The Insider: Heard on the Street
Tesco's Fresh & Easy Neighborhood Market plans to supply it's Northern California stores from its 850 square-foot distribution center in Southern California's Riverside County rather than start up and operate its facility in Stockton, California, which it obtained in 2008, until it achieves a store-count and level of sales volume which makes doing so economically feasible.
Fresh & Easy Buzz has estimated it will cost Tesco $25 million -to- $30 million to make the Stockton distribution center fully operational.
Further, in order to be self-distributing out of Stockton for its Northern California division, it's my analysis Fresh & Easy needs annualized sales of at least $200 million in the region, from a economies-of-scale standpoint. That's the annual sales volume to begin the self-distribution from the facility. But not to make the distribution center operationally efficient. Tesco reported overall sales of $544 million for its fiscal year 2009/10, which ended in February 2010. My estimate is the chain is currently doing slightly under $600 million in annualized sales. [See - April 20, 2010: Strong Group Revenue & Profit For Tesco... But $253 Million Loss at Fresh & Easy]
Tesco announced on August 19 it plans to open its first eight Fresh & Easy units in Northern California in "early 2001." [See - August 19, 2010 story: Tesco Will Open its First Eight Fresh & Easy Neighborhood Market Stores in Northern California in 'Early 2011.' and our August 21, 2010 piece: April 2010 Prediction Correct: February 2011 Target to Open First Eight Fresh & Easy Neighborhood Market Stores in Northern California for details.]
That Fresh & Easy Neighborhood Market plans to supply the Northern California stores out of its Southern California distribution center comes as no surprise to Fresh & Easy Buzz or 'The Insider.' We've suggested in the blog and on our @FreshNEasyBuzz Twitter feed it's something the grocer should consider doing.
Long-distance distribution
Tesco's Fresh & Easy will have to take some special steps in order to supply the stores in the northern region of California out of its Riverside County facility, however.
For example, the U.S. Department of Transportation (DOT) requires (by law) that truck drivers can only drive for a straight eight-hour period, and then must stop and lay off for eight hours. It's about 450 miles - at least an eight hour trip and often longer, particularly in winter when it snows on the "Grapevine" over Interstate 5 - from Fresh & Easy's Riverside County distribution facility to the San Francisco Bay Area and Sacramento/Vacaville regions (a little less to Modesto and Stockton in the Northern Central Valley, but not much), where the majority of the planned Northern California Fresh & Easy stores are located. This means a single driver can't make the trip from the Riverside County facility and deliver to the stores in Northern California.
Because of this factor, Fresh & Easy will either have to use a driver team - starting with two drivers, one pilots the rig from Riverside County to say Stockton, then the other driver takes over to make the deliveries to the stores - or have a single driver start out from Southern California, bring the load to say Stockton (or elsewhere), then have a second driver waiting at the Stockton facility yard to take over to make the deliveries to the stores. Since Tesco is paying for the Stockton facility, it could use it as a transfer depot under scenario number two above.
There is precedent for grocers and distributors supplying stores in Northern California from Southern California. For example, Kroger Co.'s Ralphs supplies its Foods Co stores in Northern California out of a southern distribution facility.
And even better case study vis-a-vis Tesco's Fresh & Easy is WinCo Foods. Idaho-based WinCo Foods operates 12 huge discount food and grocery stores in Southern California. (The grocer's stores average 90,000 -to- 100,000 square-feet. One WinCo store is a big as 10 Fresh & Easy markets.) Six of the 12 Southern California WinCo markets are in Riverside and San Bernardino counties. Riverside County is where the Fresh & Easy Neighborhood Market distribution center is located.
WinCo Foods distributes to its Southern California stores from its Northern California distribution center in Modesto, which is where one of the first eight Fresh & Easy stores in the north state will open in early 2011. Modesto is 30 miles from Stockton, where the Northern California Fresh & Easy facility is located.
In addition to the two self-distributing retailers detailed above, two natural foods wholesalers, Nature's Best and Tree of Life, supply supermarkets and natural foods stores in Northern California from facilities located in Southern California, and have been doing so for many years. Tree of Life distributes fill-in (what Safeway Stores, Inc. doesn't procure direct) natural, organic, and specialty foods products to the 200-plus Safeway supermarkets in Northern California out of its Southern California distribution center near Los Angeles, as well as to some natural foods stores and independent grocers. Nature's best services numerous high-volume natural foods stores in Northern California, along with independent supermarkets, out of its Southern California headquarters and distribution facility. It's been doing so for decades.
Challenges
Supplying stores in Northern California from Southern California isn't without it challenges however, particularly for a self-distributing retailer like Fresh & Easy. Keep in mind Tree of Life (now owned by Kehe Food Distributors) and Natures Best are wholesalers. As long as they fulfill a retail customer's order and get it there when they say they will, they have done their job. Out-of-stocks thus aren't the wholesaler's problem, unless it's due to problems in its procurement and order-filling systems.
The chief difficulty for Fresh & Easy will be order lead time. For example, for a store in Northern California to get a grocery delivery from Southern California on a Monday morning, the ordering process, even with continuous replenishment which Fresh & Easy uses, has to be made and processed earlier than normal in order to allow for the at least eight hours it takes for a truck to get from Riverside County to Stockton or another nearby city in the north.
Let's say the San Francisco or Pacifica stores in the Bay Area (two of the first eight to open in early 2011) are to get Monday morning deliveries, which is key in order to replenish after the weekend. That means the truck with those store's orders must leave Fresh & Easy's Riverside County distribution center at about 9 pm on Sunday night.
Further, let's say the truck has two drivers. Driver one starts out from Riverside County. Eight hours later - at 5 am Monday - he arrives in Stockton. His eight hours are up. Driver two takes over to make the deliveries, first to the San Francisco store (arriving around 7 am), which is about two hours from Stockton in commute traffic, then goes on to Pacifica (about 30-40 minutes from the San Francisco store) and any other stores on the route. Remember, driver two has only eight hours to make the deliveries.
Since the truck must leave the Riverside County distribution center at around 9 pm on Sunday night to make the Monday morning deliveries in Northern California, the orders must be picked early on Sunday, which means they must be processed a considerable time before that.
What's even more of a challenge though in distributing from south-to-north are shorts and out-of-stocks. For example, let's say on that Monday delivery scenario above, ten percent of the items ordered are shorted by the Riverside County distribution center. Some were out-of-stock, others were picking mistakes, and a few just didn't get put on the truck. It happens all the time. Normally, with a local distribution center, stores could get many of those items the next day. However, because of the time lag distributing south-to-north, it's much more difficult to solve these types of shortages in 24 hours or less.
The south-to-north distribution will be particularly challenging for Fresh & Easy Neighborhood Market in its fresh-prepared foods category. The items have a short shelf-life, which means the added delivery time will create the potential for more shrinkage at store-level than if the products were being distributed to the Northern California stores out of Stockton. And of course, combination refrigerated-dry grocery trailors will have to be used to deliver the products from the south to Northern California, which Fresh & Easy already uses.
Tesco's Fresh & Easy does have a track record in long distance distribution in that it distributes to its 27 stores in Metro Las Vegas, Nevada and 34 stores Metro Phoenix, Arizona out of the Riverside County facility in Southern California. Its about 250 miles from Riverside County to Metro Las Vegas and about 325 miles from the Riverside distribution center to Metro Phoenix. The distance to the Northern California stores however is nearly twice that to Metro Las Vegas, and at least 100 miles farther than to Metro Phoenix. As such, it presents more of a challenge to the grocer than it's experienced to date in terms of long distance distribution.
Fresh-prepared foods category
The category that presents the greatest challenge to Fresh & Easy in supplying the Northern California stores from Southern California is fresh-prepared foods, which comprise a significant number of the about 5,000 SKUs the Fresh & Easy stores stock. The refrigerated ready-to-eat and ready-to-heat food items also are a centerpiece of the chain's offering and merchandising.
Fresh & Easy already has a significant shrink problem in its fresh-prepared foods category, which is why it marks the items down by as much as 50% each day in its stores. They have short code dates and sales have been less than the grocer anticipated.
The added time required to distribute product from the south to the north means Fresh & Easy will have to be extremely diligent in how it orders the products for the stores because it will have to estimate the quantities somewhat in order to allow for the needed lead time in order processing, order picking and loading on the trucks at the Riverside distribution center, the eight-plus hour drive from the facility to Northern California, and the added hours delivering the items to the stores. In other words, the order-to-delivery cycle becomes shorter because of the long distance distribution system. Therefore, the grocer will have to tweak its replenishment system to operate in a more anticipatory way than it does for its 98 stores in Southern California in particular, and to a lessor but significant degree than it does for southern Nevada and Arizona.
If too much is ordered, that means more 50% markdowns and more shrink, throwing away what doesn't sell. If too little is ordered, that means out-of-stocks and lost sales.
Fresh foods kitchen-only option down the road
One thing Fresh & Easy could do as it gets a few dozen stores open is to set up a fresh-prepared foods kitchen at its Stockton distribution center in Northern California but continue to distribute all other categories out of Riverside. This would allow for better distribution to the stores, including decreased shrink and potential out-of-stocks, of the highly-perishable refrigerated ready-to-eat and ready-to-heat foods, while at the same time saving the expense of setting up and running a full distribution facility in the north.
'The Insider' wouldn't even think about operating a full Northern California distribution center (all categories) until there were about 100 Northern California stores up and running, with more in the pipeline. (I would hope the 100 stores would at least equal the $200 million in sales volume I mentioned at the top of my column.) At the point if the volume isn't sufficient, then it means the stores aren't doing well enough in general. Therefore, the problem is far greater than logistics and distribution.
Economies-of-scale & 0pportunities
A south-north distribution strategy makes the best sense for Tesco's Fresh & Easy Neighborhood Market for the near-to-medium term.
The economies of scale in setting up and operating a full distribution center at the Stockton facility for a handful of stores, with unproven sales, doesn't pan out. Remember, Tesco had planned to launch Fresh & Easy into Northern California by early 2009, having about 100 stores open by now in the region. Instead, I expect it to have in the range of 25 -to- 40 stores open in Northern California by the end of 2011. The rate of store openings is still being discussed at Tesco's Fresh & Easy. The Stockton facility was acquired and planned predicated on that 2007-2008 strategy.
Using two drivers - a tag team starting at Riverside or a hand-off scenario in Stockton or elsewhere in Northern California - will be more expensive than using one driver, obviously. But it will be far less costly than fully-setting up and operating the Stockton distribution center.
Additionally, with 159 stores currently, and annual sales volume of about $600 million in my estimation, Tesco's Fresh & Easy distribution center in Riverside County is nowhere near where it needs to be for optimum operating efficiencies. Therefore, distributing the Northern California sales volume out of the facility will help toward increasing its overall volume, getting closer to those efficiency goals.
The challenges of distributing from the south to the north though will be real ones for Fresh & Easy Neighborhood Market. The grocer still has far too many out-of-stocks in many of its stores than it should, although its improved considerably from 2009, when it was very bad.
But taking all of the variables into consideration, I would do what Tesco's Fresh & Easy plans to do, distribute to the Northern California stores for the near-to-medium term out of the existing Riverside County facility. The one caveat being that I would start looking into setting up and operating a fresh-prepared foods kitchen-only at the Stockton facility for down the road.
Recent columns by 'The Insider'
~July 18, 2010: When it Comes to Northern California - its Competitors are Rome Burning and Tesco's Fresh & Easy Neighborhood Market is Nero Playing the Fiddle
~July 13, 2010: A Few Words on The Life and Death of Veteran Southern California Grocer Roger K. Hughes
~June 27, 2010: The Insider: Will Tesco Acquire Supervalu, Inc. and Change its 'Fresh & Easy' Game in America?
~June 12, 2010: Will Phil Clarke Shake Things up at Fresh & Easy Neighborhood Market USA When He Becomes Tesco CEO in 2011?
~May 20, 2010: Welcome to Discountopia USA
~April 29, 2010: Heard on the Street: There's Something About Albertsons ... In Southern California
[Fresh & Easy Buzz Editor's Note: Below are the stories thus far in our Northern California Market Special Report Series.] [Photo credit: Fresh & Easy Neighborhood Market.]
August 21, 2010: April 2010 Prediction Correct: February 2011 Target to Open First Eight Fresh & Easy Neighborhood Market Stores in Northern California
August 19, 2010: Tesco Will Open its First Eight Fresh & Easy Neighborhood Market Stores in Northern California in 'Early 2011.'
August 17, 2010: Henry's Farmers Market 'Beats' Fresh & Easy Neighborhood Market to Northern California Despite Multi-Year Head Start; Elk Grove Store Opens Tomorrow
July 29, 2010: Tesco's Fresh & Easy Neighborhood Market Putting Together List of Managers Interested in Transferring to Northern California
July 25, 2010: Safeway to Start Construction on New Pleasanton, California Flagship Store Soon; Thanksgiving 2011 Target Opening
July 22, 2010: 'The Insider' - After Four Years in the High Weeds in Northern & Central California, Kroger Co. is Emerging to Grow its Foods Co Chain
July 21, 2010: Vacant Fresh & Easy Neighborhood Market Store in Pacifica, California Has the City's Mayor in a Pickle
July 18, 2010: 'The Insider' - When it Comes to Northern California - its Competitors are Rome Burning and Tesco's Fresh & Easy Neighborhood Market is Nero Playing the Fiddle
July 14, 2010: Tony Bennett Has Nothing on Whole Foods Market When it Comes to Loving San Francisco...That City By the Bay
July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store
June 28, 2010: Smart & Final to Open its New Format SmartCo Foods Stores in California and Arizona
June 26, 2010: Tesco Planning to Announce in July When First Northern California Fresh & Easy Neighborhood Market Stores to Open
June 14, 2010: Newly-Named Whole Foods Market CO-CEO Walter Robb Comes Full Circle With the Opening of the New Store in Mill Valley CA
June 5, 2010: Sprouts Farmers Market Opens First Northern California Store in Sunnyvale; Strikes Up Partnership With Local Non-Profit Farm
May 29, 2010: Going Rural: Fresh & Easy Neighborhood Market to Build First Store in Los Banos, California
May 28, 2010: First Phase of Fresh & Easy Neighborhood Market-Anchored Condo Development in San Francisco's Bayview Set For Completion in June
April 19, 2010: Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait
May 9, 2010: A Whopping 15 of Whole Foods Market's 41 New Stores in Development are in California - And Nine of The 15 Are In Northern CA
May 8, 2010: Sprouts, and Likely Henry's to Beat Fresh & Easy to Northern California Despite it's Big Head Start
May 6, 2010: Going Smaller & Getting 'Hybrid': Walmart's Smaller Supercenter in Vacant Retail Buildings Strategy Began in 2008
April 19, 2010: Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait
Tesco's Fresh & Easy Neighborhood Market plans to supply it's Northern California stores from its 850 square-foot distribution center in Southern California's Riverside County rather than start up and operate its facility in Stockton, California, which it obtained in 2008, until it achieves a store-count and level of sales volume which makes doing so economically feasible.
Fresh & Easy Buzz has estimated it will cost Tesco $25 million -to- $30 million to make the Stockton distribution center fully operational.
Further, in order to be self-distributing out of Stockton for its Northern California division, it's my analysis Fresh & Easy needs annualized sales of at least $200 million in the region, from a economies-of-scale standpoint. That's the annual sales volume to begin the self-distribution from the facility. But not to make the distribution center operationally efficient. Tesco reported overall sales of $544 million for its fiscal year 2009/10, which ended in February 2010. My estimate is the chain is currently doing slightly under $600 million in annualized sales. [See - April 20, 2010: Strong Group Revenue & Profit For Tesco... But $253 Million Loss at Fresh & Easy]
Tesco announced on August 19 it plans to open its first eight Fresh & Easy units in Northern California in "early 2001." [See - August 19, 2010 story: Tesco Will Open its First Eight Fresh & Easy Neighborhood Market Stores in Northern California in 'Early 2011.' and our August 21, 2010 piece: April 2010 Prediction Correct: February 2011 Target to Open First Eight Fresh & Easy Neighborhood Market Stores in Northern California for details.]
That Fresh & Easy Neighborhood Market plans to supply the Northern California stores out of its Southern California distribution center comes as no surprise to Fresh & Easy Buzz or 'The Insider.' We've suggested in the blog and on our @FreshNEasyBuzz Twitter feed it's something the grocer should consider doing.
Long-distance distribution
Tesco's Fresh & Easy will have to take some special steps in order to supply the stores in the northern region of California out of its Riverside County facility, however.
For example, the U.S. Department of Transportation (DOT) requires (by law) that truck drivers can only drive for a straight eight-hour period, and then must stop and lay off for eight hours. It's about 450 miles - at least an eight hour trip and often longer, particularly in winter when it snows on the "Grapevine" over Interstate 5 - from Fresh & Easy's Riverside County distribution facility to the San Francisco Bay Area and Sacramento/Vacaville regions (a little less to Modesto and Stockton in the Northern Central Valley, but not much), where the majority of the planned Northern California Fresh & Easy stores are located. This means a single driver can't make the trip from the Riverside County facility and deliver to the stores in Northern California.
Because of this factor, Fresh & Easy will either have to use a driver team - starting with two drivers, one pilots the rig from Riverside County to say Stockton, then the other driver takes over to make the deliveries to the stores - or have a single driver start out from Southern California, bring the load to say Stockton (or elsewhere), then have a second driver waiting at the Stockton facility yard to take over to make the deliveries to the stores. Since Tesco is paying for the Stockton facility, it could use it as a transfer depot under scenario number two above.
There is precedent for grocers and distributors supplying stores in Northern California from Southern California. For example, Kroger Co.'s Ralphs supplies its Foods Co stores in Northern California out of a southern distribution facility.
And even better case study vis-a-vis Tesco's Fresh & Easy is WinCo Foods. Idaho-based WinCo Foods operates 12 huge discount food and grocery stores in Southern California. (The grocer's stores average 90,000 -to- 100,000 square-feet. One WinCo store is a big as 10 Fresh & Easy markets.) Six of the 12 Southern California WinCo markets are in Riverside and San Bernardino counties. Riverside County is where the Fresh & Easy Neighborhood Market distribution center is located.
WinCo Foods distributes to its Southern California stores from its Northern California distribution center in Modesto, which is where one of the first eight Fresh & Easy stores in the north state will open in early 2011. Modesto is 30 miles from Stockton, where the Northern California Fresh & Easy facility is located.
In addition to the two self-distributing retailers detailed above, two natural foods wholesalers, Nature's Best and Tree of Life, supply supermarkets and natural foods stores in Northern California from facilities located in Southern California, and have been doing so for many years. Tree of Life distributes fill-in (what Safeway Stores, Inc. doesn't procure direct) natural, organic, and specialty foods products to the 200-plus Safeway supermarkets in Northern California out of its Southern California distribution center near Los Angeles, as well as to some natural foods stores and independent grocers. Nature's best services numerous high-volume natural foods stores in Northern California, along with independent supermarkets, out of its Southern California headquarters and distribution facility. It's been doing so for decades.
Challenges
Supplying stores in Northern California from Southern California isn't without it challenges however, particularly for a self-distributing retailer like Fresh & Easy. Keep in mind Tree of Life (now owned by Kehe Food Distributors) and Natures Best are wholesalers. As long as they fulfill a retail customer's order and get it there when they say they will, they have done their job. Out-of-stocks thus aren't the wholesaler's problem, unless it's due to problems in its procurement and order-filling systems.
The chief difficulty for Fresh & Easy will be order lead time. For example, for a store in Northern California to get a grocery delivery from Southern California on a Monday morning, the ordering process, even with continuous replenishment which Fresh & Easy uses, has to be made and processed earlier than normal in order to allow for the at least eight hours it takes for a truck to get from Riverside County to Stockton or another nearby city in the north.
Let's say the San Francisco or Pacifica stores in the Bay Area (two of the first eight to open in early 2011) are to get Monday morning deliveries, which is key in order to replenish after the weekend. That means the truck with those store's orders must leave Fresh & Easy's Riverside County distribution center at about 9 pm on Sunday night.
Further, let's say the truck has two drivers. Driver one starts out from Riverside County. Eight hours later - at 5 am Monday - he arrives in Stockton. His eight hours are up. Driver two takes over to make the deliveries, first to the San Francisco store (arriving around 7 am), which is about two hours from Stockton in commute traffic, then goes on to Pacifica (about 30-40 minutes from the San Francisco store) and any other stores on the route. Remember, driver two has only eight hours to make the deliveries.
Since the truck must leave the Riverside County distribution center at around 9 pm on Sunday night to make the Monday morning deliveries in Northern California, the orders must be picked early on Sunday, which means they must be processed a considerable time before that.
What's even more of a challenge though in distributing from south-to-north are shorts and out-of-stocks. For example, let's say on that Monday delivery scenario above, ten percent of the items ordered are shorted by the Riverside County distribution center. Some were out-of-stock, others were picking mistakes, and a few just didn't get put on the truck. It happens all the time. Normally, with a local distribution center, stores could get many of those items the next day. However, because of the time lag distributing south-to-north, it's much more difficult to solve these types of shortages in 24 hours or less.
The south-to-north distribution will be particularly challenging for Fresh & Easy Neighborhood Market in its fresh-prepared foods category. The items have a short shelf-life, which means the added delivery time will create the potential for more shrinkage at store-level than if the products were being distributed to the Northern California stores out of Stockton. And of course, combination refrigerated-dry grocery trailors will have to be used to deliver the products from the south to Northern California, which Fresh & Easy already uses.
Tesco's Fresh & Easy does have a track record in long distance distribution in that it distributes to its 27 stores in Metro Las Vegas, Nevada and 34 stores Metro Phoenix, Arizona out of the Riverside County facility in Southern California. Its about 250 miles from Riverside County to Metro Las Vegas and about 325 miles from the Riverside distribution center to Metro Phoenix. The distance to the Northern California stores however is nearly twice that to Metro Las Vegas, and at least 100 miles farther than to Metro Phoenix. As such, it presents more of a challenge to the grocer than it's experienced to date in terms of long distance distribution.
Fresh-prepared foods category
The category that presents the greatest challenge to Fresh & Easy in supplying the Northern California stores from Southern California is fresh-prepared foods, which comprise a significant number of the about 5,000 SKUs the Fresh & Easy stores stock. The refrigerated ready-to-eat and ready-to-heat food items also are a centerpiece of the chain's offering and merchandising.
Fresh & Easy already has a significant shrink problem in its fresh-prepared foods category, which is why it marks the items down by as much as 50% each day in its stores. They have short code dates and sales have been less than the grocer anticipated.
The added time required to distribute product from the south to the north means Fresh & Easy will have to be extremely diligent in how it orders the products for the stores because it will have to estimate the quantities somewhat in order to allow for the needed lead time in order processing, order picking and loading on the trucks at the Riverside distribution center, the eight-plus hour drive from the facility to Northern California, and the added hours delivering the items to the stores. In other words, the order-to-delivery cycle becomes shorter because of the long distance distribution system. Therefore, the grocer will have to tweak its replenishment system to operate in a more anticipatory way than it does for its 98 stores in Southern California in particular, and to a lessor but significant degree than it does for southern Nevada and Arizona.
If too much is ordered, that means more 50% markdowns and more shrink, throwing away what doesn't sell. If too little is ordered, that means out-of-stocks and lost sales.
Fresh foods kitchen-only option down the road
One thing Fresh & Easy could do as it gets a few dozen stores open is to set up a fresh-prepared foods kitchen at its Stockton distribution center in Northern California but continue to distribute all other categories out of Riverside. This would allow for better distribution to the stores, including decreased shrink and potential out-of-stocks, of the highly-perishable refrigerated ready-to-eat and ready-to-heat foods, while at the same time saving the expense of setting up and running a full distribution facility in the north.
'The Insider' wouldn't even think about operating a full Northern California distribution center (all categories) until there were about 100 Northern California stores up and running, with more in the pipeline. (I would hope the 100 stores would at least equal the $200 million in sales volume I mentioned at the top of my column.) At the point if the volume isn't sufficient, then it means the stores aren't doing well enough in general. Therefore, the problem is far greater than logistics and distribution.
Economies-of-scale & 0pportunities
A south-north distribution strategy makes the best sense for Tesco's Fresh & Easy Neighborhood Market for the near-to-medium term.
The economies of scale in setting up and operating a full distribution center at the Stockton facility for a handful of stores, with unproven sales, doesn't pan out. Remember, Tesco had planned to launch Fresh & Easy into Northern California by early 2009, having about 100 stores open by now in the region. Instead, I expect it to have in the range of 25 -to- 40 stores open in Northern California by the end of 2011. The rate of store openings is still being discussed at Tesco's Fresh & Easy. The Stockton facility was acquired and planned predicated on that 2007-2008 strategy.
Using two drivers - a tag team starting at Riverside or a hand-off scenario in Stockton or elsewhere in Northern California - will be more expensive than using one driver, obviously. But it will be far less costly than fully-setting up and operating the Stockton distribution center.
Additionally, with 159 stores currently, and annual sales volume of about $600 million in my estimation, Tesco's Fresh & Easy distribution center in Riverside County is nowhere near where it needs to be for optimum operating efficiencies. Therefore, distributing the Northern California sales volume out of the facility will help toward increasing its overall volume, getting closer to those efficiency goals.
The challenges of distributing from the south to the north though will be real ones for Fresh & Easy Neighborhood Market. The grocer still has far too many out-of-stocks in many of its stores than it should, although its improved considerably from 2009, when it was very bad.
But taking all of the variables into consideration, I would do what Tesco's Fresh & Easy plans to do, distribute to the Northern California stores for the near-to-medium term out of the existing Riverside County facility. The one caveat being that I would start looking into setting up and operating a fresh-prepared foods kitchen-only at the Stockton facility for down the road.
Recent columns by 'The Insider'
~July 18, 2010: When it Comes to Northern California - its Competitors are Rome Burning and Tesco's Fresh & Easy Neighborhood Market is Nero Playing the Fiddle
~July 13, 2010: A Few Words on The Life and Death of Veteran Southern California Grocer Roger K. Hughes
~June 27, 2010: The Insider: Will Tesco Acquire Supervalu, Inc. and Change its 'Fresh & Easy' Game in America?
~June 12, 2010: Will Phil Clarke Shake Things up at Fresh & Easy Neighborhood Market USA When He Becomes Tesco CEO in 2011?
~May 20, 2010: Welcome to Discountopia USA
~April 29, 2010: Heard on the Street: There's Something About Albertsons ... In Southern California
[Fresh & Easy Buzz Editor's Note: Below are the stories thus far in our Northern California Market Special Report Series.] [Photo credit: Fresh & Easy Neighborhood Market.]
August 21, 2010: April 2010 Prediction Correct: February 2011 Target to Open First Eight Fresh & Easy Neighborhood Market Stores in Northern California
August 19, 2010: Tesco Will Open its First Eight Fresh & Easy Neighborhood Market Stores in Northern California in 'Early 2011.'
August 17, 2010: Henry's Farmers Market 'Beats' Fresh & Easy Neighborhood Market to Northern California Despite Multi-Year Head Start; Elk Grove Store Opens Tomorrow
July 29, 2010: Tesco's Fresh & Easy Neighborhood Market Putting Together List of Managers Interested in Transferring to Northern California
July 25, 2010: Safeway to Start Construction on New Pleasanton, California Flagship Store Soon; Thanksgiving 2011 Target Opening
July 22, 2010: 'The Insider' - After Four Years in the High Weeds in Northern & Central California, Kroger Co. is Emerging to Grow its Foods Co Chain
July 21, 2010: Vacant Fresh & Easy Neighborhood Market Store in Pacifica, California Has the City's Mayor in a Pickle
July 18, 2010: 'The Insider' - When it Comes to Northern California - its Competitors are Rome Burning and Tesco's Fresh & Easy Neighborhood Market is Nero Playing the Fiddle
July 14, 2010: Tony Bennett Has Nothing on Whole Foods Market When it Comes to Loving San Francisco...That City By the Bay
July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store
June 28, 2010: Smart & Final to Open its New Format SmartCo Foods Stores in California and Arizona
June 26, 2010: Tesco Planning to Announce in July When First Northern California Fresh & Easy Neighborhood Market Stores to Open
June 14, 2010: Newly-Named Whole Foods Market CO-CEO Walter Robb Comes Full Circle With the Opening of the New Store in Mill Valley CA
June 5, 2010: Sprouts Farmers Market Opens First Northern California Store in Sunnyvale; Strikes Up Partnership With Local Non-Profit Farm
May 29, 2010: Going Rural: Fresh & Easy Neighborhood Market to Build First Store in Los Banos, California
May 28, 2010: First Phase of Fresh & Easy Neighborhood Market-Anchored Condo Development in San Francisco's Bayview Set For Completion in June
April 19, 2010: Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait
May 9, 2010: A Whopping 15 of Whole Foods Market's 41 New Stores in Development are in California - And Nine of The 15 Are In Northern CA
May 8, 2010: Sprouts, and Likely Henry's to Beat Fresh & Easy to Northern California Despite it's Big Head Start
May 6, 2010: Going Smaller & Getting 'Hybrid': Walmart's Smaller Supercenter in Vacant Retail Buildings Strategy Began in 2008
April 19, 2010: Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait
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