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

Fry's is turning up the heat, touting low prices at its Arizona stores on billboards like the one above in the Phoenix suburb of Chandler, as well as through promotions like its "competitor coupon match" program. The text on the billboard says: "For two years running, retail independent services have ranked Fry's #1 in low prices of traditional grocers in Arizona." Click on the photo to enlarge it.

Metro Phoenix, Arizona Market region
News/Analysis

Kroger Co.-owned Fry's Food Stores didn't wait long to bring back its "competitor take-all" "coupon match" program in the white-hot-competitive metro Phoenix, Arizona food and grocery retailing market.

We last wrote about Fry's extremely successful coupon promotion, in which it accepts the store coupons issued by all of its major competitors, along with doubling the value of all manufacturers' cents-off coupons up to a dollar, in a November 2010 piece - November 19, 2010: Kroger-Owned Fry's Store Coupon Jujitsu Ensnares Tesco-Owned Fresh & Easy Neighborhood Market in Arizona.

Fry's ended the "competitor coupon match" promotion in late December 2010. But the Kroger-owned grocery chain has brought it back for 2011, beginning this week, on January 26, and running until the grocer gives further notice. The promotion is good in all of the grocer's 120-plus Arizona stores. Metro Phoenix, where most of the states residents live, is where the majority of food and grocery dollars are spent in Arizona.

Under the promotion, Fry's is accepting store coupons issued by the following grocery chains doing business in Arizona: Albertsons, Safeway Stores, Bashas', Fresh & Easy Neighborhood Market, Sunflower Farmers Market, Sprouts Farmers Market, Walmart Marketside, Walmart Neighborhood Market, Whole Foods, Target, AJ’s, Trader Joe's, Food City and Pro's Ranch Market.

As we've said in past stories about the Fry's promotion, the default target of the store coupon aspect of the promotion ends up being Tesco's Fresh & Easy Neighborhood Market, because out of all the grocers listed above, its the only chain that issues discount store vouchers on a regular basis. These are the Fresh & Easy $5-off purchases of $20 or more; $6-off-$30; $10-off-$50 and the like store coupons the grocer has in distribution at virtually all times, as we written about extensively in Fresh & Easy Buzz.

If you're skeptical about our analysis that Tesco's Fresh & Easy Neighborhood Market is the default target (meaning the program isn't specifically aimed at Fresh & Easy exclusively but it's the competitor most affected anyway) of Fry's "coupon match" promotion, take a look here.

Additionally, take a look at what Fry's shoppers are saying about the return of the grocery chain's "coupon match" program here and here.

A few of Fry's other major competitors, like Albertsons, Bashas' and Safeway and a couple others, issue store coupons - such as $10-off-$50 and $25-off-$100 versions. But they do so on a sporadic basis, compared to Fresh & Easy's regular use of the discount vouchers. Fry's issues its own store coupons on occasion, such as a $5-off purchases of $35 or more voucher and a $10-off purchases of $100 or more version.

Another reason Fry's promotion targets Tesco's Fresh & Easy most directly, although as we've said that's not the strategy behind it for the Kroger chain, is because the Fresh & Easy neighborhood Market stores don't take manufacturers' cents-off coupons as a matter of policy.

In the program, Fry's Food Stores allows shoppers to combine the use of one of these store coupons, such as a $6-off-$30 voucher from Fresh & Easy, with their manufacturers' coupons, deducting both types from customers' total grocery order purchases at checkout.

For example, suppose mom or dad head off to a Fry's supermarket with a grocery list, a $6-off purchases of $30 or more Fresh & Easy store coupon, and a stack of manufacturers' cents-off coupons, each having a face-value of 50 cents and over.

Once at the store, our grocery shopper then fills his or her cart with an assortment of food and grocery items - ranging from milk and bread, to packaged snacks, household cleaners, breakfast cereals and more.

At the checkout lane our shoppers hands the grocery checker the coupons, then braces herself for the total, as the Fry's clerk scans the items.

The pre-coupon deduction total just so happens to end up being $50, right on the button.

Smiling, the friendly Fry's checker says..."Let me deduct the coupons for you." Scanning each coupon, there are 10, all with a value of 50 cents or higher, our shoppers $50 market basket purchase now drops down to $40. But there's more to come. Lastly, the checker scans the $6-off Fresh & Easy store coupon (the manufacturers' cents-off coupons are deducted first) and announces..."That will be...$34, please.

Not bad, $16 off a total grocery order of $50, thanks to the doubling of the manufacturers' cents-off coupons and the Fresh & Easy $6-off store coupon combination. Fry's allows shoppers to use only one coupon per retailer, per order. However, if a customer has a store coupon from Fresh & Easy, say a $6 off, and one from Albertsons, for example, such as a $10-off-$50 voucher, they can then use both on a single order. Therefore, in our example, the customer order would drop to $24, if he or she used both the Fresh & Easy and Albertsons' store coupons, in this particular example.

Well, we should note that "it's not bad for the shopper." But it's less than good for Fry's gross margin on that particular order and any others like it. Why? The chain gets reimbursed for the face value of the manufacturers' coupons, plus a carrying charge of a few pennies for each coupon, but has to eat the rest of the deduction it gives, up to that dollar, along with eating the entire value of the Fresh & Easy Neighborhood Market store coupon or those from any other competitor.

If Fry's wasn't owned by Kroger, the second-largest retailer of food and groceries in the U.S. after Walmart Stores, it wouldn't be able to sustain such a margin hit. But since Fry's is just one of Kroger's many chains, the mega-retailer can sustain the margin hit better than a smaller chain because it can spread it out over many chains and stores throughout the U.S.

And Fry's, which is the number two market share leader in Arizona after Walmart Stores, Inc., believes the added sales it gains from the coupon promotion in the hyper-competitive metro Phoenix market is worth taking this margin hit. If not, the chain wouldn't have brought the "coupon match" promotion back so soon in 2011, after doing it for more than half of 2010.

Meanwhile, the fact Fry's is accepting store coupons, along with doubling manufactures' cents-off coupons, is a tough nut for Tesco's Fresh & Easy in metro Phoenix, where the grocer has 28 stores, after closing six markets in November of last year.

The deep-discount store coupons are Fresh & Easy's primary promotional tool, in addition to its weekly advertising circular. It issues the vouchers regularly, nearly always having at least one version, and often times two or three versions, in circulation.

Based on our research and reporting - which you can see at the stories linked at the end of this piece - the Arizona Fresh & Easy stores experience a significant drop in sales, which is something Tesco can't afford, whenever Fry's runs its "competitor match" coupon promotion. Further, the fact Fry's kicked-off the promotion on Wednesday without issuing an end-date, could mean the Kroger-owned chain plans to run it non-stop over the next few months, which is something it did in 2010.

If that's the case, which sources tell us it is, the increased competition from the region's number two food retailer, Fry's, comes at a very bad time for Tesco's Fresh & Easy, which not only is trying to grow its same-store-sales considerably, but also must significantly increase its overall margin, which currently sits at a negative-38%.

After California, where Tesco has 107 of its 156 small-format fresh food and grocery stores, metropolitan Phoenix, Arizona has the second-highest number of stores, at 28, followed by 21 units in metro Las Vegas, Nevada.

Although the Arizona store-count is much lower than in California, Tesco needs to grow same-store sales in all of its Fresh & Easy units, not just those in one market region or another. And the more competition, which equals price pressure, means the harder it is for Fresh & Easy to move that gross margin up into the positive sphere.

Metro Phoenix, with Walmart, Kroger, Safeway, Albertsons and Bashas' - the top five in market share (in that order) battling against each other, along with niche players like Sprouts, Sunflower, Whole Foods, Trader Joe's, Fresh & Easy and others doing the same (and with WinCo Foods on the way in 2012) - is already arguably the most-competitive grocery retailing market in the U.S., as we've said in Fresh & Easy Buzz for over three years.

Blazing hot, price-competitive promotions like Fry's "coupon match" just add additional heat to that already burning competition. And because Fry's program is coupon-based, much of that competitive promotional heat is directed at Tesco's Fresh & Easy Neighborhood Market's metro Phoenix, Arizona operations and 28 stores.

Related Stories

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

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

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

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

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

Fresh & Easy Neighborhood Market to Install Solar Energy Systems Atop Nine Arizona Stores in March 2011

'Green' Food and Grocery Retailing

We've suggested in past stories on the blog that Tesco's Fresh & Easy Neighborhood Market should look into installing solar panels and solar energy systems on the roofs of as many of its 155 fresh food and grocery stores as is feasible, since not only are the small-format markets well-suited for solar because of their size - 12,000 square-feet on average - and locations - sunny Southern California, metropolitan Las Vegas, Nevada and metro Phoenix, Arizona - but also because doing so would fit well with the grocer's attempt to position the chain as a "green" or sustainable grocer, which is one of United Kingdom-based Tesco's strategic goals with Fresh & Easy.

Adding rooftop solar to some of the Fresh & Easy stores also fits well with what Tesco did when it constructed its 850,000 square-foot Fresh & Easy Neighborhood Market distribution center in Riverside County, (Southern) California in 2007, which was to invest $13 million to install 500,000 square-feet of solar panels, about the size of five football fields, on the roof of the facility.

The massive solar array provides about a fifth of the total energy for the distribution center, according to Fresh & Easy Neighborhood Market. Fresh & Easy's website has a live feed from the solar installation at the Riverside County distribution center, reporting in real time the performance of the panels. You can view it here.

Lastly, extending solar from the Riverside County distribution center's roof to store rooftops, in addition to adding to Fresh & Easy's credibility in the Western U.S. as a "green" grocer, also fits in well with parent company Tesco's strategy of being known as a global sustainable retailer and leader in climate change reduction, which is something outgoing CEO (March 2011) Terry Leahy has made a major corporate and cultural focus during the last few years.

Since extending solar from the rooftop of the Riverside County distribution center to the roofs of some of the small-format Fresh & Easy stores is something we've discussed in Fresh & Easy Buzz in the past, a press release distributed by Tesco's Fresh & Easy Neighborhood Market earlier today on just that topic caught our collective eye.
In the release, Fresh & Easy Neighborhood Market announced it plans to install solar systems on the roofs of nine of its stores in metropolitan Phoenix, Arizona beginning in March 2011.

The project will be in partnership with REC Solar, according to the news release.

REC Solar was founded in 1997 and is one of the leading solar-electric energy companies in the U.S. It's headquartered in California and has offices in Arizona, Colorado, Oregon, Hawaii and New Jersey.
Here's what Tesco's Fresh & Easy says about the solar power systems to be installed on the roofs of the nine stores in Arizona, based on information provided by REC Solar:

>The systems will generate more than 410 kW of solar energy.

>The systems will produce an estimated 620,000 kilowatt-hours (kWh) annually, the equivalent of reducing 22 million pounds of CO2 emissions – or removing 28 million car-driven miles – over the next 25 years.

>The solar energy systems to be installed on the roofs of the nine stores in Arizona will provide approximately 20 percent of the stores' total energy needs, according to Tesco's Fresh & Easy.

The Arizona Commerce Authority is a partner with Tesco's Fresh & Easy on the project to install solar systems on the roofs of the nine Arizona stores. The quasi-public organization, which was established in June of this year, offers various renewable energy-focused financial and tax incentives to companies doing business in Arizona for projects such as Fresh & Easy's solar system initiative, according to Don Cardon, president and CEO of the Arizona Commerce Authority.

"Fresh & Easy's decision to become more energy independent is an example of why the Arizona Commerce Authority is focused, in part, on facilitating investment in the renewable energy sector and on job creation and training. Arizona has the potential to become the solar capital of the world and lead the nation as solar demand continues to grow globally and intensify nationally," Cardon, says.

The solar systems also will provide some real cost-savings, based on the 20% per-store in energy savings Tesco's Fresh & Easy says the systems will achieve, at the nine Arizona Fresh & Easy stores set to get the units in March 2011. Look at it this way: If the average monthly utility bill per-store is $5,000, for example, the 20% reduction in that monthly expense because of the added rooftop solar system results in a savings of $1,000 per-month on the stores' cost-side. That's helpful from a bottom-line, P/L standpoint.

Installing the solar systems in the nine Arizona Fresh & Easy stores in March 2011 is also good timing for Tesco director and Fresh & Easy Neighborhood Market CEO Tim Mason.

In March of next year Mason will assume the title of co-CEO of United Kingdom-based Tesco. He will remain in the U.S. as CEO of Fresh & Easy but will add a couple additional Tesco corporate responsibilities to his portfolio, according to the company. Those new global responsibilities will be in the areas of marketing/branding and corporate sustainability/climate change initiatives. The latter new area of responsibility - corporate sustainability and climate change initiatives - being the one in which the Fresh & Easy nine-store solar energy system project offers the good timing for.

Mason is gaining the new title and added responsibilities due to the retirement of Tesco CEO Terry Leahy, who is leaving the United Kingdom-based global retailer in early March of next year.

Tesco executive Philip Clarke, who's currently responsible for Tesco's business in Europe and Asia, along with corporate information technology, is taking over as CEO in March 2011. Although Mason will have the title of co-CEO, Clarke will have the CEO title and function as Tesco's chief executive officer. [See - June 8, 2010: Tesco CEO Terry Leahy Retiring; Philip Clarke New CEO; Tim Mason Named Deputy CEO But Will Remain Fresh & Easy Neighborhood Market Chief in U.S.]

Installing the REC solar energy systems on the roofs of the nine stores in Arizona in March of next year, the same month he assumes responsibility for Tesco's global climate change initiatives, which is something outgoing CEO Leahy has made a major corporate focus, therefore affords good timing for Mr. Mason from a variety of perspectives, including enhancing his "green retailer" credentials. [See - December 31, 2008: 'Green' Retailing: Tesco Scores Second Overall, Number One Among Food and Drug Chains, in Ceres Coalition's Climate Change Corporate Scorecard.]

"With the success of our solar panel installation on our distribution center, we're confident these systems on our stores will help cut down on energy costs even further," Tesco director and Fresh & Easy Neighborhood Market CEO Tim Mason said in the press release today. "Through innovations like these, Fresh & Easy has been able to cut back on the amount of energy and water we use, efficiencies that are better for the environment and help us keep our prices low for our customers."

Below are the locations of the nine Arizona stores Tesco's Fresh & Easy Neighborhood Market says will get rooftop solar energy systems beginning in March 2011:

• Alma School & Elliot
  Chandler, Arizona
  
• Crismon & Guadalupe
  Mesa, Arizona
  
• Sossaman & Southern
  Mesa, Arizona
  
• Higley & Ray
  Gilbert, Arizona
  
• 107th Ave. & Thomas
  Avondale, Arizona
  
• 19th Ave. & Baseline
  Phoenix, Arizona
  
• 19th Ave. & Glendale
  Phoenix, Arizona
  
• 32nd St. & Greenway
  Phoenix, Arizona
  
• Camelback & 83rd Ave.
  Phoenix, Arizona

Kroger-Owned Fry's Store Coupon Jujitsu Ensnares Tesco-Owned Fresh & Easy Neighborhood Market in Arizona

Analysis

We've written extensively about Fresh & Easy Neighborhood Market's chronic use of its 25%-off (pictured above) and 20%-off deep-discount store coupons as a way to create and maintain sales in its 155 stores in California, Nevada and Arizona. [Click: here, here and here for a selection of those past stories.]

As a current example of that chronic use, the Tesco-owned grocer currently has three versions of the 25%-off and 20%-off store coupons in distribution - one good for $5-off purchases of $20 or more (expires on November 30); another good for $6-off purchases of $30 or more (good until November 22); and a third offering $10-off purchases of $50 or greater (expires on November 22). The coupons are available online, which means shoppers can download the discount vouchers and use one each time they shop at a Fresh & Easy store in November.

The thrust of our writing about the Fresh & Easy store coupons, which give customers a full 20%-25%-off their total purchase amount if they buy the minimum amount required to redeem the coupons, has been three-fold.

Price perception: First, we've suggested that by chronically using the store coupons - Fresh & Easy has used them regularly with only a couple slight pauses since November 2007 when its first stores opened - the grocer has established to its detriment a retail pricing policy and related shopper perception that says because Fresh & Easy nearly always has the coupons in circulation, the everyday prices at the stores are too high. But with the coupons the prices are low.

We believe on some level Fresh & Easy's senior management has learned this to be true because when it attempts to stop issuing the store coupons for more than a few weeks at a time, store sales drop considerably. Additionally, customers complain about the lack of coupons on Fresh & Easy Neighborhood Market's Facebook and Twitter sites, saying that without the store coupons being available they will be doing far less shopping at the stores.

For example, at one point in 2009 Fresh & Easy stopped issuing the store coupons for nearly two months, the longest period it hasn't had at least one version of the discount vouchers in circulation. As a result, sales at the stores dropped significantly, and customer complaints went through the social media site roof. The result: Fresh & Easy Neighborhood Market started issuing the store coupons again regularly, and hasn't stopped doing so since then. [See - May 20, 2009: Breaking Buzz: Tesco's Fresh & Easy Issues Another New Discount Store Coupon ($10-off $50 Though); We Told You the Coupons Would 'Be Back.' Also - May 1, 2009: Fresh & Easy Brings Back $6-Off Deep-Discount Store Coupon; Latest Version Good For Nearly One Month; New Promo Strategy Didn't Last Long; and May 7, 2009: 'They're Back' in Full-Force: Tesco's Fresh & Easy Adds New $6-Off Online Coupon to Just-Recently Direct-Mailed $6-Off Coupon; Tough to 'Terminate.']

Fresh & Easy's senior management has compounded this problem by refusing to accept manufacturers' cents-off coupons in the stores, saying publicly in its marketing communications that the reason it doesn't accept the coupons is because its everyday prices are already low.

This argument doesn't hold water though because if that were the case, then why would Fresh & Easy need to regularly issue the deep-discount store coupons, which offer a far-higher percentage discount than manufacturers' cents-off coupons do? The Fresh & Easy-issued store coupons are a discount off a shopper's entire purchase, while manufactures' coupons are a discount off a single item. Grocer's get reimbursed by the manufacturers for the item coupons, while the discount from Fresh & Easy's store coupons comes out of the grocer's profit margin, which leads to our second argument as to why the chronic use of the store coupons has become a trap for Tesco's Fresh & Easy Neighborhood Market.

Gross Margin: In October Tesco reported its Fresh & Easy chain has a negative-38% gross margin. To put that in perspective, most healthy grocers have a gross margin that's at least in the plus-20% level. In order for Fresh & Easy Neighborhood Market to break-even by the end of 2013, as Tesco says it will, the grocer has to get its gross margin up from the current negative-38% to something at least close to what a healthy grocer produces in order to make a profit. Doing so is a huge task for Tesco.

In our analysis, one of the key contributors, but far from the only one, to Fresh & Easy's negative- 38% gross margin is the chain's chronic use of the deep-discount store coupons, which as mentioned earlier reduce a shopper's total market basket of purchases by a whopping 20% if the customer buys the minimum dollar amount - the $30 minimum purchase to get the $6 off, for example. Even if a customer buys $60 worth of groceries and gets the $6-off, that's still a 10% bite out of the market basket - $54 instead of $60 for the hypothetical purchase.

Since the store coupons are in distribution nearly always, and since shoppers use the coupons so often, Fresh & Easy is taking constant hits to its margins simply by virtue of having established the store coupons as a regular feature of how it does business. (This goes hand-in-hand with having created the price-perception in the minds of customers, which we detailed above.)

A vulnerable promotional tool: Lastly, we've suggested that in addition to the two key factors outlined above, the chronic use of the deep-discount store coupons by Tesco's Fresh & Easy - rather than using them as an infrequent (once a quarter or so) promotional tool as is the industry norm - is such a simplistic form of promotion that it presents an opportunity for competitors in a given market, particularly big ones with high market share, to make a defensive move, accepting the Fresh & Easy coupons in their respective stores, therefore rendering what has become Fresh & Easy's primary promotional tool, the deep-discount coupons, a seriously blunted one.

Fry's store coupon Jujitsu

Last year in Arizona, where Tesco's Fresh & Easy has 28 stores in the Phoenix metropolitan region, Kroger-owned Fry's Supermarkets did just that - it periodically excepted the Fresh & Easy Neighborhood Market store coupons in its 120 Arizona stores, as we wrote about in this February 2009 piece - February 3, 2009 Competitor News: 'Grocer-Gone-Wild:' Arizona's Fry's and its 'Bring it On' 'Take All Competitors' (Including Tesco's Fresh & Easy) Store Coupon Move.

Fry's did a handful of one-week promotions in 2009, in which it accepted the Fresh & Easy store coupons, along with those of all its other competitors, touting the move in its weekly advertising circular and in other forms of media advertising and promotion.

The direct or default target of Fry's in accepting the store coupons was Tesco's Fresh & Easy, since none of the other grocery chains in the market issue similar store coupons on a regular basis. (A couple do so on occasion.) In the promotion, Fry's also offered to round-up all manufacturers' cents-off coupons to a $1 value, regardless of the coupon's face value.

Fry's offered the deal a couple times early this year, once again. But beginning mid-year, the supermarket chain, which is the number two market share leader in metropolitan Phoenix, just a couple points behind Walmart Stores, went full-bore, offering to accept all competitors store coupons, along with offering the $1 value for all manufacturers' cents off coupons, nearly every week. Fry's has continued the promotion nearly every week, including at present, during the last half of 2010.

Since Fry's only accepted the store coupons of its competitors infrequently last year, the resulting loss of sales at the Fresh & Easy stores that can be attributed directly to the Fry's defensive move in 2009 wasn't all that significant or regular.

However, that's changed. Because Fry's has been taking its competitors' (which means primarily Fresh & Easy since it's the only grocer in the market regularly distributing such coupons) store coupons nearly every week since the middle of this year, numerous customers who normally shopped at Fresh & Easy because of the coupons have been and are now taking the deep-discount vouchers to Fry's, which has resulted in a significant blunting of what is Fresh & Easy Neighborhood Market's primary offensive promotional tool - the deep-discount store coupons.

We know this to be the case for a couple reasons. First, Fresh & Easy Buzz has talked to managers and grocery checkers at over 25 Fry's stores in metro Phoenix since the middle of this year. The store workers tell us their tills are overflowing with Fresh & Easy store coupons, which are being redeemed by shoppers who download the discount slips of paper from the Fresh & Easy site, print them out, but then use the coupons at a Fry's store instead of at a Fresh & Easy market.

Additionally, because of the regular acceptance of the Fresh & Easy store coupons at Fry's this year, Arizona's numerous grocery deal and coupon blogs have been recommending to their readers that instead of using the vouchers at a Fresh & Easy store, they instead use them at Fry's, in large part because Fry's runs its $1 value manufacturers' cents-off coupon promotion at the same time. Fry's lets shoppers first deduct the Fresh & Easy coupon from their total grocery purchase amount before then deducting the manufacturers' item coupons, which means even greater savings, which is what the Arizona blog sites are all about. [For some examples of what the numerous popular Arizona consumer coupon/grocery deal blogs are saying about using the Fresh & Easy store coupons at Fry's, take a look: here, here, here, here and here.]

Here's an example of the savings shoppers can get using both the Fresh & Easy store coupon and the $1 value manufacturers' coupons at Fry's: A customer buys $50 worth of groceries. She then uses the $10-off $50 Fresh & Easy coupon, bringing her grocery order to $40. She then can use her manufacturers' cents off coupons against the $40 total. Remember all of the coupons at Fry's are worth $1, regardless of their face value. Therefore, let's assume she has $10 worth of the single-item manufacturers' coupons, each worth $1 at Fry's. As a result, her original $50 purchase, reduced to $40 after using the Fresh & Easy $10 coupon, is now a mere $30, a whopping savings of $20.

Without a doubt the loss on profit for Fry's on these transactions is significant. Fry's eats the $10 discount from the Fresh & Easy coupon, plus the amount from each manufacturers' cents off coupon over the face value. For example, giving $1 off on a 50-cent item coupon results in a loss on the amount of 50% for Fry's. The manufacturer only reimburses the grocer for the face value amount of the coupon plus a small handling charge.

However, because Fry's is a close second to Walmart in market share in the region, and because Kroger wants to protect its turf, along with the fact that Fry's is a small (but important) piece of Kroger's overall revenue base, it's decided it can take the hit in order to protect and it hopes grow that market share, despite what will obviously be a negative effect on the Fry's bottom line. Think of it as Fry's version of Jujitsu applied to a competitors promotional program, in this case Fresh & Easy's store coupons, which to date has been its most important promotional tool in terms of generating sales, and therefore its most vulnerable one.

Additionally, the point of this analysis isn't how accepting the competitor store coupons will affect Fry's bottom line. Rather, it's to empirically demonstrate the trap Tesco's Fresh & Easy finds itself in, regardless if it knows it or not, in terms of the vulnerability of its chief promotional tool, the deep-discount store coupons.

Broader implications of Fresh & Easy's store coupon trap

For example, if Fry's can accept the Fresh & Easy store coupons in Arizona, so can Kroger-owned Ralphs, Safeway's Vons or Albertsons in Southern California.

Further, in Northern California, where Fresh & Easy plans to open its first batch of stores in early 2011, one or more competitors could decide to follow the Fry's model and as a preemptive strike against Tesco's Fresh & Easy Neighborhood Market announce a couple weeks before the first stores open - or even worse start accepting the coupons a couple weeks before the stores even open, doing an old fashion competitor pantry-loading scheme - that it will accept the Fresh & Easy store coupons in its stores for a month, or two, or three, for example. Doing so would likely significantly hurt sales, something no grocer particularly wants to happen when it's just entering a market for the first time.

One might suggest the fact Fry's is accepting the store coupons is a good thing for Fresh & Easy, since we argue the discount vouchers are a key contributor to its double-digit negative gross margin. But also recall we argue that without the coupons, sales at the Fresh & Easy stores drop like a ton of 10 pound Gold Medal Flour bags, which is why the grocer continues to issue them on a regular and even overlapping basis, as is the case this month. In other words, It's a store coupon "Catch-22" for Tesco's Fresh & Easy in our analysis: Can't live with the coupons, can't live without them.

If our analysis is wrong, then the simple thing would be for Fresh & Easy to stop issuing the store coupons, at least in the Arizona market. After all, if it's true the reason the grocery chain doesn't accept manufacturers' cents-off coupons is because its everyday prices are already low, which Fresh & Easy executives have said is the case, then the same argument should hold for not issuing its own discount coupons, which lower a shopper's total purchase amount (and Fresh & Easy's margin) far more than even a big stack of manufacturers' cents-off coupons do.

But that's far from being the case in everyday practice, as we've noted in Fresh & Easy Buzz for nearly three years. Additionally, the fact Fresh & Easy has three different versions of the store coupons in distribution this month is ample evidence the grocer needs the coupons in order to maintain sales at the present level. If not, it would use the coupons much more cautiously.

From a merchandising perspective, Fresh & Easy has created a serious price perception problem for itself in the minds of customers with the chronic use of the store coupons. Based on our research and analysis, many of the grocer's regular customers factor-in the discount from the coupon as the de rigueur price they should pay for their purchases at Fresh & Easy. Take the coupons away for any extended period of time and those shoppers will likely adjust that mental calculus, perceiving the non-coupon cost of shopping at Fresh & Easy to be too high, compared to some of its competitors. That's what experience has shown thus far, based on our research and analysis.

Added struggle in Arizona

Ironically, we don't think Fry's acceptance of the store coupons is directly aimed at Fresh & Easy, at least not from the perspective that Kroger thinks the Tesco-owned chain is a direct threat in metropolitan Phoenix. After all, Fresh & Easy isn't even among the top six-seven grocers in terms of market share in the region. But Fresh & Easy is owned by Tesco, which is the third-largest food and grocery retailer in the world. And that fact might just be good enough for Kroger Co. to want to make sure Tesco has a very difficult time gaining any sort of foothold in Arizona with Fresh & Easy, along with letting it know that attempting to do so will come at a significant cost.

Tesco's Fresh & Easy recently closed six stores in metropolitan Phoenix, leaving it with the current 28 units, down from 34. Additionally, the grocer plans to focus its new store openings in 2011 primarily in California, as we've previously reported. It will likely open a handful of new stores in Arizona next year.

Tesco's 28 Fresh & Easy stores in metro Phoenix have been struggling overall in terms of sales before the pressure from Fry's defensive store coupon acceptance move. The fact that Fry's is taking the Fresh & Easy store coupons during the crucial Thanksgiving holiday season - we're told it will continue to do so for Christmas as well - is exerting even more pressure on Fresh & Easy Neighborhood Market's Arizona operations.

And since metropolitan Phoenix is arguably the most competitive food and grocery retailing market in the U.S., or close to it, and it's only getting more competitive, the outlook for Tesco's Fresh & Easy in the region is a fairly poor one at present. The fact Fry's is blunting Fresh & Easy's most-popular promotional tool, its deep-discount store coupons, makes Tesco's struggle in the market an even more challenging one.

[Editor's Note: This is part one of a two-part analysis piece. In part two we will offer some ways in which Tesco's Fresh & Easy may be able to escape from the chronic store coupon trap it appears to have set for itself.]

Brookings Institution Takes In-Depth Look At 'Food Desert' Supermarket Access in 10 U.S. Metro Regions, Including California, Nevada and Arizona

The above video, "Getting to Market," features an overview analysis of the Brookings Institute's new "food desert" supermarket access study.

Fresh & Easy Buzz has written extensively about the topic of "food desserts" over the last three years, particularly (but far from exclusively) as the issue relates to the Western U.S., where Tesco's Fresh & Easy Neighborhood Market and its competitors operate fresh food and grocery stores. There are currently 168 Fresh & Easy stores in California, Nevada and Arizona. The grocer is closing 13 stores, which it says will be done by November 2, 2010. That will bring the total to 155 units. [See: 13 Closing Fresh & Easy Stores List.]

A "food desert" is defined as a low-income neighborhood - mostly urban inner-city but can also be rural - that is underserved by grocery stores that offer a decent selection of fresh foods and groceries at reasonable prices. Its residents lack sufficient access to grocery stores and must travel a distance to shop.

The "food desert" issue is a multi-facted one. First, it's a personal or individual issue. Residents who live in neighborhoods without adequate access to stores offering fresh foods and groceries tend to shop at mini-marts and convenience stores, buying and consuming less healthy foods, which leads to health problems, like obesity, diabeties, high blood pressure and other lifestyle-related problems.

Additionally, not having grocery stores offering fresh foods and groceries in the neighborhood is an economic issue for residents. Having to travel outside the neighborhood to shop means spending money on transportation, be it for gasoline for the car or for public transit. The economics can also play out in added costs for medical care and prescription drugs because of a reliance on less nutritious foods. High blood pressure and type 2 diabetis are often prevented by eating a healthy diet and getting exercise, for example. But once people get the diseases they tend to take perscription drugs to treat them for a lifetime.

The "food desert" phenomenon is also a social and public policy issue. In addition to the individual health and wellness problems residents in neighborhoods underserved by grocery stores face, there are negative social and economic implications for society at large as well. For example, because residents of neighborhoods underserved by grocery stores offering healthy foods often eat a much less nutritious diet, they tend to have more health-related problems than those living in neighborhoods well-served by such stores. Since most of the residents are low-income, they often lack health insurance and instead must seek public health care, which is paid for by taxpayers.

Prevention through access to fresh and nutritious foods goes a long way to not only making people healthier but also towards reducing the burden on hospital emergency rooms and other government-funded clinics, assuming of course people take advantage of the availability and practice a healthier lifestyle, which is something people from all economic segments of the U.S. population struggle to do. All these factors tax local and state government budgets, thereby creating a social and economic issue for even those residents that live in non "food dessert" areas.

But "food deserts" also present an economic opportunity for grocers and other food and grocery retailing format operators such as mass merchandisers (Walmart, Target) and convenience and drug store retailers wanting to offer fresh foods in the stores. For example, Walgreens is testing fresh foods, including produce, in some Chicago and New York stores. CVS Pharmacy is doing the same in about 40 stores in New York and New England.

Many food and grocery have been discovering this fact over the last couple years and have started to open stores in these urban food desert neighborhoods, after avoiding what are mostly low-income and inner-city areas since the flight to the suburbs movement took force in America a few decades ago. Wal Mart's recent deal with the City of Chicago to open up to 24 stores of various formats and sizes over a period of years includes a focus on stores in underserved neighborhoods on the south side, for example.

In addition, a number of states and cities have started initiates, many modeled after the Pennsylvania Fresh Food Financing Initiative, designed to lure grocers to these underserved neighborhoods. For example, the City of Los Angeles recently approved a multi-million dollar "food desert" initiative. Tesco's Fresh & Easy store in low-income south Los Angeles, which was opened in February of this year without any financial assistance from the city, is doing very well for the grocer.

The Washington D.C.-based Brookings Institute's Metropolitan Policy Program, in partnership with The Reinvestment Fund (TRF), which is a community development financial institution and research organization based in Philadelphia, has just released a major study of "food desserts," focusing on ten major U.S. metropolitan regions. The regions are:

>Los Angeles, California
>Phoenix, Arizona
>Las Vegas, Nevada
>San Francisco, California
>Atlanta, Georgia
>Little Rock, Arkansas
>Baltimore, Maryland
>Cleveland, Ohio
>Louisville, Kentucky
>Jackson, Mississippi

All of the metro regions listed above are live links. If you click on the name of the region, you'll get Brookings' analysis of the particular region in terms of which areas have the lowest-levels of access to grocery stores that offering a decent selection of fresh food and groceries at reasonable prices, along with some additional variables and analysis.

Brookings is a well known research center and think tank based in the nation's capital. It operates numerous programs in the areas of domestic and foreign policy. It's

TRF played a lead role in designing and implementing the Pennsylvania Fresh Food Financing Initiative, a program that provides grants and low-cost capital to facilitate the location of new supermarkets and fresh food retailers in that state’s underserved communities. That initiative is now the model for several other state and local programs, as well as the inspiration for a major new federal budget initiative that seeks to improve community health and economic development outcomes through supermarket attraction and expansion.

Brookings and TRF have also created an interactive map/data base [see it here] that can be used to analyze and pinpoint specific aspects of the underserved areas in the 10 metropolitan regions studied, which include the metro California, Arizona and Nevada regions listed above.

Unlike a lot of previous research that attempted to identify "food deserts," Brookings/TRF’s analysis looks at factors beyond distance to a supermarket that matter for access, including a community’s population density and level of car ownership. And it uses household income and expenditure data to help pinpoint the communities that have a significant untapped local demand for supermarkets.

This new and detailed information should be extremely helpful to retailers in considering locating food and grocery markets in these underserved regions.

For example, Tesco's Fresh & Easy Neighbrohood, which operates 168 stores in Southern California and the Bakersfield and Fresno metro regions in California's Central Valley, along with 34 stores in metropolitan Phoenix, Arizona and 27 stores in metro Las Vegas, Nevada, has opened a handful of those stores in low-income "food dessert" neighborhoods, such as its stores in south Los Angeles, Compton and a few others places.

[Note: we've seen and continue from time-to-time to see publications putting out stories saying Tesco's Fresh & Easy Neighborhood Market either has a "food dessert-focused" strategy or that it has been opening numerous stores in underserved neighborhoods. That's not the case. Less than 5% of the 168 Fresh & Easy stores are in areas that qualify as "food desserts." In fact, in our research we've only been able to identify three-four Fresh & Easy stores that are in areas that can be defined as "food deserts." The grocer currently has two-three new stores in development, including one in San Francisco, that are in urban neighborhoods underserved by grocery stores.]

"Across the 10 metro areas [Brookings] studied, about 1.7 million people (5 percent of total population) live in low- and moderate-income communities that are significantly underserved by supermarkets. African Americans, children, and very low-income families are over-represented in these areas," according to Alan Berube, a senior fellow and the research director of Brookings' Metropolitan Policy Program.

"Greater Los Angeles alone accounts for half a million of the underserved; and in the Cleveland metro region, more than one in nine residents lives in a low-supermarket-access community. Estimates suggest that upwards of $2.6 billion annually in grocery expenditures may 'leak' out of these communities due to a lack of nearby supermarkets," Berube says data from the study show.

That $2.6 billion annual figure, along with the respective figures for each of the 10 regions, is and important one for retailers. It means there's a sales opportunity gap of $2.6 billion in these 10 U.S. metropolitan regions alone that's being lost by the food and grocery industry in general and specific grocers in particular.

A number of grocers, including Kroger Co. and others (including independents), as well as Tesco's Fresh & Easy, have been opening a few stores in "food desserts" in California, Arizona and Nevada over the last few years, and are considering building and opening more. The Brookings research and the TRF food store access map should provide a useful tool for grocers and others, including municipal governments, in helping to determine the particular neighborhoods in the 10 regions studied that offer the most opportunity, combined with other research and data, of course. You can also access the data for the 10 metro regions studied using the PolicyMap’s feature, which offers 10,000 data indicators and full functionality. It's at http://www.policymap.com/.

For those interested in additional U.S. metropolitan regions TRF has a nationwide analysis of low-supermarket-access communities at its website here. There's additional information on the "food dessert" issue at the website.

There's clearly loads of opportunity for grocers in "food dessert" neighborhoods, if done right. For example, Tesco has yet to open a Fresh & Easy store in downtown Los Angeles, which although now has a Kroger-owned Ralphs Fresh Fare supermarket which is doing extremely well, still needs and has room for additional markets. This is a real missed opportunity for Tesco's Fresh & Easy, in our analysis.

In the San Francisco Bay Area, the Fresh & Easy store in the Bayview district at Third Street and Carrol Avenue, which is one of the first batch of 11 stores set to open in early 2011, is in a "food dessert" neighborhood. Kroger has one of its Foods Co discount supermarkets not far away but it's the only full-service supermarket in the vast Bayview neighborhood. The fresh & Easy will be the second.

None of the other 20-plus Fresh & Easy Neighborhood Market store locations so far in the Bay Area are located in "food desert" neighborhoods, according to our analysis, although the 32nd and Clement site in San Francisco's Outer Richmond district, also one of the first batch of Fresh & Easy stores Tesco plans to open in early 2011, is in a neighborhood underserved by grocery stores, but its not low-income. [See our Northern California Fresh & Easy Store List.]

The "food dessert" issue is increasingly becoming a front burner topic among elected officials, government policy-makers and non-profit national, community and neighborhood groups. First Lady Michelle Obama's "Let's Move," nutrition initiative has also shined a spotlight on the issue, since increasing access to grocery stores in "food dessert" neighborhoods is a major element of the program.

There's significant opportunity in numerous American inner-city regions, where residents are lacking access to fresh food and groceries at decent prices (and in rural regions as well), for grocers that can operate the right food and grocery retailing format using the right formula.

Additionally, with more and more cities like Los Angeles and others now offering various economic incentives to grocers if they will open stores in the "food desert" neighborhoods, the incentives to enter these neighborhoods and open stores can be extremely favorable for retailers.

Readers Resource

Click here and here to read a selection of past stories in Fresh & Easy Buzz on the "food dessert" and access to fresh food and groceries topic and issue.

And Then There Were Five: Smart & Final Completes its Mission of Opening Five SmartCo Foods Stores in Metro Denver Before Summer Ends

Southern California-based food and grocery retailing company Smart & Final has completed its mission of opening the first five of its new-format SmartCo Foods stores in Metropolitan Denver, Colorado before the end of summer - with time to spare.

On August 4 Smart & Final held the grand opening of its fifth SmartCo Foods store, a 42,000 square-foot grocery market in the Denver suburb of Littleton. The store is located at 3615 West Bowles Avenue.

The SmartCo Foods stores are price/value-focused hybrid grocery markets that are part traditional supermarket, part warehouse club format and part farmers market.

The stores' hybrid nature borrows from Smart & Final's other formats: SmartCo Foods' gets its warehouse style from the retailer's Smart & Final non-membership warehouse format stores, its farmers market genes from the company's Henry's Farmers Market chain, and it traditional supermarket focus from a combination of Smart & Final's Extra format stores and supermarkets in general.

The Littleton, Colorado store - number five - is managed by a veteran of the grocery retailing business and Colorado market region, David Crookston, who has 17 years of experience in the industry, including positions at Sunflower Farmers Market, Wild Oats and Reay’s Ranch Markets.

Each of the five SmartCo Foods stores are staffed by about 100-115 employees, according to the grocer. Smart & Final has established a standalone SmartCo Foods division in Metro Denver, which is headed by Scott Drew, SmartCo Foods' vice president and general manager. Drew says the company has hired about 600 employees to staff the five stores so far.

As we've reported previously, Smart & Final says it plans to open 20-25 SmartCo Foods stores in Metropolitan Denver, Colorado over the next few years. The first five stores range in size from 61,000 square-feet to 41,000 square-feet.

California and Arizona next up for SmartCo Foods

According to Smart & Final president Dave Hirtz, the retailer also plans to open SmartCo Foods stores in California and Arizona before the end of this year. Hirtz made that statement in late June when the first Metro Denver SmartCo Foods store opened. The retailer has opened the first five SmartCo stores in just slightly over a one month period of time. Smart & Final, which also owns and operates the Henry's Farmers Market chain, plans to open its first Henry's store in Northern California this week.

Since opening the first SmartCo Foods unit in Metro Denver in late June, Smart & Final has been offering a variety of hot specials in its weekly advertising circular, injecting some serious price competition into the portion of the Metro Denver market where the five stores are located.

For example, the current ad features whole chickens for 59 cents per pound, fresh peaches for 49 cents a pound, 20 packs (12 ounce cans) of Coca Cola for $4.99, and boneless New York Steaks for $3.98 a pound, along with various other items. (You can view the ad here.)

If Smart & Final maintains that level of price promotion in its ads, and brings the same promotional pricing structure to the SmartCo Foods stores it opens in California and Arizona, along with the favorable everyday prices it's been offering in the stores thus far, the grocer could add a significant level of competition to the markets where it opens the hybrid format stores. Based on our current source information, it's our estimation Smart & Final will open SmartCo format stores in both Southern and Northern California (although not in both regions for sure this year) and in the Phoenix Metro region in Arizona. Smart & Final might name the stores something other than SmartCo Foods though.

Southern California and Metro Phoenix are the two key regions for Tesco with its Fresh & Easy Neighborhood Market stores. Of Fresh & Easy's current 159 stores, 98 are in Southern California (and the southern Central Valley; Bakersfield and Fresno) and 34 units are in Metro Phoenix, Arizona. The remaining 24 Fresh & Easy stores are in Metropolitan Las Vegas, Nevada.

As it struggles to break even - Tesco's Fresh & Easy has lost over half a billion dollars since Tesco opened the first stores in November 2007, and is projecting a loss of about $253 million for its fiscal year 2010/11, which ends in February 2011 - the last thing Tesco's Fresh & Easy Neighborhood Market needs in Southern California and Metro Phoenix is another competitor, particularly one with a value-based pricing structure. However, the fresh food and grocery chain will be getting one, in the form of Smart & Final's SmartCo Foods format.

And speaking of price/value-based food retailers, Idaho-based WinCo Foods, which already has stores throughout California and is opening new units fairly rapidly in the Golden State [December 29, 2008: Competitor News: Winco Foods to Expand in California and Nevada in 2009; Put Aggressive Focus on Central Valley, Northern California and Northern Nevada], is also headed to Arizona - Metropolitan Phoenix to be exact - as we've previously reported and written about. [See - May 3, 2010: Winco Foods is 'Moving Fast-Forward' With Metro Phoenix, Arizona Market Entry and April 27, 2010: WinCo Foods' Entry Will Put the 'Ultra' in the Already 'Hyper-Competitive' Metro Phoenix, Arizona Market]

WinCo, a fierce competitor, will add yet another competitive layer in Arizona for Tesco's Fresh & Easy Neighborhood Market when it starts opening its first stores in Metro Phoenix, which will probably be in early 2011.

And in Southern California, where WinCo Foods has plans to open numerous stores, along with a new 1 million-plus square-foot distribution center to serve those new stores, the competitive heat will continue to intensify, not just for Fresh & Easy, but for all grocers in the region, particularly those with a price/value focus.

But additional competition in Southern California and Arizona vis-a-vis Fresh & Easy Neighborhood Market is key because at this point in time we can't see anything Tesco is doing from operations, merchandising and marketing perspectives at Fresh & Easy that will reduce the $250 million-plus annual losses it's sustaining with the chain. As such, we expect Tesco will likely in February 2011 project another loss for fiscal year 2011/12 (which starts at the end of February 2011) in the $250 -to- $259 million range for Fresh & Easy, similar to what it lost in the 2008 and 2009 fiscal years and is projecting for the current fiscal year.

[Below are links to our coverage of Smart & Final's opening of its first five SmartCo Foods stores in Metro Denver, Colorado. The stories also include numerous photographs of the stores.]

July 29, 2010: Smart & Final Opens Four SmartCo Foods Stores in Metro Denver Since June 23; Store Five to Open August 4

July 14, 2010: Smart & Final Opens Second SmartCo Foods Store Today in Metro Denver, Colorado

June 28, 2010: Smart & Final to Open its New Format SmartCo Foods Stores in California and Arizona

June 29, 2010: A Pictorial Look Inside Smart & Final's First SmartCo Foods Store in Denver, Colorado

Smart & Final Opens Four SmartCo Foods Stores in Metro Denver Since June 23; Store Five to Open August 4

A long line of waiting customers enter the SmartCo Foods store in Centennial, Colorado at 6 a.m. on grand opening day, Wednesday, August 28. A Fresh & Easy Buzz correspondent counted about 300 shoppers waiting in line outside the store early yesterday morning before the doors opened.

In the first paragraph of our July 14, 2010 story [July 14, 2010: Smart & Final Opens Second SmartCo Foods Store Today in Metro Denver, Colorado] about Southern California-based Smart & Final's opening of its second SmartCo Foods store in Metropolitan Denver, Colorado, we said this: "Southern California-based Smart & Final isn't letting any dust gather on the thousands of new grocery aprons it purchased earlier this year for the employees of it's first five SmartCo Foods stores, which are set to open in Metropolitan Denver, Colorado this year."

Nothing could be more true just a couple weeks later.

Since we published the story on the opening of the second SmartCo Foods combination warehouse format, supermarket and farmers market-style grocery store in Metro Denver (the region is also referred to as the Front Range), Smart & Final has opened two more of its first five stores in the region (for a total of four) - the store in Longmont, Colorado, July 20 (grand opening July 21), and the store in Centennial, yesterday, July 28.

And on August 4, the fifth SmartCo Foods store, this one in the Denver suburb of Littleton, will open. The store is at 3615 West Bowles Ave.

The four SmartCo Foods stores now open are located at:

>16746 E. Smoky Hill Road in Centennial
>1442 S. Parker Rd. in Denver
>5141 Chambers Rd. in Denver
>1750 North Main St. in Longmont

The store in Centennial, Colorado, the most recent SmartCo Foods unit to open, is 49,000 square-feet. Like all five of the stores, it's housed in former Albertsons supermarkets, which were closed quit some time ago by the retailer.

Also, like the other four stores, Smart & Final has hired a veteran of the Colorado food and grocery retailing market as store manager of the Centennial store. He is Pat Dolan, who has 37 years of experience in the grocery industry, including retail positions at Safeway Stores and Sunflower Farmers Market.

The produce department in the SmartCo Foods store in Centennial, Colorado. Its design and merchandising is very similar to Smart & Final's Henry's Farmers Market stores.

Smart & Final also went all out for the Wednesday, July 28 grand opening of the Centennial, Colorado store, like it has for the previous three units, and like it will on August 4, when it opens the fifth SmartCo Foods store in Littleton.

The grand opening celebration started bright and early at 6 a.m. on Wednesday, when store manager Dolan and other representatives from the grocery chain were joined by local city officials and business leaders in opening the doors to the new store. Shoppers were already lined up outside the store and were welcomed inside for an official welcoming ceremony, which included the cutting of a huge sheet cake decorated with the SmartCo Foods logo.

The SmartCo Foods store that opened on July 28 in Centennial, Colorado features a full-service fresh meat and fresh seafood department.

Among the grand opening day events at the Centennial store were giveaway's of SmartCo Foods' gift cards of $20 to $100 to the first 250 customers in line, food demos and free samples, free reusable shopping bags, various kids activities and free gifts, live entertainment and loss leader specials throughout the store. It was an old school grocery store grand openings with some modern day twists.

SmartCo Foods also made two $2,500 donations to two local non-profit groups - The Gathering Place and Colorado Storm Soccer Association - at the grand opening.
The grocer has made the same $5,000 donations at all of its grand openings this summer. For example, at the Longmont, Colorado store opening a week earlier, Smart & Final's SmartCo Foods donated $2,500 to OUR Center and LiveWell Longmont, two local non-profit groups.

When Smart & Final opens its SmartCo Foods store in Littleton, Colorado next week (August 4), it will have opened five stores in a period of just a little over a month. The first store, at 1442 South Parker Road in Denver, opened on June 23.

The Littleton store, which is 42,000 square-feet, will be managed by another veteran of the grocery retailing business and Colorado market region, David Crookston, who has 17 years of experience in the industry, including positions at Sunflower Farmers Market, Wild Oats and Reay’s Ranch Markets, according to a SmartCo Foods' spokesperson.

The grand opening of the Littleton store on August 4 will start at 6 am and include all the bells and whistles that have become the hallmark of the previous four SmartCo Foods' grand openings.

Each of the SmartCo Foods stores are staffed by about 100-115 employees, according to the grocer. Smart & Final has established a standalone SmartCo Foods division in Metro Denver, which is headed by Scott Drew, SmartCo Foods' vice president and general manager. Drew says the company has hired 600 employees to staff the five stores so far.

As we've reported previously, Smart & Final says it plans to open 20-25 SmartCo Foods stores in Metropolitan Denver, Colorado over the next few years. The first five stores range in size from 61,000 square-feet to 41,000 square-feet. The other stores are expected to be in the same size range.

According to Smart & Final president Dave Hirtz, the retailer also plans to open SmartCo Foods stores in California and Arizona before the end of this year. Smart & Final, which also owns and operates the Henry's Farmers Market chain, also plans to open its first Henry's store in Northern California next month.

California and Arizona just happen to be the two states where Tesco's Fresh & Easy Neighborhood Market has the majority of its 159 fresh food and grocery stores. There are currently 98 Fresh & Easy stores in Southern California and the Central Valley and 34 units in Metropolitan Phoenix, Arizona. The other 27 Fresh & Easy stores are in Metro Las Vegas, Nevada. If Smart & Final hits the ground running with its SmartCo Foods format and stores in California and Arizona like it has thus far in Colorado, it could add yet another layer of competition - like it's doing in competitive Metro Denver - in two other Western U.S. states where hyper-competition is already the norm.

Related Stories:

July 14, 2010: Smart & Final Opens Second SmartCo Foods Store Today in Metro Denver, Colorado

June 28, 2010: Smart & Final to Open its New Format SmartCo Foods Stores in California and Arizona

June 29, 2010: A Pictorial Look Inside Smart & Final's First SmartCo Foods Store in Denver, Colorado

May 8, 2010: Sprouts, and Likely Henry's to Beat Fresh & Easy to Northern California Despite it's Big Head Start

Smart & Final Opens Second SmartCo Foods Store Today in Metro Denver, Colorado

One of the numerous ways Smart & Final is advertising and promoting its SmartCo Foods chain launch in Metropolitan Denver, Colorado is with the mobile billboard seen above. In this photograph taken from a moving car, you can see the SmartCo Foods logo wrapped around two of the Denver Regional Light Rail System's cars. The "SmartCo Foods Train Car" is garnering lots of impressions - both of the general sort and of the kind referred to in the advertising business. [Photo credit: Cass Jupiter for Fresh & Easy Buzz.]

Southern California-based Smart & Final isn't letting any dust gather on the thousands of new grocery aprons it purchased earlier this year for the employees of it's first five SmartCo Foods stores, which are set to open in Metropolitan Denver, Colorado this year.

Today, less than three weeks after the opening of its first SmartCo Foods unit - a 57,000 square-foot combination supermarket, warehouse format and farmers market-style store - at 1442 South Parker Road in Denver, Colorado, Smart & Final opened the doors to its second unit, a 41,000 square-foot market in the Denver suburb of Aurora. The store is located in the Chambers Place Shopping Center in Aurora, at 5141 Chambers Road (at East Florida Avenue).

The other three initial SmartCo Foods stores - Smart & Final plans to open a total of 20-25 of the markets in Metro Denver over the next few years - are set to open before the end of the summer, according to our sources.

The locations of the three other Metro Denver stores are:

>1750 N. Main St., Longmont, Colorado
>16746 E. Smoky Hill Road, Centennial, Colorado
>3615 W. Bowles Ave., Littleton, Colorado

Welcome to the massive in-store farmers market. The produce departments in the SmartCo Foods stores take their inspiration from Smart & Final's Henry's Farmers Market format and stores. The Henry's format devotes considerable in-store square-footage to fresh produce. In addition to the massive bulk displays pictured above, the SmartCo produce departments also merchandise pre-packaged, value-added produce and related items (which you can see in the photograph's background), using multi-shelf refrigerated cases. The fresh produce item selection includes organic and local produce selections, in addition to conventional.

SmartCo Foods takes its inspiration from two formats Smart & Final operates - it's Smart & Final banner non-membership warehouse stores and its Henry's Farmers Market chain, along with including traditional supermarket elements to round out the three-part hybrid format.

Like it does with Henry's Farmers Market chain (based in Southern California), Smart & Final is operating the SmartCo Foods chain in a fairly independent manner. The retailer has set up a SmartCo division in Metro Denver, has an individualized website, and is marketing and promoting SmartCo as an autonomous chain in the market.

See our two previous stories on SmartCo Foods linked below for details:

>June 28, 2010: Smart & Final to Open its New Format SmartCo Foods Stores in California and Arizona

>June 29, 2010: A Pictorial Look Inside Smart & Final's First SmartCo Foods Store in Denver, Colorado

140-year-old, City of Commerce, California-headquartered Smart & Final is aggressively advertising and promoting its SmartCo Foods chain launch in Metropolitan Denver. Its using billboard and transit vehicle advertising (see the photo at the top of the story), a focused public relations campaign and social media, along with conducting a full-court-press in-store special events program, featuring promos like a visit by the Denver Broncos Cheerleaders to the Denver store a couple weeks ago, free grocery bag give-aways, and loss leader item promotions designed to drive shoppers into the new stores.

For example, among the hot item promotions being offered at the two SmartCo Foods stores this week include:

Sweet, fresh white corn at 5 ears for $1.00; chicken leg quarters at 48 cents per pound; ground beef at $1.79 pound; ready-to-eat whole rotisserie chickens at $4.88 each; 24 pack canned Pepsi at $5.99; quart jars of Best Foods Mayo at $2.69; and numerous other items across all categories. You can see the current SmartCo Foods advertising circular here.

As we reported on June 28, Smart & Final plans to open SmartCo stores in Arizona and California before the end of this year.

If the retailer promotes the SmartCo launch in the two states as aggressively as it's doing in Metro Denver - and we're told it will - the openings should generate considerable excitement.

California (Southern and the Central Valley) and Arizona are Tesco Fresh & Easy Neighborhood Market's two, out of a total of three - Metropolitan Las Vegas, Nevada being the third - largest market regions. There are currently 98 Fresh & Easy markets in Southern California and the Central Valley, and 34 units in Metropolitan Phoenix, Arizona. There are 27 Fresh & Easy stores in Metro Las Vegas, Nevada.

Tesco plans to open nine new Fresh & Easy stores in September - seven in Southern California and two in the Fresno region in the Central Valley. [See - Fresh & Easy Neighborhood Market Confirms Our June 25 Report it Will Open Nine New Stores in September 2010]

The opening of SmartCo stores in California and Arizona will add an additional layer to two already hyper-competitive states when it comes to the retailing of food and groceries.

Meanwhile though, Smart & Final is concentrating on opening its other three SmartCo Foods stores in Metro Denver - and adding to the growing competition in the Rocky Mountain state and mile-high Metropolitan market region.

A Pictorial Look Inside Smart & Final's First SmartCo Foods Store in Denver, Colorado

Fresh & Easy Buzz Editor's Note: Yesterday in this story - June 28, 2010: Smart & Final to Open its New Format SmartCo Foods Stores in California and Arizona - we reported that City of Commerce (Southern), California-based Smart & Final plans to bring a version of its new-format SmartCo Foods' food and grocery store to California and Arizona, opening at least one store in each state later this year.

In yesterday's piece we also have a Sidebar-profile of the first SmartCo Foods store, which opened on June 23, at 1442 South Parker Road (at East Florida Avenue) in Denver, Colorado. Four more SmartCo Foods units are set to be opened this year in Metropolitan Denver. Smart & Final says it plans to open 20-25 of its new format stores in the Metro Denver region over the next couple years.

Last week, and again this week, Smart & Final's SmartCo Foods is going all out in promoting its first store in Denver, Colorado. On grand opening day it even told shoppers they could have their cake - and eat it to. Slices of the massive sheet cake above were offered to the first customers in the store on grand opening day, June 23.

New food and grocery retail formats, by existing and new-to-the-market retailers, are a big deal in a big, mature national market like the U.S. - they don't happen all that frequently. And in many ways they're an even bigger deal in the Western U.S., which hasn't seen a new format of note since Tesco's entered California, Nevada and Arizona with its Fresh & Easy Neighborhood Market fresh food and grocery store format and (now 159) stores in November 2007.

Because new formats (and aded competition) matter, and because Fresh & Easy Buzz likes to be a source of "fresh" information for our readers, below is a look in pictures, to go with yesterday's SideBar profile, of the first SmartCo Foods store opened in Denver Colorado last week.

A Pictorial Look at the First SmartCo Foods Store in Denver, Colorado

The produce department in Smart & Final's Denver SmartCo Foods store, opened on June 23, is huge and offers an extensive selection of fresh produce and related items. It borrows the farmers market-style design and bulk produce item merchandising scheme from the company's Henry's Farmer's Market chain (see above) and combines it with supermarket-style upright shelving for packaged fresh produce and related items (see below).

Note the extensive number of packaged fresh produce and related item SKUs (above), in addition to all mounds of bulk produce (top photo).

The SmartCo Foods format, and first store in Denver, includes a large bulk foods department. The department is similar to those of grocers Western U.S. grocery chains WinCo Foods, headquartered in Idaho, and Sacramento, California-based Raley's.

Grand Opening Day (and Beyond) Events-Promotions

Skittles the Clown, a local favorite, keeps the little customers happy at SmartCo Foods' grand opening on June 23.

Top of two photos: customers line up at dawn, waiting for the store's doors to open at 6 a.m on grand opening day, June 23. SmartCo Foods gave the first 300 shoppers free grocery bags. Next: The patient customers head into the store at 6 a.m, when SmartCo Foods opens the doors of its first store in Metropolitan Denver, Colorado.

On grand opening day, June 23, SmartCo Foods donated $10,000 to two Denver-area non-profit groups, The Denver Scholarship Foundation and Denver Kids. Above, Myles Mendoza (right) accepts a $5,000 donation for the Denver Scholarship Foundation.

Glenna Norvelle (above) of Denver Kids, Inc. accepts a $5,000 donation from SmartCo Foods.

The popular Denver Broncos cheerleaders were on hand at the Denver SmartCo Foods store on June 26, signing autographs (above) and posing for photographs (below) for shoppers, along with creating a little heat among customers of all ages, shapes and sizes (above).

Smart & Final to Open its New Format SmartCo Foods Stores in California and Arizona

City of Commerce, (Southern) California-based Smart & Final opened the first of its new format SmartCo Foods food and grocery stores in Denver, Colorado on Wednesday, June 23 -- and on grand opening day of the 57,000-square-foot store, located at 1442 South Parker Road (at East Florida Avenue) in Denver, Smart & Final's president, Dave Hirtz, made additional news, telling members of the press and others that Smart & Final plans to open SmartCo Foods stores in California and Arizona later this year.

Although he wasn't specific, the first Arizona SmartCo Foods unit is set to be in the Phoenix Metropolitan region, according to our information.

The first California store will likely be in Southern California, where Smart & Final is headquartered, although Smart & Final also has plans to open SmartCo Foods stores in Northern California as well.

Smart & Final, which was founded in 1871 as a cash & carry grocer in downtown Los Angeles, operates its 247 non-membership Smart & Final banner and Smart Foodservice cash & carry stores throughout California, as well as in Arizona, Oregon, Washington, Nevada, Idaho and northern Mexico.

The company also owns the Henry's Farmers Market chain, which it acquired from Whole Foods Market, Inc. in 2008. There are currently 35 Henry’s Farmers Market and Sun Harvest Market (in Texas only) banner stores open and operating in Southern California and Texas.

The farmers market-style Henry's and Sun Harvest stores emphasize natural and organic products and fresh produce but also carry some conventional grocery products, as well as having fresh meat, bakery, deli-prepared-foods, bulk foods and non-foods departments.

Smart & Final is opening its first Henry's Farmers Market store in Northern California, in El Grove near Sacramento, in August. The company is growing the Henry's chain rapidly in terms of opening new stores. [June 5, 2010: Henry's Farmers Market Opening its First Northern California Store in August With A Big 'Local' Push]

Additionally, Smart & Final operates 33 small-format grocery stores under the Smart & Final Extra banner in California and northern Nevada. The Extra stores, unlike the Smart & Final non-membership stores which carry mostly club pack size items, offer about 5,000 SKUs of basic-pack food and grocery items, along with an assortment of club pack grocery products. The Extra stores have fresh produce and meat departments, delis, an in-store bakery and a selection of non-foods.

SmartCo Foods makes the fourth distinct format for Smart & Final, and in fact is a hybrid of its non-membership store format, Henry's and Smart & Final Extra. This was evident at the grand opening of the first SmartCo Foods store in Denver on Wednesday.

The 57,000 square-foot Denver, Colorado SmartCo Foods store, which is in a vacant Albertsons supermarket, is one part supermarket, one part warehouse club, and one-part farmer's market (the produce department primarily).

[Read the Sidebar at the end of this story.]

Smart & Final's planned entry into Southern California and Arizona with SmartCo Foods later this year will add yet another layer of competition into two of the most hyper-competitive markets in the U.S. Smart & Final operates its non-membership warehouse stores in Southern California and Arizona, and its Henry's and Smart & Final Extra stores in Southern California, but the new SmartCo Foods format is significant as a new entry in the markets because its hybrid supermarket/warehouse store/farmers market style format, in a good-sized retail box, is the equivalent of being a new retailer, since it doesn't mimic Smart & Final's other formats.

Smart & Final's push into Southern California and Arizona comes only shortly after we reported that Idaho-based WinCo Foods is planning a major push into Arizona, beginning in Metropolitan Phoenix. [See - April 27, 2010: WinCo Foods' Entry Will Put the 'Ultra' in the Already 'Hyper-Competitive' Metro Phoenix, Arizona Market and May 3, 2010: Winco Foods is 'Moving Fast-Forward' With Metro Phoenix, Arizona Market Entry]

WinCo also announced this month that it plans to build a huge 1 million-plus square-foot distribution center in Southern California as part of its major growth plans in the region.

Employee-owned WinCo Foods launched a major Western USA growth strategy in 2008, as we reported on and wrote about here: December 29, 2008: Competor News: Winco Foods to Expand in California and Nevada in 2009; Put Aggressive Focus on Central Valley, Northern California and Northern Nevada. Read more here.]

For Tesco's Fresh & Easy Neighborhood Market, which has the majority of its current 159 stores in Southern California and Metro Phoenix, Arizona, the addition of Smart & Final's new SmartCo Foods stores in the two regions - along with WinCo Foods' entry into Arizona and planned store growth in Southern California - means yet another competitor to deal with as Fresh & Easy works towards stemming its loses, which were $253 million in the fiscal year ended on February 27, 2010. Tesco estimates a similar loss for fiscal year 2010/11, which end in early 2011.

It also means added competition to all of the other grocers - and in the respective markets overall -particularly those in the value-based and discount niches, in Southern California and Arizona, the degree of which will depend on how many SmartCo Foods stores - and how fast it opens them - Smart & Final plans to open in the two regions.

WinCo Foods plans to open numerous new stores in Southern California and Arizona over the next five years.

Based on the fact Smart & Final is opening five SmartCo Foods stores in Metro Denver between this month and December (five month period), and plans to have 20-25 over the next couple years, it's likely the retailer's plans for Southern California and Metro Phoenix are similarly ambitious. It takes numerous stores in a region in order to achieve any efficiencies and critical mass, after all.

Sidebar: A Look at the First SmartCo Foods Store in Denver, Colorado

City of Commerce, (Southern) California-based Smart & Final opened its first new format SmartCo Foods store (pictured above) on June 23, at 1442 South Parker Road (at East Florida Avenue) in Denver, Colorado. The store is the first of five SmartCo Foods stores Smart & Final plans to open this year in Metropolitan Denver. The retailer says it plans to open between 20-25 SmartCo Foods stores in Colorado over the next couple years.

SmartCo Foods is a brand new format for Smart & Final, although more correctly it's a hybrid of the retailers current three formats - its small-format Smart & Final non-membership warehouse stores, it's natual and organic foods-focused Henry's Farmers Market, and its Smart & Final Extra smaller-format supermarkets.

The 57,000 square-foot Denver SmartCo Foods store, which is in a vacant Albertsons supermarket is one part supermarket (Smart & Final Extra), one part warehouse club (Smart & Final club format), and one-part farmer's market (Henry's).

The format and store offers basically everything a regular supermarket does in terms of departments and products, although the SKU count is a bit less (about 30,000 total SKUs) than traditional supermarkets operated by say Safeway Stores or Kroger offer. But in addition to regular pack groceries, SmartCo also features a club-pack department (pictured above), which is nearly as big as the 15,000 -to- 20,000 square-foot flagship Smart & final banner non-membership stores the retailer operates.

Additionally, borrowing from the Henry's Farmers Market format, the produce department in SmartCo Foods is expansive, and is designed to look like a version of a farmers market. The department offers both conventional and organic fresh produce items. Another leaf SmartCo Foods takes from Henry's is that the store features a bulk foods department. SmartCo also offers nearly the complete selection of the retailer's Sun Harvest private natural and organic brand, which includes products across all dry grocery and perishable categories.

The supermarket-side of SmartCo is influenced in part by Smart & Final's Extra format, as well as by the traditional American supermarket fromat in general.

Here's a look at what the store offers in terms of its departments and features:

The produce department - offers a selection of fresh fruits and vegetables, including both conventional and organic items, with a focus on value pricing. In an effort to support local Colorado growers, SmartCo Foods says it's making an effort to carry locally-grown produce, which is something its Henry's Farmers Market chain focuses on.

The meat department - is staffed by trained meat cutters. It features Cattleman’s Finest (a private brand Smart & Final uses) beef products as well as a broad selection of high-quality pork and poultry products, and fresh and frozen seafood. The meat department is self-service style. Most of the fresh meat is packaged in the department.

The in-store deli - offers ready-to-eat prepared sandwiches and other grab-and-go items, a variety of fresh salads, entress and side dishes, along with a large assortment of deli meats and cheeses.The in-store bakery - features a full-selection of breads, muffins, pastries, cakes and cookies baked fresh in-store daily.

Bulk foods - features bulk bins filled with a variety of grains, healthy snacks and other unpackaged items.

Health & Beauty - offers a full selection of conventional health and beauty products as well as Smart & Final's Sun Harvest brand vitamins, supplements and beauty care products made with natural ingredients.

Foodservice & Business - carries a large assortment of practical products, which include: catering supplies, paper and party products, straws, cutlery, portion cups, hot cups, cold cups, clear cups, serving trays, and commercial-strength cleaning supplies. The department is positioned to small business foodservice operators as well as consumers.

Warehouse Savings - features club-pack items offered primarily on an in-and-out basis, value-priced. The products include: paper goods, beverages, packaged foods and groceries and more.

At 57,000 square-feet (the other four stores set to open this year range from about 45,00o to the same size) SmartCo is Smart & Final's largest store format to date. The Smart & Final non-membership stores and range from about 15,000 -to- 20,000 square-feet, the Extra stores aren't much larger, and the Henry's and Sun Harvest stores are in the 20,000 -to- 35,000 square-foot range.

The other four Colorado SmartCo Foods stores soon to open are located at:

>5141 Chambers Road in Denver

>3615 West Bowles Ave. in Littleton

>16746 E. Smoky Hill Road in Centennial

>1750 North Main St. in Longmont

The SmartCo Foods website is here. Check out the opening week ad specials, like whole chickens for 59 cents a pound, $1.49 per-gallon milk , eggs for 79 cents a dozen and more here.