Mid-Week Tesco Fresh & Easy Roundup

Will Tesco's Fresh & Easy Open 100 Grocery Stores in The Phoenix, Arizona Region?

Adam Mayfield, the director of real estate for Tesco's Fresh & Easy Neighborhood Market, told a group of retail industry folks today at a conference held at the Phoenix Convention Center that the Phoenix, Arizona Metropolitan and East Valley region could support 100 small-format Fresh & Easy grocery stores rather easily.

Tesco opened its first Fresh & Easy grocery market in the region in early December, 2007. There currently are 19 of the small-format, convenience-oriented neighborhood grocery stores in the Phoenix Metro and Easy Valley region.

If Tesco does plan on opening 100 Fresh & Easy stores in the area, it would be considerably more than the retailer initially planned for the Phoenix region.

With all do respect, Mr. Mayfield's argument that the region could support 100 Fresh & Easy stores is...well, very arguable. Why?

First: Experienced grocers and analysts in the Phoenix area will tell you the region is already in danger of becoming overstored; some say it already is. In addition to Tesco's full-court blitz in the area with its Fresh & Easy markets, Wal-Mart has been opening numerous huge, 200,000 square foot supercenters, along with its 45,000 square foot neighborhood Market supermarkets in the region in just the last year. Wal-Mart also plans to open four or five of its brand new, small-format Marketside banner grocery stores in the area this summer.

Additionally, specialty grocer Trader Joe's is opening numerous new stores in the Phoenix region, as are natural foods grocers Sprouts Farmers Market and Sunflower Farmer's markets. Whole Foods Market, Inc. recently opened a huge, new supernatural foods store in the region and has another unit set to open before the end of the year.

On top of all this, region grocery market share leaders Safeway and Basha's are opening a number of new stores this year and next. In the case of Basha's, its also opening a new A.J.'s Fine Foods (it's upscale banner) specialty supermarket, in addition to Basha's banner stores in the Phoenix area.

Second: As we wrote here on March 11, Tesco's Fresh & Easy has now surpassed (it had 15 stores open on March 11; it has 19 open as of today in the region) a number of grocery chain's like Sprout's Farmer's Market's (14 stores), A.J's Fine Foods (14 stores), Wal-Mart Neighborhood Market (13 stores) and Trader Joe's (10 stores) in total store count in the Phoenix Metro and East Valley region.

Despite being number one among this group in store-count however, Fresh & Easy is last in terms of total grocery sales market share among the five mentioned. Even with nearly double the number of stores as Trader Joe's for example, TJ's still beats F&E out in market share.

Fresh & Easy is still new in the region (and new in general) so we give allowance for that. However, based on our sources and analysis as we've been reporting here regularly, we know the 60 Fresh & Easy stores open to date in Southern California, Arizona and Nevada are seriously under-performing, including the 19 Phoenix region grocery markets.

The empirical fact is that as of today, any objective analysis would have to say the Phoenix Metro and Easy Valley region is not supporting the 19 Fresh & Easy grocery stores currently operating there at present--let alone being able to support 100. As we said, we give allowance for the chain being in near start-up mode--but there are problems far beyond start-up ones, in our analysis.

As a result of this empirical fact, we can only conclude one of three things: Either Mr. Mayfield is a genius who has more tricks up his sleeve than the late Harry Hudini; or...Tesco has a huge October surprise which will cure the Fresh & Easy stores' sales under-performance in one fell swoop...or, there's just a bit of hubris still left on the podium at the Phoenix Convention Center from Mr. Mayfield's speech today.

We are having a little fun at Mr. Mayfield's expense...it's been a long day. And, we mean no disrespect to him. However, any close analysis of the Phoenix market, especially conducted by those of us with considerable experience in it, will tell you that 100 stores total--let alone 100 grocery stores from just one retail player like Fresh & Easy, will likely be more than the tipping point for the region being overstored, especially when you add in all the other new stores opening and planned from the region's grocery chains and independents.

While it's true that at an average 10,000 square feet the Fresh & Easy stores are designed to do about $200,000 per-store, per-wee--which means two or three Fresh & Easy grocery stores can count as one standard (45,000 -to- 60,000 square foot) supermarket in terms of doing a weekly gross sales comparison test--100 stores is still too many for the region (unless you want to close a bunch later on). This is especially true since there are obvious format flaws and serious marketing and merchandising problems with the current 60.

But...it's not our money; and as we write often, the format, operations and marketing problems can be fixed we think. But doing so first requires a recognition of the flaws, then taking a more focused, localized overall approach across the board, and then finally probably making some key personal changes, or at least additions.

More Fresh (& Easy) News...

An inconvenient truth at the corner store: As we reported here on March 10, Tesco plans to open five of its Fresh & Easy small-format grocery stores in the Bakersfield, California Metropolitan region beginning either at the end of this year or more like in early 2009. Bakersfield, which is located in Kern County, is a low-to-middle income city and region and often has one of the highest unemployment rates in California do in large part to its agricultural-based economy, all that is changing do to more service-sector jobs.

Kern County also has a higher percentage of convenience stores than the state of California does as a whole. A whopping 35% of the retail food outlets in Kern County are convenience stores, compared to 25% statewide, according to a 2007 report from the non-profit California Center for Public Health Advocacy group.

This high percentage of convenience stores, which generally don't sell the healthiest of foods such as fresh fruits and vegetables, poses some problems in terms of healthy food options for many people in the region who often shop the convenience stores regularly because they're the stores closest to where they live. The Bakersfield Californian, the region's main daily newspaper, has an article here in today's edition of the paper which discusses this issue and offers healthy eating options for convenience store format shoppers.

The Bakersfield Metro region does have numerous supermarkets. However, some of the more rural towns in the region are "food deserts." It's in these outlying smaller cities (and some Bakersfield city neighborhoods where there aren't many supermarket choices) in the main where we think Fresh & Easy stores have the best chance of succeeding in the region.

Bring Trader Joe's to Palm Springs...Please: On February 14 we wrote this piece in response to a report in the Palm Springs, California Desert Sun newspaper that a group of the city's residents had organized a petition drive and marketing campaign to get Trader Joe's to open one of its small-format specialty grocery stores in the Southern California desert city of about 75,000.

Tesco has a recently-opened small-format Fresh & Easy (F&E) grocery store in Palm Springs, along with an F&E grocery market right next door in Palm Desert.

The Palm Spring's community coalition's goal at the time we wrote the piece was to obtain 5,000 signatures on its petition from community residents by April 1. The group had 3,500 signatures when we wrote the piece (Feb. 14). Today's edition of the Desert Sun reports the coalition, called the Barristo Neighborhood Organization, has already obtained 6,000 signatures on its petition, 1,000 more than there April 1 goal.

The organization plans to formally present the petition to the Palm Springs city council at its meeting next week. The group also has the backing of the city's mayor. The city says it will in-turn present the petition to Trader Joe's executives at the specialty grocery chain's corporate headquarters in Monrovia, which also is in Southern California. In fact, a city spokeswoman says the mayor plans to bring up locating a Trader Joe's in Palm Springs to representatives of the specialty grocery chain at the Council of Shopping Centers convention in Las Vegas, Nevada in May.

This demand by city and neighborhood residents for a Trader Joe's store in their communities isn't unusual. For example, groups in Albany, New York, Nashville, Tennessee, West Covina, California, Frederick, Maryland and other U.S cities are currently conducting petition drives and public relations campaigns designed to get Trader Joe's to open a store in their respective cities. Talk about demand. If they built it, we will come.

Dave Carden, who is heading up the 'Bring Trader Joe's to Palm Springs' petition drive and campaign for the coalition, has issued a call to all 6,000 of the folks who signed the petition. Carden told them to show up at the next City Council meeting wearing Hawaiian-themed clothing, which is what Trader Joe's store employees wear, as a way to rally support for the cause.

Note to Fresh & Easy: In our February 14 piece, we suggested if "we were" a Tesco Fresh & Easy executive (which we are not), we would have met with Mr. Carden and the 'Bring TJ's to Palm Springs' organization (read our Feb 14 piece for details) as soon as we heard about the group's devoted efforts to bring one of the specialty grocer's stores to their city.

The meeting wouldn't have been to try to stop them...not at all. Rather, to inform them (and extend a warm welcome with lots of freebie coupons, ect.) that Fresh & Easy is coming to town. We talked to a couple members of the organization today and they said they weren't aware of any such meeting. If we are wrong, and a Fresh & Easy rep did meet with the 6,000-strong group, let us know F&E. We will run an item here about the meeting.