Tim Ashdown Named CEO at Tesco's Fresh & Easy

Breaking News ... Plus Analysis

Tim Ashdown, the former CEO of United Kingdom-based Tesco's Asia operations, who's essentially been running Fresh & Easy Neighborhood Market as its chief operating officer since arriving in May of this year, has been named CEO of the El Segundo, California-headquartered chain, replacing Tim Mason who departed Fresh & Easy and Tesco, where he was deputy CEO and chief marketing officer in addition to being CEO at Fresh & Easy, this week as part of Tesco CEO Philip Clarke's decision to exit the U.S. by either selling the 200-store grocery chain as a whole or in pieces, or if that fails, closing its doors.

Ashdown, who is responsible for the various changes (like testing full-service checkout in two stores) and workforce reduction measures at Fresh & Easy over the last eight months, was named CEO yesterday. The announcement was made to employees at Fresh & Easy's corporate office in El Segundo. Tesco's CEO, Philip Clarke, has been in Southern California this week.

Ashdown's key task as CEO, in our analysis, is to keep Fresh & Easy on life support until Clarke and Tesco's board can, the hope, find a buyer for the chain, which opened the doors of its first store in November 2007. That first store, in Hemet, California, has since been closed, along with 23 other Fresh & Easy units , because it failed to come even close to meeting the weekly sales numbers needed to continue in operation.

Tesco, which truth be known has no idea what to do with Fresh & Easy - and hasn't for a number of years -  has hired the Greenhill investment firm to find a buyer for the chain. Failing to do that, Greenhill, which is also the firm trying to find a buyer for Supervalu, Inc., has been charged by Tesco to come up with other alternatives, which include selling the stores and the massive Riverside, California distribution center (and related campus properties) piecemeal.

Greenhill, which actually has been working on the project for some time, is going to have a difficult time of it. For example, only about 20% (30-40 units) of Fresh & Easy's 200-store base are in the black - and not by much. Additionally, many of those money-losing remaining 150-plus stores are bleeding tons of red ink, so much so that Tesco reduced the operating hours of 30-plus stores earlier this year, as we reported exclusively in Fresh & Easy Buzz.

Ask yourself this: Would you buy a grocery chain with only 30-40 of its 200 stores in the black?

Selling the stores piecemeal will be no easy task either. Only a few of the 200 units have sales of $150,000 or more per-week, for example. A few more are doing around $100,000 in average weekly sales. Still others, the bottom tier, aren't even close to approaching weekly sales of $100,000.

The 850,000 square-foot distribution center in Riverside is also a white elephant, which continues to bleed red ink for Tesco. The campus was built for a chain of 1,000 stores doing at least $3 billion a year in annual sales - and with a profit. There are 200 Fresh & Easy stores. Annual sales is a bit over $1 billion.

The facility is also custom-built for the "Fresh & Easy" way of doing business, logistics and distribution. It should eventually sell, but at a very low price, in our analysis.

Tesco of course wants to sell Fresh & Easy as a whole. Good luck.

As we've reported exclusively, discount grocer Aldi (we're still looking for another publication to do some reporting on what is a major development) plans to enter California in 2013. Aldi has an interest in some Fresh & Easy stores and the distribution center, according to our multiple sources. However we would be stunned were they to buy the entire Fresh & Easy operation, unless they get it at a fire sale price, which is possible.

Discounter Dollar General, which is opening numerous dollar stores and Dollar General Market grocery stores throughout California, Nevada and Arizona - the three states where Fresh & Easy does business - also has an interest in the chain. Again we would be stunned if Dollar General were to acquire Fresh & Easy as a whole. Dollar General has been acquiring vacant buildings for its stores in the three states on the cheap. The discounter also has a distribution center in Bakersfield, so doesn't need the Riverside facility.

Bottom line: We predict Tesco will have no choice but to sell Fresh & Easy off piecemeal; groups of stores and single stores, along with marketing the distribution center individually, or perhaps as a package along with a group of stores.

Tesco also has more than a score of Fresh & Easy locations sitting fallow; some with completed but empty stores, others undeveloped locations. It's nightmare; so many leases for so many fallow properties are out there we suspect many landlords are not getting all that much sleep this week.

There is interest out there for some of the Fresh & Easy stores. For example, more than one commercial real estate agent specializing in retail properties has contacted Fresh & Easy Buzz, seeking information about the chain and its stores. Our take from these interactions is that many retailers out there think they can get some stores for a huge bargain.

We've also been asked questions - looking for an informed and objective third party we take it - from representatives a couple retail chains, who are gleaning information about individual Fresh & Easy stores.

We also know of one party that has proposed a joint-venture of sorts with Tesco. In our analysis, it wouldn't fly.

But back at the ranch in El Segundo, Fresh & Easy's new CEO, Tim Ashdown, who's had a trial by fire since arriving in sunny and recently rain-soaked California in May - we reported his being moved from Asia to California exclusively here [ May 2, 2012: Reshuffling at the Top at Tesco: Retail Chief Adams Leaving Fresh & Easy For Turkey; China CEO Ashdown to Replace Him; Richie to Head China Operations] - has plenty more fire to wade through. We suggest a truckload of own brand, perhaps "Tesco's Finest," fire extinguishers might be a good idea.

Ashdown's biggest task, as we've said, is going to be keeping Fresh & Easy on life support between now and about March-April 2013, which is the time CEO Clark and the Tesco board hope to be able to dispose of Fresh & Easy - one way or the other.

Related Stories

December 4, 2012: The End is Here For Fresh & Easy: Mason Out as CEO; Tesco To Figure Out How to Exit U.S.

December 4, 2012: The End For Tesco's Fresh & Easy is Here

August 8, 2012: Fear & Loathing in the Aisles: Reduction in Hours and Selected Firings Begin Today at 33 Fresh & Easy Stores

July 28, 2012: Fresh & Easy Neighborhood Market Planning Major Renovations at Two California Stores

July 28, 2012: Fresh & Easy Neighborhood Market to Test Full-Service Checkout at Two California Stores

July 26, 2012: Fear and Loathing in El Segundo: Mass Firings, Reduction in Store Hours at 33 Fresh & Easy Stores ... and More

June 4, 2012: West Coast Bound - Aldi USA Headed to Southern California; First Stores to Open in 2013

April 10, 2012: Dollar General's California Dream Becoming Reality

The End is Here For Fresh & Easy: Mason Out as CEO; Tesco To Figure Out How to Exit U.S.

Tesco has just announced in this statement it will conduct a "strategic review" of its 199-store Fresh & Easy Neighborhood Market chain, which is one of  three options we reported yesterday the United Kingdom-headquartered global retailer would announce this morning. It's 7 am in the United Kingdom.

As part of the review, Tesco also announced that Tim Mason, who's been the CEO of Fresh & Easy since its start over five years ago, is leaving the company.

Mason, who's been with Tesco for over 30-years and is married to the daughter of a former Tesco CEO and Chairman, was given the added title of deputy CEO of Tesco in March 2011, following the retirement of Sir Terry Leahy, the former Tesco CEO who hatched the idea for Fresh & Easy. Philip Clarke replaced Leahy as CEO.

Mason, who lives in Southern California and has made millions of dollars in salary and bonuses while CEO of Fresh & Easy, was also given the position and title of chief marketing officer for Tesco last March, which was the position he held at the global retailer before departing for America in 2006 to head up its now failed fresh food and grocery retailing venture as CEO.

Here's what Tesco and its CEO Philip Clarke said (italics) about the "strategic review" in a very brief press statement just released:

In October, we announced that new capital investment in Fresh & Easy was to be tightly constrained whilst the business focused on reducing costs and improving the profitability of its existing stores.

It is now clear that Fresh & Easy will not deliver acceptable shareholder returns on an appropriate timeframe in its current form.We have therefore appointed Greenhill to assist with the review of options. In recentmonths, we have had a number of approaches from parties interested in acquiring either all or part of Fresh & Easy, or in partnering with us to develop the Fresh & Easy business. We will communicate progress on this process when we present our full year results for the current financial year in April 2013.We are also announcing that Tim Mason is to leave Tesco after 30 years' service with the company.“I have been clear since my appointment as CEO was announced that my role is to deliver long-term value for shareholders. Following a year in which my priority for Fresh & Easy was to improve its performance, I have now made a fully-informed assessment of its longer term potential.“Whilst the business has many positives, its journey to scale and acceptable returns will take too long relative to other opportunities. I have therefore decided to conduct a strategic review of Fresh & Easy, with all options under consideration. “Tim Mason, who leaves Tesco today, has played an important part in our success  over a 30 year career with the company, and he leaves with my thanks and good wishes.”


Tesco also just posted a piece in its 'Talking Shop' blog from Philip Clarke, which you can read here.

Clarke makes it very clear in both the corporate news release and in his blog post that Tesco will exit the U.S. with Fresh & Easy one way or the other - be it the sale of the chain as a whole (very unlikely to happen), selling it off in pieces, or closing the operation and moving on - as we've been reporting all year would be the case, and as we correctly reported in this piece yesterday: "The End For Tesco's Fresh & Easy is Here."

Like we reported on Tuesday, the end is hear for Tesco's Fresh & Easy, regardless of when it occurs or how the disposition comes down.

The End For Tesco's Fresh & Easy is Here

We've been reporting exclusively all year that the end of Tesco's Fresh & Easy Neighborhood Market - 199 stores in California, Nevada and Arizona - is near.

Now, according to our sources, the near is here: Tomorrow Tesco could announce that it's either selling or will pull the plug and close its five-year-old U.S. fresh food and grocery chain, which has racked up loses of nearly $2 billion.

If Tesco doesn't announce either of these two moves tomorrow when it reports its holiday season trading numbers to date - and based on our reporting we haven't been able to confirm there is a buyer for Fresh & Easy - it will announce it's launching a "formal review" of Fresh & Easy Neighborhood Market, which is merely a way to buy some time in order to further search for a buyer.

As we've reported previously, Tesco has been formally reviewing Fresh & Easy since earlier this year when Tesco CEO Philip Clarke brought in former Asia operations CEO Jeff Ashdown to essentially take over day-to-day operations of the Southern California-based grocery chain.

Tesco's CEO and its board know the status of the chain (if not Tesco investors are in real trouble) - another $100 million dollar-plus loss for the current fiscal year which ends February 2013 is on the way, for example - which is why an announcement of a "formal review" would merely be a stall tactic.

Tesco reported a $250 million loss for Fresh & Easy for its most recently-ended fiscal year. We expect the loss for this fiscal year, which ends February 2013, to be slightly but not much less than that because of the massive layoffs, some cost-cutting, and the halt on new store openings at Fresh & Easy since August of this year.

Further evidence that the end is here: There are numerous Fresh & Easy stores completed and previously slated to have been opened in the third and fourth quarters of this year, like the units in Los Angeles and Sunnyvale, California which a construction firm contracted to Fresh & Easy handed over to the chain a couple months ago, that haven't been opened. The two locations are at the top of what is a list (planned new store roll out) of stores Fresh & Easy has wanted to open but hasn't been allowed to by parent Tesco.

Nobody needs a formal review to know that when a grocer doesn't open stores it's spent millions of dollars to have built, its CEO, in this case Tesco CEO Philip Clarke, doesn't see a future for the operation. Translation: The end of Fresh & Easy is here regardless of what Tesco says tomorrow morning about its U.S. operation.

As we've reported exclusively, Tesco has been trying to sell Fresh & Easy for some time. Among the potentials we've reported on are Aldi and Dollar General.

Additionally, we've also reported there's been "feelers" out to various commercial retail real estate agents for some time, the goal of which has been to "dispose" of Fresh & Easy, either as a whole chain or in bits and pieces. Tesco has also, as we've reported, been trying without success to either sell or sublease a number of the numerous store locations it has but has never opened.

At present we can't conclusively report a sale of Fresh & Easy, or that if a deal to sell the chain hasn't been inked that Tesco will pull the plug and close its Southern California-based food and grocery retailing operation.

But we can report the end of Fresh & Easy is here. And it's here regardless of when or the form in which Tesco disposes of it.

Stay tuned though, as we continue to work the story.

Note: Read through the tweets from all of 2012 at www.twitter.com/freshneasybuzz (as well as the blog) for a natural progression of our reportage about  the end of Tesco's Fresh & Easy being "near" to its end being "here."

Breaking...More to come...

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Fear & Loathing in the Aisles: Reduction in Hours and Selected Firings Begin Today at 33 Fresh & Easy Stores

The Insider - Heard on the Street

Tesco's Fresh & Easy Neighborhood Market began terminating selected store-level employees, mostly but not exclusively regular grocery clerks called Customer Assistants, today at 33 of its 199 grocery markets in California, Nevada and Arizona.

I learned this while visiting a number of Fresh & Easy stores in two states yesterday and today.

I also verified it with a number of store-level Fresh & Easy Neighborhood Market employees, including two who were fired today.

In this July 26, 2012 piece, Fear and Loathing in El Segundo: Mass Firings, Reduction in Store Hours at 33 Fresh & Easy Stores ... and More, I reported exclusively that Fresh & Easy Neighborhood Market planned to reduce the operating hours at 33 of its stores from the retailer's normal 8 a.m.-10 p.m. hours to 9 a.m-8 pm, beginning soon.

That day is here: I also learned during my store visits yesterday and today that the reduced hours at the 33 stores are effective today. Instead of the previous 8 a.m.-10 p.m. operating hours, the doors to these 33 Fresh & Easy markets now officially open at 9 a.m, and close at 8 a.m.

I'm not aware of one grocery chain (read competitor to Tesco's Fresh & Easy) in California, Nevada and Arizona. In fact, many stores operated by the leading chains in the three states, such as Safeway, Kroger Co., Supervalu, Save Mart, Albertson's LLC, Stater Bros. and others, keep many of their respective stores open 24-hours. The stores not open 24-hours close generally at 11 p.m or midnight and open at 7 a.m.

Grocery stores that are doing well don't close at 8 p.m., unless they're doing so well that opening them any later would prove to be an embarrassment of riches to a modest grocery retailer. And grocers who want their stores to do well don't close them at 8 p.m.

Additionally, for those not experienced in the food and grocery retailing business, if a grocer decides to close a bunch of stores, like 33 of its 199 units, at 8 p.m. rather than the previous 10 p.m., you can take it to the bank the company CEO has very little if any faith in the future potential of those stores. If that's not the case, then he just doesn't understand the grocery business.

The selected store-level layoffs are a part of the reduction in hours program at the 33 Fresh & Easy stores.

Since the stores are opening one hour later and closing two hours earlier, less employees are needed.

Some of the workers at the affected stores are getting transfers to other Fresh & Easy markets.

Other employees at the 33 stores are getting their hours cut, in many cases down to 20 hours a week, which is the minimum they are required to work in order for the grocery chain to pay the 70-75% employer contribution for the workers health insurance policies.

Over the last five years of its operation (the first stores opened in November 2007) most Fresh & Easy Customer Assistants, who are hired part time and guaranteed 20 hours a week at the time of hire, have worked more than the minimum guaranteed hours at the request of either store management or themselves. Few employees have worked just 20 hours a week over the last five years Fresh &Easy has been in operation.

Cost-cutting strategy

The reduction in store operating hours and related reduction in store employee hours, along with the layoffs of the Customer Assistants and others I'm telling readers about today, is all about reducing labor and related costs for Tesco's Fresh & Easy.

The store-level cuts go hand-in-hand with the termination of about 50 employees in one day at Fresh & Easy Neighborhood Market's corporate headquarters in El Segundo, California, which I wrote about here on July 26.

Battles and wars

The cost-cutting comes now, in my analysis and opinion, because Tesco's fiscal half-year ends in about a month. Tesco must show its making at least a minimum reduction in its losses, $245 million for the most-recently-ended fiscal year (ended February 2012), when it reports its fiscal half-year results this fall.

Prior to making the cuts at its corporate headquarters in late July and the store-reductions I'm describing in this piece, Fresh & Easy Neighborhood Market was not on track to show any significant improvement in its half-year performance over the previous half-year, based on my reporting and analysis.

Since the cuts come so near the end of the half-year, I don't expect Tesco to report a major reduction in losses for the half-year in relation to the $245 million it lost in its most-recently ended fiscal year. It will be interesting to see - and more cuts are coming - what Tesco does report as a loss for Fresh & Easy for the half-year.

Breaking even with Fresh & Easy, which Tesco says it will do so by the end of its 2014 fiscal year, which is less than two years away, is only part of the story for Tesco - it's the battle but not the war. And it's the war that truly matters. Despite winning many battles a war can still be lost.

For Tesco, continuing my battle vs. war analogy, the war boils down to this question: Does Fresh & Easy have a future as a viable and profitable grocery chain?

That's a question I will be addressing in one of my next columns.

-The Insider

[Editor's Note: 'The Insider' isn't a literal or descriptiive title for our columnist. Fresh & Easy Buzz is an independent Blog, and is not affiliated with Tesco, Tesco's Fresh & Easy Neighborhood Market, or any of its competitors. No member of the Fresh & Easy Buzz editorial team has ever or currently works for Tesco or its Fresh & Easy Neighborhood Market chain.]

Fresh & Easy Developing Smaller Version of its 3K Square-Foot 'Fresh & Easy Express' Format Stores

Breaking Buzz & Analysis

Tesco-owned Fresh & Easy Neighborhood Market is currently developing a 2,000 square-foot version of its 3,000 square-foot 'Fresh & Easy Express' convenience-oriented food and grocery market, according to multiple sources familiar with the project.

Fresh & Easy is constructing a prototype of the 2,000 square-foot store inside a space it controls near the 10,000 square-foot Fresh & Easy Neighborhood Market unit in Los Angeles' Eagle Rock Neighborhood.

El Segundo, California-based Fresh & Easy Neighborhood Market used that very same space to build a mock-up of its 3,000 square-foot 'Express' format stores, of which their are currently about 10 units, all in Southern California.

The new 2,000 square-foot market, called an F2 in Fresh & Easy speak - the 10,000 square-foot stores for example are referred to internally at Fresh & Easy as F10's, the 3,000 square-foot stores F3's, and the handful of 7,000 square-foot markets the grocer operates are F7's - is basically a scaled-down version of the 3,000 square-foot stores, according to sources who are familiar with the project.

For example, current plans call for smaller refrigerated, frozen food and produce cases than in the 3,000 square-foot stores as a way to compensate for the reduced square footage, according to our sources. Some types of cases and shelving also could be eliminated for the same reason, our sources say.

Neither Tesco or its Fresh & Easy Neighborhood Market chain have announced the development of the 2,000 square-foot stores. This is the first time Tesco's plans for a smaller version of the 3,000 square-foot 'Fresh & Easy Express' store is being reported.

Analysis

The first question any food and grocery retailing analyst or grocer worth his or her salt should ask upon reading this report is: 'Why a 2,000 square-foot version of what already at 3,000 square feet is a very small-format grocery market.?

The answer to that question, according to our sources (and to our reporting and analysis of Tesco and its Fresh & Easy chain for five years on) - and it's what we said was the primary driving force behind the 3,000 square-foot 'Express' format in our stories about the stores last year - is that Tesco's Fresh & Easy is searching for ways to reduce its new store development and opening capital cost while still growing its store count.

Since launching its California-based small-format fresh food and grocery chain in 2007, Tesco has always said it will break even financially with Fresh & Easy - which lost about $245 million in its most recent fiscal year and has lost about $1.5 billion over its five year history - by achieving scale, which means opening numerous stores over a short period of time.

For example, from 2006 to 2010 Tesco said it still planned to have at least 500 stores in four-to-five years, on its way to 1,000 stores over an about six or seven year period, which would be 2013-end-to-2014. It said this despite the fact it's paused opening new stores for many months at least three times in Fresh & Easy's five year history. The most recent period being at present.

But in 2011, not long after he took over as CEO of Tesco in March of last year, Philip Clarke said the United Kingdom-based retailer planned to open just 400 Fresh & Easy stores, which would allow Tesco to break even with its U.S. grocery chain by the end of its 2013 fiscal year, which ends February 2013.

Not many months later Clarke and Tesco changed those plans, saying instead of the 400 Fresh & Easy units needed to break even by the end of fiscal 2013, it had figured out a way to do so with just 300 stores.

But then earlier this year Clarke and Tesco pushed back Fresh & Easy's break-even time to the end of its 2014 fiscal year, at which time the retailer says it will then break even with Fresh & Easy Neighborhood Market. Tesco kept - so far - the 300 store number as the number of Fresh & Easy units needed to break even by the end of the 2014 fiscal year.

There are 199 Fresh & Easy stores in California, Nevada and Arizona.

Tesco's 2014 fiscal year-end is about two years away. That means it will have to build and open 101 stores between now and then to reach 300 units, which Clarke and company say is needed to break even at that time.

But Tesco has essentially stopped opening Fresh & Easy stores, with the exception of one or two here or there.

Instead, the retailer has embarked on a cost-cutting campaign of limited sorts with Fresh & Easy, which begs another key question any industry analyst or grocer should ask: "How can Tesco open 101 stores in two years - which is half as many as it's opened over the last five years - when beginning a couple months ago it essentially stopped opening new Fresh & Easy stores?

In fact, even if Tesco were opening Fresh & Easy stores at its high-point-pace, it would be near physically and logistically impossible, and not very smart, to open 101 stores in two years, particularly considering the continued poor performance of the California-based grocery chain and its need to reduce costs and raise margin at it to even come close to breaking even with Fresh & Easy

The answer to the question, as it pertains to the micro small-format store prototype being developed, isn't that Tesco is going to open 101 2,000 square-foot grocery markets - the format in development. For example, it's opened just 10 or so of the 3,000 square-foot Fresh & Easy Express stores in the year or so since the first unit was opened.

There are numerous reasons why they won't do so but here's a simple reason why if they do it won't help: The best 10,000 square-foot Fresh & Easy stores do about $150,000 in average weekly sales, and there aren't many of those units. That would mean the best of the 2,000 square-foot stores would do - at best - about 40,000 in weekly sales. If scale, as in growing sales by growing store-count, matters, 101 2,000 square-foot stores, even if they all were stellar performers, which they won't be, doesn't add up to a whole lot of annual sales when one looks at the big picture.

But hopes and dreams of reduced capital costs without considering the fundamental question - can 2,000 square-foot grocery stores operated the way Fresh & Easy operates them make any money - it appears spring eternal at Fresh & Easy Neighborhood Market.

Therefore, the Tesco-owned chain is developing a smaller version of its 3,000 square-foot 'Express' store, shaving 1,000 square feet off the store size.

Perhaps Tesco hopes it can "shrink" (in terms of store size) rather than grow (recall those days of a 1,000-store chain) its way to break-even with Fresh & Easy.

But size does matter. And a 2,000 square-foot grocery market, like all small formats - including 3,000 and 10,000 square-foot grocery stores - are fraught with problems when it comes to making money. Just ask Walmart - the now folded 'marketside by Walmart' stores and its fledgling small-format Walmart Express, which despite being 15,000 square-feet is having economic struggles endemic to many small-format grocery stores, particularly those run by chains without a history of operating such stores.

Or ask Safeway CEO Steve Burd, who put an end to the California-based supermarket chain's 'The Market' format (10,000-14,000 square-foot grocery markets ) after just two test units has been opened and operated for about one-year each. Both stores, in Long Beach and San Jose, California, remain open but Burd killed further development of the format over two years ago.

According to our sources, at present there isn't a set date for when - or if - the first 2,000 square-foot Fresh & Easy store will open. However, our sources say, Fresh & Easy already has a number of locations for the stores scouted out, although much of the grocer's real estate team was fired last Wednesday, which is an important indication of the future of Fresh & Easy Neighborhood Market's new store development plans.

Those plans: Little to nothing going forward for the rest of this year in terms of acquiring new store sites - there are already dozens of Fresh & Easy sites that have been sitting fallow for as long as four-to-five years - and opening new Fresh & Easy stores.

[Editor's Note: Fresh & Easy Buzz is an independent Blog, and is not affiliated with Tesco, Tesco's Fresh & Easy Neighborhood Market, or any of its competitors. No member of the Fresh & Easy Buzz editorial team has ever or currently works for Tesco or its Fresh & Easy Neighborhood Market chain.]

Fresh & Easy Neighborhood Market Planning Major Renovations at Two California Stores

Companion Story: Fresh & Easy Neighborhood Market Plans to Test Full-Service Checkout at Two Stores in California

Breaking Buzz & Analysis

Tesco's Fresh & Easy Neighborhood Market is planning to make major renovations at two of its stores in California, Fresh & Easy Buzz has learned.

The two stores are at Main Street and Raymond Avenue in the Southern California city of Alhambra, and at Lincoln and Sterling in Lincoln, California, which is near Sacramento in Northern California.

The key element of the renovation and retrofit project will be the addition of full-service checkout lanes in both stores, as we reported in this related story.

Fresh & Easy will keep the self-service checkouts currently in the stores, but plans to add the full-service checkout lanes as an option for customers, which is something we've been saying for five years the Tesco-owned grocery chain needs to do in all its stores.

In addition to adding the full-service checkouts, Fresh & Easy plans a major renovation and realignment of the produce departments in the two grocery stores, adding new display fixtures, which will be wood, along with reusing some of the existing fixtures as part of the produce redo.

Renovation plans also call for adding a coffee bar in the front of both stores.

There will be a few other changes made in the stores as part of the project. But the addition of the full-service checkstands, the complete produce department redo, and the new coffee bar are the key elements of the planned project.

The renovation project might pose some problems for Fresh & Easy Neighborhood Market though, according to one of our sources who's very familiar with the project and the plans, because one of the 50 corporate headquarters employees fired last Wednesday was James Smith, who as a director headed up Fresh & Easy's  construction efforts.

Smith, who worked for Fresh & Easy for nearly six years until being dismissed Wednesday (he was among the first employees at the chain in 2007), is the only person who to date has managed retrofits like those planned at the stores in Alhambra and Lincoln for Fresh & Easy Neighborhood Market, according to our sources.

Our sources say Fresh & Easy still plans to go forward with the project, however, despite no longer having Smith on board.

A source familiar with the project and plans says it's going to be very difficult to pull the project off in the August time-frame, not only because of Smith's departure, but also because the only architect who's ever done such a major retrofit for Fresh & Easy, Rick Redpath, is no longer employed at the firm, Nadel Architects, heading up the project for the grocer.

We've also learned from another source that Fresh & Easy is using a new general contractor for this project instead of LPS, the contractor it's used in the past for similar retrofits.

"Basically, it's an entirely new team, good luck with that," says one of our sources, commenting on the difficulties that can arise when a completely new construction team handles retrofits like the ones planned for the Fresh & Easy markets in Alhambra and Lincoln.

On the other hand, "often new teams, out to prove their worth, can get the job done," another of our sources familiar with the renovation project says. He adds though that "with all that's going on at Fresh & Easy," where he worked for about five years but isn't one of the employees let go on Wednesday," it's hard to understand why they are doing these renovations now." It's basically too late, in my opinion," he says.

For us here at Fresh & Easy Buzz, the key element of the retrofits is the addition of the full-service checkout lanes in the two California stores, as we detailed in our companion story here.

If Fresh & Easy keeps to its plans, the renovations are set to begin in just a bit over two weeks, August 16, and set to be completed by the end of August. We'll be watching closely.

[Editor's Note: Fresh & Easy Buzz is an independent Blog, and is not affiliated with Tesco, Tesco's Fresh & Easy Neighborhood Market, or any of its competitors. No member of the Fresh & Easy Buzz editorial team has ever or currently works for Tesco or its Fresh & Easy Neighborhood Market chain.]

Fresh & Easy Neighborhood Market to Test Full-Service Checkout at Two California Stores

Companion Story: Fresh & Easy Neighborhood Market Planning Major Renovations at Two California Stores

Breaking Buzz & Analysis

Tesco's Fresh & Easy Neighborhood Market plans to begin testing full-service checkout lanes in two California stores beginning, if all goes as planned, by the end of August, Fresh & Easy Buzz has learned.

The full-service checkout tests will be at the Fresh & Easy store at Main Street and Raymond Avenue in the Southern California city of Alhambra, and at the Lincoln and Sterling unit in Lincoln, which is near Sacramento in Northern California, according to information we have from multiple sources in positions to know about the plans.

The two test stores will continue to offer self-service checkout. The full-service checkout lanes will be offered in the test as an option to customers.

The full-service checkouts are part of a retrofit project Fresh & Easy is doing at the two stores. See our companion story here.

According to our sources, Fresh & Easy's senior management hasn't yet put a time period on the test in terms of if and when they will decide to roll the full-service option out to additional units. There are currently 199 Fresh & Easy grocery markets in California, Nevada and Arizona.

The decision to test full-service checkout at the two Fresh & Easy markets - an interesting one because since 2007 when the first stores opened the grocery chain's CEO, Tim Mason, along with its corporate spokesperson, have said publicly Tesco and Fresh & Easy Neighborhood Market are fully committed to the self-service checkout system, essentially saying it's a winner - was quarterbacked by new retail operations chief Tim Ashdown.

We broke the news about Ashdown's coming on board at Fresh & Easy in this May 2, 2012 story. Before joing Fresh & Easy Neighborhood Market a couple months ago he was CEO of Tesco's operations in China.

Since joining Fresh & Easy, Ashdown has been been a busy guy. For example, he was responsible for deciding to fire 50 employees at Fresh & Easy's corporate headquarters on Wednesday of this week, as one way of many to attempt to reduce the losses at the Tesco-owned grocery chain. [See the piece by our 'The Insider' columnist here.]

According to our sources, CEO Tim Mason approved Ashdown's decision. Mason and Ashdown then left it up to the various Fresh & Easy line managers to decide which specific people to let go, although the line managers were given guidelines, the chief one being that a certain financial target needed to be reached, which meant many of the employees fired were at director level; the highest paid staffers after top-level management.

For nearly five years we've been saying in Fresh & Easy Buzz that one of Tesco's major fumbles from day one with its Fresh & Easy Neighborhood Market chain is that it offers only self-service checkout in its fresh food and grocery markets in California, Nevada and Arizona.

In fact, we've done far more than say so -- we've offered historical analysis on why offering self-service checkout only is folly, along with offering proactive suggestions on why Fresh & Easy is missing the boat by not offering both full and self-service checkout.

We've also offered a variety of examples in various stories about why not offering both full and self-service checkout is a major point of competitive disadvantage for Tesco's Fresh & Easy.

A few of those examples include the inability to accept paper checks and WIC vouchers at the stores, along with the plain and simple fact that, based on nearly 40 years' experience in the U.S. food and grocery industry, which has included doing studies on shopper preferences for full or self-service checkout (including in California), the empirical evidence simply is that by offering self-service checkout only, Fresh & Easy limits its potential universe of customers because the majority of grocery shoppers in the U.S. just don't want to scan and bag their own groceries, particularly when they can go to numerous stores that offer groceries at the same prices, and even for less, than Fresh & Easy does, full-service checkout and bagging included at no extra charge.

In our analysis, testing full-service checkout at only two Fresh & Easy stores makes very little sense because it offers little in the way of a representative sample, although it is less expensive then testing it in five or six stores, which would not only make better sense - two urban stores, two suburban stores and one rural store, for example - but would provide a much better picture in considering whether or not to roll it out chainwide.

Of course from our perspective - and since we've said from day one that offering self-service checkout only is a huge mistake for Tesco - it's a moot point because we would have both self and full-service checkout in all stores without question or hesitation.

The move, in our analysis, really comes too late for Fresh & Easy. The chain basically has a year to show dramatic improvement in terms of reducing its losses. If not, the notion of breaking even by February 2014, which Tesco CEO Philip Clarke says will happen, not only won't be achievable but will essentially be a moot point. The operative point being: Can Fresh & Easy be anything more that a chain that finally stops losing money for Tesco?

In order to grow Fresh & Easy, even if it were to break even by February 2014 (if it's still around), Tesco has to have confidence in investing money in that growth - and it needs the confidence of its investors to continue doing so, considering about $2 billion has already been invested, and around $1.5 billion has been lost in five years. That confidence doesn't currently exist, even, we suggest, when it comes to CEO Philip Clarke, his (infrequent these days when it comes to Fresh & Easy) public prognostications to the contrary.

Meanwhile, five years after launching Fresh & Easy, and five years after we first pointed out why Tesco made a major mistake offering only self-service checkout in its Fresh & Easy stores, the retailer will test full-service checkout at the two stores in California.

No announcement has been made of this test by Tesco or Fresh & Easy. It will be interesting to see how they position it, now that it's being reported on.

California recently passed a law banning the sale of alcoholic beverages at self-service checkouts in the state's grocery and other format stores that offer adult beverages for sale. That law is currently in court, being challenged by the California Grocer's Association, largely because of Fresh & Easy, which is a member, since none of the trade groups other grocer-members offer self-service checkout only in their stores. As such, this could be one way Fresh & Easy explains the need for the full-service checkout test at the two stores.

Tesco isn't in any position to tinker around the edges with two-store self-service checkout tests at Fresh & Easy though. If it believes in Fresh & Easy, it should add the full-service checkout options to all the stores post haste.

And that's the central question and proposition: 'Does Tesco believe in Fresh & Easy?' It's a theme we will be returning to in the coming days in our reporting, analysis and commentary.

[Editor's Note: Fresh & Easy Buzz is an independent Blog, and is not affiliated with Tesco, Tesco's Fresh & Easy Neighborhood Market, or any of its competitors. No member of the Fresh & Easy Buzz editorial team has ever or currently works for Tesco or its Fresh & Easy Neighborhood Market chain.]

Fear and Loathing in El Segundo: Mass Firings, Reduction in Store Hours at 33 Fresh & Easy Stores ... and More

The Insider - Heard On the Street

Regular followers (and if you aren't one, you should be) of our Fresh & Easy Buzz Twitter Feed are aware that for the last couple months we've been reporting there in real time on numerous interesting developments at Fresh & Easy Neighborhood Market's corporate headquarters in El Segundo, California - near-daily closed-door meetings in the offices of the CEO and retail operations chief, and the increasing use of interns to staff various positions, for example.

These developments, and two big ones announced to employees at yesterday's weekly staff meeting, are all about Tesco's struggle to stop the financial bleeding at now five-year-old Fresh & Easy, and its attempt to make good on the promise made by CEO Philip Clarke that the United Kingdom-based retailer will break even with Fresh & Easy Neighborhood Market by February 2014.

Clarke, a Tesco lifer (he started as a teenager stocking shelves) who became CEO of the global retailer in March 2011, said shortly after assuming the corner office from Terry Leahy that Tesco would break even with Fresh & Easy by February 2013. However, he added a year to his promise earlier this year, after Tesco reported a $249 million fiscal year loss at Fresh & Easy, which was a mere $4 million less than it lost on the grocery chain two years prior.

Mass Firings
Yesterday Fresh & Easy issued pink slips to between 40-50 employees at its corporate headquarters in El Segundo. The firings are designed to help Tesco cut its way to break-even with what former CEO Terry Leahy hoped and insisted (he still says it will be a success) would be the global retailer's American dream - Fresh & Easy.

But in the five years since Tesco launched Fresh & Easy it has invested around $2.3 billion and lost about $1.5 billion on the fresh food and grocery chain. The losses continue to the tune of nearly $5 million a week.

Tesco's original plan was to have at least 500-600 Fresh & Easy stores operating by now, on the way to 1,000 units in six to seven years from the November 2007 launch. Five years on there are 199 Fresh & Easy stores in California, Nevada and Arizona.

The firings yesterday were across the board rather than focused primarily on the real estate department as Tesco and Fresh & Easy's public relations representatives told various publications who reported it that way. There is a focus on real estate and construction but employees let go span the departments, from IT and operations to commercial.

Reducing Hours at 33 Stores

In a second attempt at cost-cutting - and this is the first time it's being reported anywhere - Fresh & Easy plans to reduce the store hours at 33 stores beginning soon. At present plans call for opening those stores at 9 a.m. instead of 8 a.m., and closing the poor-performing grocery markets at 8 p.m. instead of 10 p.m. Currently the standard hours for all stores is 8 a.m. (a few units open at 7 a.m.) to 10 p.m.

As part of this move, there will be some store-level firings and reductions in worker-hours at the 33 Fresh & Easy stores. Fresh & Easy Neighborhood Market, which hires all its store-level non-management workers on a part-time basis, has already been reducing hours of store employees chain-wide as part of its cost-reduction program designed to help it stop the bleeding at the fledgling grocery chain.

I'm also told by sources in positions to know such things that Fresh & Easy plans to cut some store-level jobs in existing units (besides the 33 stores) that have workers who came on board from the nearly 30 Fresh & Easy units that have been closed over the last couple years. Fresh & Easy absorbed these employees from the closed stores, which added to its labor costs.

And More

An additional move - what I call tinkering around the edges in terms of cost-cutting - Fresh & Easy also plans to eliminate the "Kitchen Table" food sampling stations in the few stores where they remain. (The grocery chain started a program to eliminate these stations in 2011 and replace them with mobile carts but still has some stores with the fixed food sampling kiosks.) The "Kitchen Table" fixed-kiosks are staffed full-time by an employee, hence their elimination in stores where they remain.

The headquarters firings have been a long time coming. Why? Not because the workers didn't do their jobs but because, as we've been saying regularly for years in the blog, the Fresh & Easy model and business just doesn't, in its present incarnation and management, have the legs to achieve break-even in any other way but by making massive operational expense cuts -- and that's what Tesco has essentially concluded. Fresh & Easy has also from the beginning been overloaded with senior and middle management for a chain its size.

Meanwhile, moral at Fresh & Easy's corporate office in El Segundo is lower than it's ever been, according to numerous employees who work there, despite whatever spin its CEO and public relations staff may put on it. I know of numerous employees there looking for new jobs. Some have even created a saying, "The interns are taking over," reflecting Fresh & Easy's growing use of the college students and recent graduates throughout the headquarters operation.

Moral is down at store-level as well. For example, I know of a group of top managers who, frustrated by Fresh & Easy senior managements inability to improve the chain's performance, have been meeting to talk about whether or not they have a future at the grocery chain.

Here's what one store manager told me today, in fact: "Having talked to many store managers today, the feelings are not good.  Most of the talk is around what we should do. Stick it out or get out now?  The consensus was it's time to start seriously looking. A few people are hoping to be bought by someone else."

The firings at corporate headquarters and other changes detailed in my piece are just the beginning at Tesco's Fresh & Easy. More cost-cutting is coming, as are other changes.

The cost-cutting is all about Tesco being able to show some progress in terms of reporting less of a loss (than last half year) for the upcoming fiscal half year. If it achieves that, Tesco can tell the many investment firm analysts who follow it, who will then report it to their investor-clients, that progress is being made. CEO Clarke needs this because it's crunch time - he can't remain credible if he were to change the break-even date for Fresh & Easy once again, say to February 2015 instead of February 2014, for example.

But CEO's are supposed to be big picture, policy guys - that vision thing, as former U.S. President George H.W. Bush liked to call it - not bean counters. Therefore, Philip Clarke should be asking himself one central question, which is: 'What is my vision for Fresh & Easy Neighborhood Market in America and how can Tesco achieve it?' But what, in my opinion, Clarke is probably asking himself is this: 'Can I get Fresh & Easy to break-even by February 2014, as I've publicly said I would, and then find a buyer for it?'

-The Insider

[Editor's Note: Fresh & Easy Buzz is an independent Blog, and is not affiliated with Tesco, Tesco's Fresh & Easy Neighborhood Market, or any of its competitors. No member of the Fresh & Easy Buzz editorial team has ever or currently works for Tesco or its Fresh & Easy Neighborhood Market chain.]

West Coast Bound - Aldi USA Headed to Southern California; First Stores to Open in 2013

Discount grocery chain Aldi USA is headed to Southern California in a big way -- and soon.

The hard-discount grocer, which is headquartered in Germany and has its U.S. corporate office in Illinois, will set up shop in Southern California in the coming months, with plans to open its first stores in the region in nine months to a year, Fresh & Easy Buzz has learned.

Aldi plans to open about 100 stores on the west coast during its first two years (starting in 2013) of operation, according to our sources who are familiar with the grocery chain's plans.

Aldi also has longer-term plans in the west, following those first stores in Southern California, to eventually open its small-format (about 10,000 square-foot) grocery markets throughout California and in other nearby western states, including Nevada, Arizona and others, according to our sources.

Aldi USA currently plans to build and open a distribution center in Riverside County, California, where Tesco has its 850,000 square-foot facility for its 190-plus-store Fresh & Easy Neighborhood Market chain, to serve its stores in Southern California and elsewhere on the west coast. Construction of the distribution facility is set to begin soon, according to our sources.

As part of its plans to open its first stores in Southern California in nine months to one year, Aldi USA is currently looking for a buying director and buying manager, both of which will be based in the region.

Aldi representatives are interviewing candidates for the positions tomorrow and Wednesday in Southern California. Once hired, the buying managers will move to Chicago for an eight month training period, where they will be trained at Aldi's corporate office and in its stores in the region. They, along with numerous other regional employees, will then be based in Aldi's west coast offices in Southern California.

The buyer manager candidates being interviewed this week have been selected for Aldi by an executive search firm, Reaction Search International.

In addition to the key buying/merchandising positions, Aldi USA will soon be hiring for other positions for Southern California and the west coast, ranging from other corporate headquarters functions to the planned distribution center in Riverside, and for the stores.

The arrival of Aldi in Southern California will be a major game-changer in the region, as has been the case in each market the discount grocer has entered in the U.S., which includes the Midwest, South, Mid-Atlantic, eastern and Southwest (Texas) regions in the U.S. Aldi currently has about 1,300 stores in the U.S.

Aldi, which is privately-held and keeps such developments very close to the vest, has not announced its upcoming plans for Southern California and the west coast, not is it confirming our report. But our information comes from multiple sources, all in positions to know the details reported on in this piece.

More to come...

Fresh & Easy Buzz will be on hiatus from May 3-June 1, 2012.

Reshuffling at the Top at Tesco: Retail Chief Adams Leaving Fresh & Easy For Turkey; China CEO Ashdown to Replace Him; Richie to Head China Operations

Jeff Adams, Fresh & Easy Neighborhood Market's top retail operations executive, is leaving the El Segundo, California-based grocery chain to become CEO of Tesco Kipa in Turkey, Fresh & Easy Buzz has learned.
He will be moving to Izmir, Turkey, where Tesco Kipa is based, later this month.

Adams is being replaced at Fresh & Easy by Tim Ashdown, a 31-year Tesco veteran.

Ashdown has held a variety of international positions at Tesco. Currently he's CEO of Tesco's operations in China. Before taking over in China, Ashdown was chief operating officer of Tesco-Homeplus in Korea. Prior to that was operations director at Tesco's global headquarters in the UK.

Paul Ritchie is replacing Tim Ashton as CEO of Tesco China.

Richie joined Tesco in 1980. He's been CEO of Tesco Kipa in Turkey for three years. Prior to that position he was head of development for the retailer's Tesco Express stores and business in the UK. Trevor Masters, Tesco's CEO for Asia, is also going to be spending more time in China, which is a key growth market for Tesco, Clarke said in the internal e-mail to company employees.

The changes involving Adams' move from Fresh & Easy to Tesco Kipa, along with those involving Ashdown and Richie were announced today by Tesco CEO Philip Clarke in an internal memo to company employees. Neither Tesco or its Fresh & Easy chain have publicly announced the leadership changes.

A Tesco source familiar with the reasons behind the move says it in part has to do with a desire by CEO Philip Clarke to bring in somebody new at Fresh & Easy who the believes has a strong operational focus and isn't afraid to "crack the whip" on store operations.

Shortly after he became CEO of Tesco in March 2011, Clarke, who ran Tesco's operations in Asia and Europe - Ashdown reported to Clarke at that time - announced that the United Kingdom-based retailer would break even with Fresh & Easy by February 2013. But when Tesco reported a $245 million loss for Fresh & Easy on April 18, Clarke announced it would instead push-back that date, saying it will now break-even with Fresh & Easy by early 2014.

The $245 million loss at Fresh & Easy Neighborhood Market for Tesco's 2011/12 fiscal year is only an $8 million improvement from the $253 million Tesco lost on Fresh & Easy two years ago. If Clarke's promise that Tesco will break even with Fresh & Easy by early 2014 were to come true, it would mean in just two years the retailer would be able to go from a $245 million loss this year to a zero loss by the end of February 2014.

United Kingdom-based Tesco transferred Jeff Adams, who at the time was the CEO of its Tesco-Lotus division in Thailand, to its then start up El Segundo, California-based Fresh & Easy chain in 2008 to co-direct (co-executive vice president of retail operations) retail operations with Brian Pough, who left Tesco and Fresh & Easy not long after Adams' arrival and currently is a senior retail executive with the Walgreens' drug chain, where he focuses on the food and grocery segment at its corporate hheadquarters in Illinois.

Following Pugh's departure, Adams was put in sole charge of Fresh & Easy's retail operations and given the title of executive vice president of retail operations.

Adams is the second senior executive to leave Tesco-owned Fresh & Easy Neighborhood Market in six months. In early November, Fresh & Easy Buzz broke the news that chief marketing officer Simon Uwins was out at the El Segundo-headquartered grocery chain. Following our scoop, which revealed the changes being made in the marketing department at Fresh & Easy, the grocery chain's spokesperson announced his departure.

Related Stories

September 22, 2008: Key Personnel Breaking News: Co-Vice President of Retail Operations Brian Pugh No Longer Employed At Tesco Fresh & Easy Neighborhood Market

May 29, 2008: Tesco Makes Official Announcement of Jeff Adams' Title and Position at Fresh & Easy Corporate; Confirms Our Report of March 5

March 12, 200: Breaking News: Tesco plc. Makes Major Personnel Change to Fresh & Easy Neighborhood Market USA Senior Management Team

November 10, 2011 Chief Marketing Officer Uwins Out in Top-Level Reshuffling at Tesco's Fresh & Easy Neighborhood Market

Dollar General's California Dream Becoming Reality

Tennessee-based discount retailer Dollar General has been moving hard and fast in Northern California, particularly in the Central Valley, since we first revealed the discount retailer's big plans for the market region in this December 5, 2011 story: Dollar General Jump-Starts California Launch: Taking Over 5 Centro Mart Supermarkets For Early 2012 Openings.

In the mere four months since we published the report, Dollar General has hit the ground running, focusing on its Dollar General Market grocery stores and traditional dollar format stores in the region.

Below is what the mega-discount retailer, which operates 10,000 stores in 39 U.S. states, is up to:

>First store opened: Dollar General opened its first Dollar General Market grocery store in the region March 31, at 1729 West Highway 140, in Merced, California.

The grocery market was store number 10,000 for Dollar General, and it went all out for the grand opening, offering activities for shoppers including: a free make-up consultation from representatives of  L’Oreal and Maybelline; photographs for the kids with characters Sponge Bob, Bimbo Bear and the Energizer Bunny; and food sampling, offering numerous products sold at Dollar General. Additionally, the first 500 customers to arrive at the store for the 9 a.m. grand opening received a free ham and a reusable tote bag filled with product samples and coupons

>Store manager search: The retailer is currently advertising for store managers for its three Dollar General Markets in Stockton, California and the unit in the East Bay Area city of Brentwood. These are four of the five stores Dollar General is leasing from Stockton-based supermarket chain Centro Mart, as we detailed in our December 5, 2011 story. The fifth former Centro Mart unit, in Stockton, will be a Dollar General dollar format store. The four Dollar General Market grocery stores and the dollar store are set to open in the coming weeks.

>Regional director wanted: Dollar General is advertising for a regional director for its dollar stores and Dollar General Market stores for California and Nevada.

According to our sources, the retailer plans to open 150-200 units combined of both formats in California and Nevada over the next two-to-three years.

So far Dollar General has seven stores open in Nevada and six units in California. Dollar General CEO Rick Dreiling said in a March 22, 2012 conference call with financial analysts that the retailer plans to have 50 (grocery stores and dollar stores combined) units open and operating in California by the end of the year.

>More stores: In our December 5, 2011 story we reported Dollar General had plans to open numerous other Dollar General Market (which offer groceries along with perishables, fresh meat and produce) and dollar store units, which carry perishable and dry grocery consumables along with general merchandise items but not meat or produce, throughout Northern California, with a major focus on the Central Valley.

Above: The location of the Dollar General Market in the Gregory Gardens shopping center, Modesto, California.

Thus far we've discovered the following planned Dollar General Market grocery store units in the region: two units in the Fresno area, at Fruit and McKinley in Fresno and Bullard and Minnewawa in nearby Clovis (both are former Save Mart supermarkets which the Modesto-based chain had previously closed); a Dollar General Market in Modesto, in the Gregory Gardens shopping center at 2003 Tully Road, between Bowen and Briggsmore (the retailer has also signed a lease for a dollar format store at 510-560 North Main Street in Modesto); and a Dollar General Market in Winton, which is next door to Merced, where the first store in the region opened March 31.

Dollar General is currently advertising on a variety of online job sites for managers for the Modesto and Winton grocery markets, which are set to open in the coming weeks.

Distribution center

As we reported in our December 5, 2011 story, Dollar General has established a distribution center near Bakersfield, California to service its grocery and dollar format stores in California, Nevada, Arizona and New Mexico. The facility opened this month.

Major growth plans

Dollar General plans to open approximately 625 new stores this year, the majority of which will be its flagship dollar format stores, which average about 7,000 square feet, CEO Dreiling said in the March 22 conference call. Additionally, according to the CEO, the retailer plans to remodel and relocate about 550 stores in 2012.

The retailer opened 625 new stores in 2011, along with remodeling or relocating 575 units, for a net increase in square footage of 7%, Dreiling said.

Dreiling said in the March 22 conference call that Dollar General has about 40 new Dollar General Market grocery stores set to open this year, the majority of which will be in California, Nevada and Arizona.

Last year the retailer opened seven new Dollar General Market stores, seven of which were in Nevada (its first new market since 2006), and remodeled 25 existing grocery markets.

There are currently 70 Dollar General Market grocery stores in the U.S.

The grocery stores, which average 10,000-15,000 and offer a selection of grocery items, perishables, frozen foods, produce, meats and general merchandise, are a key element of Dollar General's strategy for California.

Part of that strategy is to focus on food deserts, regions and cities that are currently underserved by grocery markets offering fresh food and groceries at reasonable prices.

The Dollar General Market format is focused on everyday low prices. A number of industry surveys, for example, put the store's prices on par with Walmart for fresh food, groceries and general merchandise items. Dollar General also runs weekly ads for the grocery markets and sometimes offers store coupons, such as $5 off purchases of $25 or more.

Inside a new generation Dollar General Market. [Photo credit: Dollar General, 09/27/11.]

Good fiscal 2011

Dollar General had a good 2011 fiscal year on all metrics. Its full-year sales increased 13.6% to a record $14.8 billion. There was an extra week in the fiscal year. Excluding that 53rd week, full-year sales increased to 11.4%.

Sales-per-square-foot for fiscal 2011 increased to $209, compared to $201 a year ago. Average sales-per-store came in a bit over $1.5 million.

The 2011 fiscal year also marked the 22nd consecutive year of same-store-sales growth for Dollar General. Same-store-sales were up 6% for the year, with all regions reporting positive comps, according to CEO Dreiling. Dollar general is forecasting a same-store-sales increase of between 3%-5% for the current fiscal year.

Dollar General's adjusted operating profit grew 17% in 2011 over the previous year to a record $1.5 billion and a record 10.2% of sales.

The retailer posted a 31.7% gross margin rate for 2011, which was 31 basis points below the previous year but was 246 basis points higher than in 2008, the first full year of the "great recession."

On the bottom line, Dollar General's adjusted net income increased 26% over 2010, which is an impressive performance.

Dollar General also launched and e-commerce website in 2011, which will not only bring it added revenue but should prove to be a good source of data over time. For example, the retailer is currently in 39 states. Purchasing data from the site over time could prove valuable as Dollar General looks at which of those remaining states it wants to open stores in first.

A closer look inside the Dollar General Market. [Photo credit: Dollar General, 09/27/11.]

Dollar General's impact

It's difficult to forecast whether or not Dollar General will be a major player in the food and grocery retailing business in California in general and in the Northern California/Central Valley region specifically for a couple reasons.

First off, selling food and groceries isn't something the retailer has a solid track record of doing. In fact, a couple years ago Dollar General considered shuttering its Dollar General Market format and stores completely. However, it instead developed a new Dollar General Market prototype in Dallas, Texas, which is the model for the remodeled and new stores, and is going forward with the chain, including emphasising the grocery markets as part of its two-format strategy in California and Nevada, as previously noted.

Second, California has no shortage of seasoned grocery chains and independents, with more coming, like Walmart with its Neighborhood Market supermarkets (see the story link at bottom), for example. But Dollar General's focus on undeserved regions and cities in the Golden State, such as the locations in the Central Valley detailed earlier, could be a very smart move for the retailer with its Dollar General Market stores, which have a low everyday price focus.

For example, Tesco's Fresh & Easy Neighborhood Market, which continues to lose millions of dollars a week with its 10,000 square-foot grocery markets, isn't opening any new stores in California's Central Valley despite having numerous sites in cities like Bakersfield, Fresno, Modesto, Los Banos and Stockton, most of which its been sitting on for three to four years.

Fresh & Easy did finally open its first five stores in Sacramento (see story links at bottom), where Dollar General also plans to open a number of its grocery markets and dollar stores (the first unit we've discovered will be in the Grand Oaks shopping center at 7963 Auburn Boulevard in the Sacramento suburb of Citrus Heights), in March. Tesco now has 196 Fresh & Easy stores. There are 142 units in California, 24 stores in Arizona and 20 units in Arizona.

Dollar General's two-format - the grocery stores and dollar stores - strategy in California should be a powerful one though, allowing it to establish its brand in the Golden State (and in Nevada) much faster than if it was only going with a single-format approach. For example, the dollar format stores also offer a considerable selection of groceries and general merchandise items, along with some perishables and frozen foods (two categories Dollar General is expanding in the stores), which should allow the retailer to establish itself in the highly competitive Golden State faster than if it were doing a single-play strategy only.

We'll keep you updated like only Fresh & Easy Buzz can on Dollar General's march through California, which is just getting started.

Related Stories

December 5, 2011: Dollar General Jump-Starts California Launch: Taking Over 5 Centro Mart Supermarkets For Early 2012 Openings

April 3, 2012: Getting Real in the Golden State: First Group of 13 Walmart Neighborhood Market Stores Opening in California This Fall

March 9, 2012: Scoop Confirmed: Sprouts Announces Acquisition of Sunflower Farmers Market

February 9, 2012: Confirmed: First 2 Fresh & Easy Stores Open in Sacramento March 7; 3 in Metro-Area March 14

January 18, 2012: Fast-Growing The Fresh Market Chain On Track to Launch in California This Year

August 29, 2011: Meaningful Move or Too Little Too Late? Fresh & Easy Neighborhood Market Planning Early 2012 Metro Sacramento Market Launch

August 3, 2011: Fast-Growing Specialty Grocer The Fresh Market Targeting Mid-2012 For First California Store

August 31, 2011: Tesco Says Sayonara to Japan, Good Morning to Sacramento

Getting Real in the Golden State: First Group of 13 Walmart Neighborhood Market Stores Opening in California This Fall

Walmart Neighborhood Market in California

We first reported in this July 2010 story [July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store] that Walmart Stores, Inc. was looking for locations in California for its Walmart Neighborhood Market supermarkets, which range in size from about 30,000-45,000 square feet.

To date Walmart has operated its mega-supercenters and discount format stores only in California, many of which it's been converting over the last few years to hybrid supercenters offering food and groceries, but not its Neighborhood Market grocery stores.

We followed our July 2010 report and analysis piece up with other stories, like this one in January 2011 about the Bentonville, Arkansas-based global retailer's plans to launch its Walmart Neighborhood Market format in the Golden State. In the January piece and in others, we reported on specific locations in California where Walmart would be opening its Neighborhood Market stores.

It's been a long reportage road from our first reports in 2010 about the mega-retailer's plans to open Walmart Neighborhood Market supermarkets in California to the present.

But it's been a fruitful journey.

Why? Because Walmart Store's, Inc. has now announced - and in our case confirmed because many of the store locations it's announced are those we already reported on - the first Walmart Neighborhood Market locations it plans to open, beginning this fall, in California.

Inside a Walmart Neighborhood Market supermarket. Photo courtesy Walmart Stores, Inc.

Below are the locations of those 13 (Walmart obviously isn't superstitious) supermarkets, along with all the key data grocery industry wonks and consumers alike like to see.

Walmart has other Neighborhood Market locations already booked in California, a couple of which are mentioned in our previous stories. In addition, the retailer is looking for more sites for its Walmart Neighborhood Market supermarkets throughout California.

We will be writing about Walmart's launch of its Walmart Neighborhood Market supermarkets in California from now until the end of the year, including reporting on some of those additional locations.

We'll be using this header: 'Walmart Neighborhood Market in California,' in those stories.

As of today we expect the first Walmart Neighborhood Market stores in California to open in the October-November time period. One of the first, if not the first unit, will be in Lincoln, California near Sacramento, where Tesco's Fresh & Easy Neighborhood Market opened a store in March 2012.

Walmart Stores, Inc. currently has 168 Neighborhood Market stores in the U.S., with plans to double the store- count over the next couple years. As we've said a number of times in Fresh & Easy Buzz, California will play a major role at Walmart in the growing of that store-count. Stay tuned.

[Read our extensive four-plus years of reporting, analysis and commentary about Walmart Stores, Inc., including its Walmart Neighborhood Market and other smaller format grocery stores at the following links: Wal-Mart, Wal-Mart Stores Inc, Walmart, Walmart Stores.]

The Walmart Neighborhood Market supermarket (an urban version) in Chicago's West Loop Neighborhood, which opened earlier this year. The store is about 31,000 square feet. Photo courtesy blog.chicagoarchitecture.info.

Walmart Neighborhood Market in California

Walmart Neighborhood Market - 13 Confirmed California Store Locations

Confirmation sources: Delia Garcia, Walmart West. Steven Ristivo, Walmart Stores, Inc., senior director of community affairs.

SOUTHERN CALIFORNIA

1. City: Los Angeles
County: Los Angeles
Address: Corner Grand Avenue and Ceasar Chavez Avenue. Downtown, on outskirts of Chinatown.
Square-footage: 33K. Ground floor of senior citizens' residential complex.
Current target opening: Early-to-mid-2013. Construction to begin summer 2012

2. City: Huntington Beach
County: Orange
Address: Corner Beach Boulevard and Atlantic Avenue. Former Rite-Aid drug store building
Square-footage: 31K
Current target opening: August 2012

3. City: Rancho Santa Margarita
County: Orange
Address: 30491 Avenida de Las Flores. Avenida de los Flores and Antonio Parkway
Square-footage: 33K
Current target opening: August 2012

4. City: Camarillo
County: Ventura
Address: Camarillo Town Shopping Center. 275 West Ventura Boulevard. Vacant Linens and Things building
Square-footage: 34-36K
Current target opening: Late 2012

5. City: San Diego
County: San Diego
Address: Logan Heights. Imperial Avenue between 21rst and 22nd Streets, near downtown. In historic former Farmers Market building. Neighborhood is underserved by grocery stores offering fresh food and groceries at affordable prices.
Square-footage: 48,800K
Current target opening: Late 2012/Early 2013

NORTHERN CALIFORNIA

San Francisco Bay Area

6. City: Pleasanton/East Bay
County: Alameda
Address: Meadow Plaza shopping center. 3112 Santa Rita Road. Santa Rita Road and Stoneridge Drive
Former Nob Hill Foods' (Raley's owned) supermarket building. Near Safeway Stores, Inc.'s corporate headquarters. Less than a mile from a Safeway store and a Fresh & Easy market.
Square-footage: 31K
Current targeted opening: Late 2012/Early 2013

7. City: San Ramon/East Bay
County: Contra Costa
Address: Country Club Village Shopping Center. 9100 Alcosta Boulevard. Former Ralphs' supermarket and La Asia supermarket building. Closest competitor: Save Mart-owned Lucky supermarket, less than one mile away.
Square-footage: 33-36K
Current target opening: Fall 2012

8. City: Hayward/East Bay
County: Alameda
Address: 2480 Whipple Road. Former Circuit City building
Square-footage: 33-35K
Current target opening: Late 2012/Early 2013

9. City: San Jose
County: Santa Clara
Address: Westgate Mall. 1600 Saratoga Avenue
Square-footage: 38K. Recently closed Safeway store
Current target opening: Fall 2012

Sacramento Region

10. City: Sacramento
County: Sacramento
Address: Taylor Center. 2700 Marconi Avenue. Marconi Avenue and Fulton Avenue. Former Goore's children's store building. Prior to 1999, when Goore's moved in, was a the American Stores' Inc. Lucky supermarket. Goore's closed in fall 2011.
Square-footage: 32-36K*
Current target opening: Late 2012/Early 2013

11. City: Granite Bay (Roseville border)
County: Placer
Address: Sierra Oaks shopping center. Douglas and Sierra College boulevards. Former Grocery Outlet store, plus additional square-footage attached to the building but previously not used by Grocery Outlet.
Square-footage: 43K
Current target opening: Late 2012-to-early-2013

12. City: Lincoln
County: Placer
Address: Highway 65 and Second Street. Former Rainbow Market building
Square-footage: 31-32K
Current target opening: Fall 2012

13. City: Modesto
County: Stanislaus
Address: Coffee and Orangeburg shopping center. Corner Coffee Road and Orangeburg Avenue. Former Dollar Superstore building (26K sq. ft.. Plus, former Leslie Pool Supply building next door (10K sq. ft.)
Square-footage: 36K.
Current target opening: Late 2012-to-early 2013

Shoppers Can Swap 'Pink Slime'-Laced Ground Beef For 'Slime-Free' At Fresh & Easy

Fresh & Easy's fresh&easy brand ground beef (above) is free of the ammonia-treated filler "pink slime," Photo courtesy of www.ninjashopper.blogspot.com.

'Pink Slime-Free Wednesday' at Tesco's Fresh & Easy - Analysis & Commentary

When the news many U.S. food and grocery retailers sell ground beef laced with the ammonia-treated filler "pink slime" (we've known about it for many years, as have many others with experience in the industry) hit the mass media like a ton of frozen ground chuck last week, we offered grocers some immediate advice via these two tweets on the Fresh & Easy Buzz Twitter feed, on March 17:

>Tweet One, March 17, 2012: #Grocers take note: If you don't sell #hamburger containing #pinkslime, tell the world. Why? It's now a point of competitive advantage.

>Tweet two, March 17, 2012: "The Corollary: if you're a #grocer selling #hamburger containing #pinkslime, drop it. Slime and #food are antithetical in consumers' minds.

Tesco's Fresh & Easy Neighborhood Market, which does not use "pink slime" in its hamburger, is doing just what we said grocers should do in the first tweet above on March 17, which is to tell the world - in Fresh & Easy's case consumers in California, Nevada and Arizona where it has its nearly 190 grocery stores - there's no "pink slime" being used as filler in the ground beef offered for sale in its stores.

And Tesco's Fresh & Easy is "telling the world" it doesn't and has never used "pink slime" in its ground beef in a smart and creative way.

On Wednesday, March 28, Fresh & Easy Neighborhood Market is holding a "Pink Slime Swap Meat" at all its stores. Consumers can bring up two two pounds of fresh or frozen ground beef from another retailer to any Fresh & Easy store and exchange it for a package of fresh&easy (80/20) ground beef at no cost.

As part of the promotion Fresh & Easy is also asking interested customers to use the hashtag #SwapMeat on their Twitter and Facebook sites on Wednesday as part of the "pink slime" ground meat swap out. (80/20 refers to the ratio of lean meat to fat in the ground beef.

According to Tim Mason, CEO of Fresh & Easy, the Tesco owned fresh food and grocery chain "grinds all of its own meat, using only fresh, never frozen beef."

Mason is also inviting customers who have questions about the "pink slime" issue, Fresh & Easy's meats, or any other and Fresh & Easy private brand products to e-mail him at tim@freshandeasy.com, saying in a statement issued just moments ago: "It’s understandable that people would lose confidence in food retailers because of the use of pink slime. Fresh & Easy has never been about shortcuts or fillers - just high-quality fresh food that we produce ourselves, so we know it’s the best."

All the meat sold in the Fresh & Easy stores is cut and ground at the retailer's food and distribution facility in Riverside County, California, where its also packaged. The fresh meats are then shipped to the stores in California, Nevada and Arizona. Unlike most other grocery stores and supermarkets, the Fresh & Easy markets don't have meat departments in-store.

In our March 17 tweet advisory to grocers that don't use "pink slime" in their ground beef, we said touting that fact offers a competitive advantage if done in a timely manner.

The reason this is so is because the "pink slime issue has already a major food safety - not to mention a gastronomical nightmare - with consumers. Like we said on March 17 in our second tweet to grocers that do use "pink slime" in their ground beef: "The Corollary: if you're a #grocer selling #hamburger containing #pinkslime, drop it. Slime and #food are antithetical in consumers' minds." The conflicting concepts are also hard to swallow when it comes to consumers' stomachs.

Most grocers that have been using pink slime are doing just that - stopping the practice and announcing it to the consuming public.

In our analysis Fresh & Easy's "Pink Slime Swap Meat" is a home run on numerous levels.

First, it's a creative yet a simple concept, which are the best kind to communicate to consumers.

Second, and most importantly, it takes advantage of the competitive advantage opportunity not using "pink slime" in ground beef offers grocers like Fresh & Easy, in terms of offering to exchange consumers "pink slime"-laced ground beef for a "pink slime"-free substitute - fresh&easy brand - at one of the grocery chain's stores.

The key potential short-term competitive advantage with this is that it might drive shoppers who've previously never stepped foot into the Fresh & Easy stores into the small-format grocery markets. There's also a branding opportunity for the grocer with its fresh&easy brand in the fresh meat category.

Fresh & Easy's "pink slime"-laced ground beef swap out on Wednesday should draw some attention to the grocery chain in general, and more significantly to the healthier food store position and brand Tesco has been and is attempting to stamp on its Fresh & Easy Neighborhood Market operation. This offers a potential competitive advantage element in the chain's long-term efforts to convince consumers that Fresh & Easy equals healthy, safe and tasty foods.

Free, as in bring in your pink slime ground beef, and get pink slime-free hamburger in return for no charge, is a powerful message and concept, as is the fact the trade out is as easy as meat pie.

Lastly, the creative "pink-slime"-laced ground beef for "pink slime"-free swap out concept has an element of fun to it, which combined with all of the above elements adds power to the event. It's also a good news hook which we are certain the mainstream media will pick up on.

One important caveat though to such promotions: Grocers must be very careful they operate a fully integrated "clean food" operation when they go this route. Why? Because if they don't, they could be caught in a pink slime situation of their own, and having challenged competitors previously with this type of promotion therefore would put them in an extremely vulnerable place should such a thing occur.

We give Tesco's Easy Neighborhood Market high marks across the board - creativity, practical application competitive advantage opportunity, ect., for its ground beef trade out event planned for Wednesday.

Most all grocers who've been using "pink slime" in the ground beef they offer for sale are dropping it. Many have already done so. In our analysis, the rest will do so in the days ahead. After all, what food retailer in its right mind wants to be know as the grocer with the "pink slime"-laced hamburger in its stores?

Therefore, we predict any competitive advantage from the "pink slime" issue will be rather short-lived. Most food retailers are acting rapidly to no longer stock ground beef laced with the garbage. Consumers will forgive, as long as those grocers guarantee their ground beef is now "slime free."

As a result, grocers like Fresh & Easy are wise to strike while the grill is hot because a couple months from now we doubt the topic of "pink slime" will be getting much attention.