it.

There's no reason at this point in its development for Fresh & Easy to self-impose an additional potential barrier to customer entry policy such as a club card, which would mean that only holders of such a card would get certain promotional offerings and price reductions.

3. Fresh & Easy has far more concerns at this point in time in terms of its operations, marketing and merchandising than the implementation of a loyalty card program. These concerns include: the need to draw more shoppers to its stores, increasing gross margins considerably and still having numerous underperforming stores, among others. Instituting a loyalty card program would in our analysis do nothing to help solve these serious problems. In fact we think instituting a loyalty card program would just distract the grocer from focusing on these and other big issues. It's our analysis that the biggest issue remains the viability of the Fresh & Easy format itself. The jury is still out on that question -- as is the answer.

Conclusion

Therefore, to those at Tesco and its Fresh & Easy chain, we suggest that not implementing any sort of a loyalty club card program at this point in time is the wise decision for the three key reasons we mention above, along with a few others.

The time is not right for such a program, and we don't see any benefits of doing so for Tesco's Fresh & Easy. There are many higher and more important priorities to be addressed, changes to be made, and programs to create and implement in order to achieve success for the chain.

Tesco's Fresh & Easy Neighborhood Market Developing Loyalty Card Program it's Planning to Launch This Year

Breaking News & Analysis

Tesco's El-Segundo, California-based Fresh & Easy Neighborhood Market is working on a loyalty card program it currently plans to implement in its stores later this year, Fresh & Easy Buzz has learned.

The loyalty program is still being worked on at Fresh & Easy. But it's in its mid-to-final stages of development, according to our sources.

Neither Tesco or its Fresh & Easy Neighborhood Market have publicly mentioned or announced anything about the loyalty program or planned implementation this year. We're the first publication to break the news about the plans.

Those plans currently call for Fresh & Easy's loyalty program to be handled in house, where it's being developed with some outside help, rather than being developed, implemented and administrated by Dunnhumby, the UK firm now fully-owned by Tesco, which developed and administrates Tesco's Clubcard in the UK.

Dunnhumby's U.S. office, which is in Cincinnati, Ohio, can't develop, implement and administrate the loyalty card program for Tesco's Fresh & Easy Neighborhood Market because of its long-term partnership agreement and contract with Kroger Co., who's loyalty card program was developed by Dunnhumby, which is why the firm's U.S. office is in Ohio where Kroger is headquartered

Dunnhumby works closely with Kroger Co. in implementing and administrating its loyalty program, along with creating new marketing programs featuring Kroger's loyalty cards. Kroger Co. is the second-largest  retailer of food and groceries in the U.S. Walmart Stores, Inc. is number one.

The Fresh & Easy loyalty program isn't a direct version of Tesco's popular UK Clubcard. This is the case for a couple reasons, according to our sources.

First, the Dunnhumby partnership and contract poses a problem in terms of using resources from the Tesco program for Fresh & Easy's loyalty card program. But of course Tesco owns Fresh & Easy, so it would be hard to fathom it's not borrowing from Clubcard to a certain degree for Fresh & Easy's loyalty program.

Second, Fresh & Easy has an information technology (IT) system of its own that isn't directly compatible with Tesco's in the UK. Therefore, the software for the loyalty program at Fresh & Easy has to be made to be compatible with its legacy IT system, which has been since day one and continues to be a source of numerous problems for Fresh & Easy Neighborhood Market.

Not being able to use Dunnhumby - although that doesn't mean Tesco CEO Philip Clarke, Tesco group deputy CEO and chief marketing officer Tim Mason, who's also CEO of Fresh & Easy Neighborhood Market, aren't asking questions of or getting informal assistance from certain people at Tesco-owned Dunnhumby - to develop, implement and administrate the loyalty program is a major drawback for Tesco and its Fresh & Easy chain because the firm founded by Anita Dunn and Clyde Humby, who sold out their shares in the company to Tesco and retired, is one of the best around at customer response marketing and loyalty programs.

In fact, one of our sources who's familiar with Fresh & Easy's loyalty program tells us, from the source's perspective, the program lacks expertise from a marketing, information technology and software delivery standpoint. And when it comes to loyalty programs, IT, software performance and marketing are about all that matters. Therefore, in the source's view, Fresh & Easy's loyalty program is far from ready for prime time.

Tesco considered developing and introducing a loyalty program at Fresh & Easy Neighborhood Market last year. But it decided against it for a variety of reasons.

Two key reasons it decided against it last year were because CEO Mason decided sales and sales growth at Fresh & Easy was not at a point where doing so was feasible, and because one of Fresh & Easy's key marketing propositions since 2008 has been its low prices without having to use a loyalty card positioning and slogan.

The latter of the two remains a problem from a marketing positioning and communications for Fresh & Easy in introducing a loyalty program, even though the chain has been down-playing that particular positioning element for the last year or so.

But the issue doesn't even have to come up publicly to be a problem. Rather, the inherent problem is that using the low prices without a loyalty card theme and then introducing a loyalty card has the potential to create confusion in the minds of consumers about Fresh & East, despite whatever marketing and public relations spin the chain puts on the 180-degree change.

Read what we wrote about a loyalty card at Tesco's Fresh & Easy in this 2010 piece - February 2, 2010: Dunnhumby; Trial Balloons By Media; and Fresh & Easy's Loyalty Card Marketing Trap. We also offered this analysis in 2009 - December 8, 2009: Analysis: Why A Loyalty Club Card Program Makes Zero-Sense For Tesco's Fresh & Easy USA.

Depending on the nature and quality of the loyalty program Tesco's Fresh & Easy implements this year, if it doesn't change its mind about doing so which it's done before, it might not pose a problem from a sales standpoint to do so now - particularly to the extent it would have in 2009 or even last year - although based on what we've learned from our sources it doesn't appear the loyalty program is ready for prime time.

But the devil is in the details. For example, we wouldn't suggest the loyalty card be required to get promotional deals on items offered in the grocer's weekly advertising circular or for in-store specials, as commonly is the case with grocer loyalty programs.

Why: Because at Fresh & Easy's limited stage of development, along with its struggles to grow sales, limiting such promotions to loyalty card members only is a prescription for reduced sales, in our analysis, which is something the grocery chain can hardly afford to do. Using the card in this way also has the potential to serve as a barrier to new shoppers trying Fresh& Easy, in our analysis.

Fresh & Easy Neighborhood Market CEO Mason and Tesco CEO Clarke at present intend the loyalty card program to be a replacement for the grocery chain's chronic use of its deep discount (20%-25% off) store coupons - the $5 of $20/$25, $6 of $30 and $10 off $50 versions particularly - which as we've written extensively about are a major contributor to Fresh & Easy's negative-38% margin, which it reported for its 2010/11 fiscal year, ended February 26, 2011.

That margin metric hasn't improved over the last four months. In order for Tesco to break-even with Fresh & Easy by the end of its 2012/13 fiscal year, which is just 20 months away, it must increase the El Segundo, California-based chain's margin significantly - and fast.

Tesco currently has 176 Fresh & Easy stores - which average about 10,000-12,000 square-feet and offer a limited assortment (about 5,000 SKUs) of fresh foods including: produce, meats, perishables, frozen and ready-to-eat and heat fresh-prepared foods, along with beer, wine (liquor in some stores) and packaged food, grocery and general merchandise items - in California (127 units), Arizona (28) and Nevada (21)

Replacing the discount coupons, which are also a major contributor to the 11% comparable-store-sales growth Tesco reported for Fresh & Easy in April for the 2010/11 fiscal year, is far easier thought about and said than actually done though.

Fresh & Easy Neighborhood Market has been using the coupons chronically since 2008. It tried eliminating them in 2009, as we've reported, but after a couple months sales dropped so significantly without the vouchers it started issuing them again at the same regular pace, something Fresh & Easy has continued to do right on up to today. Take them away, in our analysis, and that double-digit comparable-sales-growth drops significantly.

So far this year, for example, the grocer has had one or more of the 20%-25% off coupons in distribution at virtually all times, issuing a new coupon online about every three weeks (with dates good for about three weeks), along with including paper coupons in its direct mailed advertising circulars nearly every week, plus issuing special coupon books regularly, which contain one month's worth (usually four) of coupons.

Fresh & Easy includes the online coupon in its quasi-loyalty "friends of fresh&easy" e-mail-based promotional program. Theoretically at least, the coupons are therefore only supposed to go to consumers who are signed up for the program.

But that's not the case because every time Fresh & Easy distributes a new coupon via "friends of fresh&easy," numerous Coupon Maven and Mommy Bloggers post the vouchers on their sites, where the discount coupons are available for download by anyone. Google "Fresh & Easy Coupon" and you will see what we're talking about. People also post the coupons on Twitter, Facebook and other social media sites. All that's required to obtain them is knowledge of how to use Internet, or knowing someone who does.

The store coupons serve a "pull" function for Fresh & Easy Neighborhood Market though, in which in addition to encouraging people to return to the stores and shop (by getting more coupons), they also are designed (at least in theory) to draw or "pull" new customer into the stores, which is something that's essential for Fresh & Easy a this stage in the game.

The coupons are designed to do this in an immediate - nothing to join; just clip a coupon and come on in and shop - and regular way; and to do it fast. In contrast loyalty programs take a long time to develop and aren't the best vehicle for "pulling" shoppers into grocery stores until hundreds of thousands of consumers join the retailer's loyalty program.

This is a factor Tesco and Fresh & Easy better think deeply about as they go forward with the loyalty program. They have to eliminate or only use the deep discount coupons promotionally, say once per quarter instead of all the time, in order to improve margins.

But we doubt if a loyalty card program will address or solve the coupon issue directly for Fresh & Easy. And its hard to believe the program we've learned about from our sources is something Tesco wants to unleash on the Fresh & Easy stores soon.

Bag Designed in Vegas Won't Stay Only in Vegas: Tonya Jacobsen Wins Fresh & Easy Neighborhood Market's Design-A-Bag Contest

Contest winner Tanya Jacobsen [Photo credit: Fresh & Easy Neighborhood Market.]

The 'Art' of (and in) Food and Grocery Retailing
News/Analysis/Commentary

Tesco's Fresh & Easy Neighborhood Market today announced that Tonya Jacobsen of Las Vegas is the first place winner of the 176-store fresh food and grocery chain's 2011 reusable shopping bag design contest.

In addition to taking home first place honors, the Las Vegas resident will also have all or most of her food and grocery purchases at Fresh & Easy for the rest of the year paid for because she received $5,000 worth of store gift cards from the grocer for her winning bag design.

Fresh fruit theme, vibrant colors

Jacobsen's fresh fruit-themed design was chosen as first place in Fresh & Easy's recently-ended Design-a-Bag contest by members of the grocery chain's "friends of fresh & easy" e-mail-based marketing and quasi-loyalty program, who voted on ten finalist designs out of 800 submissions, from June 27-to-July 10. The contest was launched on April 5 of this year.

Fresh & Easy Neighborhood Market says 30,000 members of "friends of fresh & easy" voted in the contest. The e-mail-based program has about 350,000 members, according to the grocer.

Jacobsen, who says she's originally from Idaho and moved to Vegas three years ago, and who paints as an avocation - which is evident in the vibrant use of colors featured in her painted design - said about hearing she won first place in the contest, "I wanted my design to be bright and fun so it could capture the feeling I get when I visit my local store. It’s been a really great experience, and I thank everyone who supported my design."

She also expressed surprise in winning first place, saying about the win, "I was so surprised. I didn’t even tell anybody that I initially submitted it. I was stunned when I got the call that I was a finalist. Then to find out that I won was a huge shock. My boyfriend's family was going nuts. All of my family in Idaho was really excited for me too."

Bag designed in Vegas won't stay only in Vegas

Along with the personal pride of winning first place and the $5,000 prize, Jacobsen's design will be turned into a reusable shopping bag and sold in Fresh & Easy Neighborhood Market's stores in California (127 units), metropolitan Las Vegas, Nevada (21 units) and metro Phoenix, Arizona (28 units) beginning later this year.

Tesco's Fresh & Easy has been selling a reusable bag featuring last year's winning design by Josephine Close in its stores all year. The bag sells for 99-cents.

We like the Vegas resident's design, particularly because of its use of fresh fruits and vibrant colors. In fact, it was one of our three favorites in the contest.

Artwork in the stores

We think Tesco's Fresh & Easy Neighborhood Market, which has borrowed numerous operations and merchandising concepts from competitiors Trader Joe's and Whole Foods Market, should borrow another one from the two grocers and offer Tonya Jacobsen a full or part time job creating artwork for the Fresh & Easy stores, starting with the produce departments, which could use some brightening up, say starting with a few fresh fruit and vegetable-themed murals, which the fresh food and grocery chain can hang on the walls or display on easels - or both. Notice, for example, how her artwork brightens up the store in the photo at top.

Whole Foods Market, for example, employs full time artists in all its stores in New York City, while Trader Joe's has full time chalkboard artists in all its grocery markets in the U.S, who create the colorful chalkboard art and signage that's become an iconic part of the TJ's shopping experience. [See - June 21, 2011: The 'Art' in Food Retailing On the First Day of Summer at Whole Foods Market in New York City's Chelsea District.]

Having in-store artwork painted by a customer and the winner of the Design-A-Bag contest would also be a great story for the grocer to be able to tell: "Customer/painter/bag design contest winner creates fresh produce-inspired paintings for Fresh & Easy stores."

And Jacobsen doesn't have to be limited to the fresh produce theme either. Creativity and inspiration are two key elements of art. And there's more to the stores than produce.

For example, there could be prepared foods'-themed art, along with numerous other in-store and neighborhood-oriented themes, all based on what inspires the artist and store employees, all of which Fresh & Easy could use in the stores and rotate in-and-out periodically.

The artwork could be localized as well - Vegas themes in Las Vegas; urban themes in Los Angeles and San Francisco; agricultural themes in Fresno and Bakersfield in California's Central Valley; and so on.

As an example, we would turn the already completed design pictured at the top here, which is from one of the ten contest finalists, Janeil Lim of Los Angeles, into a mural and use it in Fresh & Easy stores in neighborhoods which have a high degree of ethnic diversity, such as south Los Angeles and others.

Fresh & Easy Neighborhood Market could start this art-in-the-stores process by simply turning Jacobsen's colorful fresh fruit-themed bag design painting (pictured above) into a large wall mural.

We would start by putting a mural on the wall in the produce section, or on an easel there, in each of the 21 Las Vegas metropolitan area Fresh & Easy grocery markets, say about a week before her bag debut for sale in all 176 stores. In-store artwork by a Las Vegas resident, a nice local angle.

Food and grocery retailing-merchandising is an art.

And a great way to enhance that art is with some real artwork in-store. Therefore since, as we were the first publication to report, Tesco is in the process of making numerous changes inside its Fresh & Easy stores, the timing is perfect for some in-store art, the cost of which would be significanty less than most of the major changes we've reported the grocer is making to the stores. (See the linked stories at the bottom of this piece.)

After all, sometimes it's much smarter for a grocer to pick the low hanging fruit first. And often it's starring you right in the eyes.

Related Stories

June 27, 2011: Voting Starts in Fresh & Easy Neighborhood Market's 2011 'Design-A-Bag' Contest

April 4, 2011: Fresh & Easy Neighborhood Market to Launch Reusable Bag Design Contest Tomorrow

January 19, 2011: Customer-Designed Reusable Shopping Bag Now On Sale At Fresh & Easy Neighborhood Market Stores

July 27, 2010: The Winner of Fresh & Easy Neighborhood Market's Reusable Bag Design Contest Is...

June 17, 2010: Fresh & Easy Neighborhood Market Picks Eight Finalists in its Reusable Bag Design Contest; Website Voting Through June 30

April 19, 2010: Tesco's Fresh & Easy Joins Kroger Co. in Holding Earth Month-Earth Day Reusable Bag Design Contest

Also: Click here for a complete selection of stories fom Fresh & Easy Buzz on the reusable shopping bag topic and issue.

Changes at Tesco's Fresh & Easy Neighborhood Market

June 30, 2011Tesco's Fresh & Easy Neighborhood Market Developing Loyalty Card Program it's Planning to Launch This Year

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

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

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