News, Analysis & Commentary: Tesco's Fresh & Easy Continues Moving Closer to the 'Value Propostion' Positioning; This Time in Prepared Foods Category

Pictured above are two -- chicken teriyaki and chicken & broccoli alfredo -- of the six new fresh & easy store brand family size, value-priced prepared meals. Note the "serves 4 for $8" label in the top right hand corner of the packages. We think it's a good value message to include the text right on the package.

The Value-Proposition and Prepared Foods Merchandising

Tesco's Fresh & Easy Neighborhood Market continues to move closer to the value proposition merchandising positioning we first began suggesting for the grocery and fresh foods chain about one year ago. [Read more about it in this March 2, 2009 piece: Fresh & Easy Buzz Redux: Much of the Value Proposition-Based Analysis and Suggestions We've Been Offering Now Being Adopted By Tesco's Fresh & Easy.]

The grocer's latest value-based merchandising move is the introduction on March 18 of a line of six new "family size," prepared meals which are designed to feed a family of four for only $8.

The six new meal items being introduced in the Fresh & Easy stores are:

>Lasagna with Meat Sauce, 44 oz.
>Chicken & Broccoli Pasta Alfredo, 40 oz.
>Spaghetti with Turkey Meatballs, 45 oz.
>Chicken Teriyaki with Rice & Vegetables, 45 oz.
>Chicken & Bacon Macaroni & Cheese, 40 oz.
>Chicken Burritos with Green and Red Sauce, 40 oz.

Additionally, Fresh & Easy marketing director Simon Uwins says the grocery chain will be introducing additional varieties in the value-based, family meals line over the next few months.

At $8 each the family size prepared meals are a value offering. But they are in the same general price range as many similar meal deals offered by supermarket chains like Safeway Stores, Inc. (Vons and Safeway in California, Nevada and Arizona), Kroger Co. (Ralphs, Food 4 Less, Fry's, Smith's in California, Nevada and Arizona) and Supervalu (Albertsons). However, these retailers aren't beating Fresh & Easy on the price-point punch. Some are about even, others are a bit higher on comparative items. The $8 price point is a good one for the items at Fresh & Easy right now, in our analysis.

It's important also to remember that in the current economy, fresh, prepared foods are competing with frozen foods items. Shoppers are putting aside any perceived quality differences between fresh, prepared and frozen (and often they aren't quality differences between the two) if the value of the frozen items exceeds that of the fresh, prepared.

For example, Stouffer's line of premium but value-priced meal entrees like its family-sized meat loaf, macaroni & cheese and lasagna are selling extremely well in the recession. The marketer is promoting the family size items in retailer's advertising circulars at discount prices, along with distributing "cents off" coupons for the items. We've seen the Stouffer's brand family-size frozen items ad-priced in the $6.99 range. They are all in the about 40-ounce package size range.

Sales in the frozen food category, particularly of value-priced entrees and meals, are up over 2006-2007 sales because of the recession.

Fresh & Easy behind the prepared foods value curve

However, at a cost of $2 person, the Fresh & Easy family size meal offerings are a good deal. But the grocer is way behind the curve in introducing value-oriented size and priced prepared foods offerings.

For example, Safeway started offering value-based family meal prepared foods items in the same price range in the summer of 2008, as the supermarket chain saw the demand for such offerings growing because of the recession.

Kroger followed suit at its Southern California Ralphs supermarkets and in its Fry's and Smith's stores in Nevada and Arizona just a couple months later.

Supervalu, Inc. also introduced its "Culinary Circle" value prepared foods line last summer as well. [Related story: March 25, 2009: Supervalu, Inc. Introduces New, Value-Plus-Convenience Meal Solutions Program; Features Refrigerated Case 'Meal Centers' in Multiple Store Departments.]

And Wal-Mart's small-format Marketside grocery and fresh foods markets in Arizona, which feature in-store fresh, prepared foods, started offering a selection of value-priced prepared foods items like macaroni & cheese and meatloaf, among others, in family sized offerings in December of 2008, less than two months after the four stores in Metropolitan Phoenix, Arizona opened in early October. In January of this year Wal-Mart's Marketside added to its value-based, family-sized prepared foods offerings and has been promoting the items regularly in the stores in Arizona this year.

Being a near-last mover rather than a first-mover is something that's been the case with Fresh & Easy from the start. It particularly hurts the chain in the fresh, prepared foods category because it touted itself as the "new leader" in the category during the run-up to the opening of its first stores in November, 2007 -- and ever since.

But it hasn't been. It shouldn't have taken the grocer this long to figure out that value is the place to be when it comes to prepared foods in the current economy, which started going in the tank at least a year ago. Safeway started adapting its prepared foods offering in the value direction in June, 2008, for example.

Our October, 2008 suggestion

Tesco's Fresh & Easy did introduce a new line of mix & match prepared foods items for two, priced at $10, in October, 2008, as we reported and wrote about in this piece: Prepared Foods Category Report: Fresh & Easy Introduces New Line of Mix & Match Prepared Foods; We Report, Offer Some Analysis and A Marketing Thought. However that offering was a convenience one, targeted to couples, than it was a family-based, value offering.

In fact, in that very story on October 31, 2008, Fresh & Easy Buzz suggested that what Tesco's Fresh & Easy needed to do was to create a line of family meals for four, perhaps using the new meal for two mix & match line in part as a basis for that value meal creation and marketing.

Below (in italics) is part of what we said in that October 31 piece:

"Of course the mix and match nature of the new prepared foods line also has utility for families of any size. In fact, because the meals are designed for two, a family of say four can buy two different combinations, say a pasta and side dish combo and a meat and veggie combo, and then share it all family style. Twenty dollars for four is still a reasonable meal deal. Plus there likely will be leftovers.

In fact, it would be a good idea for Fresh & Easy to do some marketing around the new line in that regard. Say offering a mix and match meal deal for a family of four using the 30 items, positioning it around a theme such as: "Family Style Eating at an Affordable Price -- Mix and Match Dinners for Four With Leftovers to Boot

Doing so would be a good way to appeal to larger families (can do a version for six as well), along with encouraging larger single purchases (and a bigger market basket or total ring), in addition to using the "dinner for two theme." We call it "mix and match" merchandising and marketing."

Here is what Tesco Fresh & Easy Neighborhood Market's marketing director, Simon Uwins, said in the March 18, 2009 press release announcing the new six item value-based family meals: "Customers are telling us they are looking for larger sizes to feed their families on a budget. Our kitchen products have been very popular - like our chicken alfredo and macaroni & cheese - so we are introducing portions that are large enough to feed a family of four for only $8."

The recession has gotten so much worse since October, 2008 that our research shows price-points on prepared foods meals for four are hottest at $10 and under. Therefore, we think Tesco's Fresh & Easy has set a good price point on the meals at $8.

Safeway has been offering a couple prepared foods meal deals for four at $8 -to- $10 each week and has been doing extremely well with the items. The supermarket chain generally rotates two different such items each week.

Having the six items available at the $8 price-point in the Fresh & Easy stores everyday is a good move by the grocer, in our analysis.

Cross-merchandising as margin leverage

We noticed the six value-meals well-displayed in two Fresh & Easy stores we visited last week.

We would highlight the six items in the prepared foods refrigerated cases in all the stores even more so though, perhaps even putting a colorful banner of sorts around the item facings to highlight the "family sized" and value-priced" nature of the meal deals. Set the items out from all the others.

We would suggest featuring the six prepared foods items this way in all the stores, with lots of signage demonstrating the value -- cost of only $2 per person for a family of four, compare that to a restaurant meal, as an example.

We also would build small displays on the floor below where the items are featured in the refrigerated cases. These displays would feature tie-in family meal items like napkins, paper plates, a beverage and other related items. At $8 an item the margin on the family meals can't be much. Therefore these cross-merchandising displays will add incremental sales to the purchase. related cross-merchandising works.

For example, if a shopper picks up a package of paper napkins, plates and a 12-pack of soda with an $8 meal deal, that's potentially an added $8 in incremental sales.

The signage on the display needs to tie in to the family prepared foods meal deals above in the refrigerated case. The key words are: "family," "value," "quality," "deal."

A promotional opportunity for Fresh & Easy

We think Tesco's Fresh & Easy is missing a great promotional merchandising opportunity to combine its prepared foods and basic grocery offerings together into a store-wide, value-based promotion.

Here's what we would do: Starting on say May 1 (May Day), we would launch a special four week store-wide promotion using the theme "Dine Out at Home with Fresh & Easy." The four-week special promotional event would bring all of Tesco Fresh & Easy's grocery and prepared foods offerings together in a cross-merchandising promotion.

We would feature lots of prepared foods items, including the six value-priced family size meal deals, for sale during the four weeks at discount prices. We would also feature numerous related basic grocery items, both national brands like Coke and Pepsi, for example, and fresh & easy store brands across all categories, in displays throughout the stores, all under the "Dine Out at Home With Fresh & Easy" theme. Value and fun being the premise.

All of the displays would tie-in to this theme -- prepared foods, fresh foods, grocery and non-foods items alike. Displays would feature beverages and snacks, desserts and paper plates, napkins and beverage glasses. There would be wines cross-merchandised with cheeses. Prepared foods items would have signage designating this theme, as would all the non-refrigerated items throughout the store.

Value priced produce would be included, as would meats.

We also would bring in some special items that fit the dine out at home theme. These could be in and out items that would boost sales and create shopper interest and excitement. For example: Pre-pack shippers of music CD's and DVD's. Simple decorating items for dining out at home like candles and the like. A pre-pack shipper or two featuring board games to play at home for families.

Additionally, we would set up food sampling stations in the stores, out in the aisles. This creates excitement rather than segregating all the food sampling back in the Fresh & Easy stores' "The Kitchen" area, which is removed from the store floor. Sampling in the aisles creates excitement. We would sample the prepared foods items daily, paired with other items.

We would create a "Dine Out at Home With Fresh & Easy" family menu and party guide. Promote it. Create excitement around the theme. The focus being on how to dine out at home in style for little money. A slice of heaven in the recession.

Lost of themed decor and signage in the stores. Everything tied-in to the theme. And the month-long promotion advertised in external media using all the thematic tie-ins.

May Day and the entire month of May marks spring and the prelude to summer, a time of renewal. Tout a renewal of spirit in the recession with the month-long promotion. Make dining out at home exciting and affordable. Showcase the prepared foods offerings at value prices mixed with basic and specialty grocery items all offered at discount prices.

This would be old fashion grocery merchandising and marketing at its finest. It's what Tesco's Fresh & Easy needs. Shoppers love bargains, especially right now. But they also love retail excitement.

Offer a shopper sweepstakes, some in-store giveaways, drawings; a contest in which the customer of each Fresh & Easy store who comes up with the best dining out at home recipe wins a prize, for example. Make it fun. Demonstrate the value for consumers in "Dining Out at Home with Fresh & Easy." Include shoppers in the promotion. Make it interactive.

Fresh & Easy Buzz Redux: Much of the Value Proposition-Based Analysis and Suggestions We've Been Offering Now Being Adopted By Tesco's Fresh & Easy

Pictured above are two very recently introduced value-oriented merchandising plays by Tesco's Fresh & Easy: Its 98-cent value-priced fresh produce packs (at top) and its "Everything under $1 store-within-a-store sections in its stores (above). [Photo Credit: Tesco Fresh & Easy Neighborhood Market.

The Wall Street Journal has a story today, "Tesco Tries to Hit a U.S. Curveball," in which it interviews Tesco Fresh & Easy Neighborhood Market CEO Tim Mason.

[Note, the Wall Street Journal quotes Tesco in the story as saying Fresh & Easy Neighborhood Market's current overall sales-per-square-feet for its 114 stores is $11. If so, that's 21-cents per square-foot below the U.S. supermarket industry average, which is $11.21 per-square-feet in weekly sales, according to the most recently published statistics by the Food Marketing Institute (FMI) we can find here.

Also, Tesco bases its $11 per square-feet average sales number, and has since day one, on using 10,000 square-feet as the average store size. The problem with this is that we aren't aware of any Fresh & Easy stores smaller than 10,000 square-feet. But there some stores with over 10,000 sqaure-feet of selling space, some up to about 13,000 square-feet. This fact gives us a bit of a problem with using 10,000 square-feet as average store size. But we welcome an analysis from Tesco Fresh & Easy of the selling space square-footage of all of its 114 stores that adds up to the 10,000 square foot average store size.]

The focus of the Wall Street Journal's piece is about Tesco Fresh & Easy's attempts to change its positioning to a value-based food retailing model in which it offers lower prices in store and in media promotions like its advertising fliers (more of a high-low model), including deep discounts; is introducing more value-based and priced items across all product categories, including its fairly new Buxted store brand discount fresh meat line; promotes and advertises heavily with a price and value focus -- both using its print media fliers (and more frequent issuing of the ad fliers), selected radios spots and the Internet -- and overall is attempting to now position, market and promote Fresh & Easy as a value-oriented grocery chain.

The thing is, Tesco always claimed Fresh & Easy was a value-based grocer, among other things touting from day one that it offers food and groceries it claims are 10% -to- 20% cheaper in rice everyday than its competitors offerings. For a variety of reasons we've detailed in Fresh & Easy Buzz, shoppers haven't bought it. The main reason consumers haven't bought it is that Fresh & Easy hasn't really been, nor is at present, a value-based grocer.

We've been writing about Tesco Fresh & Easy change in the value direction for a few weeks now, including our recent stories about CEO Tim Mason's comments in the Sunday London Times article.

This move by Tesco's Fresh & Easy to a value-approach, including most of the specifics mentioned by CEO Mason in the Wall Street Journal piece, come in part right out of the pages of Fresh & Easy Buzz, as we've been suggesting beginning as early as 14 months ago that it is the value-based model Tesco needs to adopt, develop and then communicate consistantly to consumers, as the focus of the Fresh & Easy stores. We call value the positioning hub for Fresh & Easy, with all other merchandising aspects of the chain and stores then being the spokes of that hub. [You can read the story here in today's Wall Street Journal.]

We've also suggested, going back to March of 2008, that Tesco should use selective radio advertising as part of an integrated marketing mix and program, which it recently started doing (using radio but not yet integrating its marketing strategy fully), and is mentioned as doing in the Wall Street Journal piece.

We've also been suggesting, beginning about a year ago, and often since, that Tesco's Fresh & Easy needs to distribute it once-every-three-weeks advertising flier more frequently, or distribute supplemental fliers, which it recently has started doing in an aggressive way.

For example, Fresh & Easy has issued at least three supplemental advertising-promotional fliers since issuing its most recent regular once-every-three-week flier, which amounts to a promotional flier being mass mailed about once a week over the last month.

That frequency increased shortly after we published this piece: [Tesco Fresh & Easy's 'New' Advertising Flier: Minimalism Without Thought or Design Does Not A Retail Advertising Communications Piece Make] on January 27, 2009. In the piece we questioned the design (or lack of) of the flier for its too simple black ink on plain white paper look, as well as its crowded layout. Since then all of the Fresh & Easy ad fliers thus far have included color, and have a much improved (work still needs to be done on them though) design layout.

Fresh & Easy also has stepped up the discount pricing (hotter) in the ad fliers, which we've been suggesting it needs to do for many months.

For an example of the grocery chain's deeper discount promotional pricing, read this February 13, 2009 piece [The Valentine's Day (Retail Promotional Price) War of the (Dozen Long-Stemmed) Red Roses: And the Winner Is... Tesco's Fresh & Easy] we wrote about the Valentine's Day-themed flier.

Fresh & Easy also tied-in the red roses promotion in the ad flier with radio ads, something we first suggested the grocer do (integrate selected promotions in the ad fliers with radio spots on a selective basis) a year ago. [See the linked posts under Fresh & Easy Buzz Redux: Tesco's Fresh & Easy & radio advertising below.]

In its most current supplemental ad flier, Fresh & Easy is featuring whole chickens under its fairly new Buxton value-positioned fresh meats category store brand for 69-cents a pound, which is currently among the hottest promotional prices in California, Nevada and Arizona for the whole birds. Read our comparitive analysis of one of Tesco Fresh & Easy's ad fliers in an October 1, 2008 piece here: ['The Promotional Pundit:' Fresh & Easy Buzz Analyzes, Offers Suggestions and Grades Tesco Fresh & Easy's Bi-Weekly Advertising Flier.]

We also wrote the paragraph reprinted below in italics in the October 1 piece:

"We do suggest the grocery chain go from a fortnightly (one flier every two weeks) to a weekly ad flier. It's the norm in U.S. food and grocery retailing. Especially for those chains that aspire to the "big time." It also creates more excitement in the stores -- more in-an out deals, ect." [Historically the Fresh & Easy direct-mail paper fliers have come out every two -to- three weeks. The online versions every three weeks. Our comments about liking the flier design were about the original Fresh & Easy designed flier, before they changed it to the plain white paper version, which as we mentioned above has now been upscaled a bit, adding color, and getting better.]

Below, under the heading "Fresh & Easy Buzz Redux," we list a partial (there are many more stories on the topics in the Fresh & Easy Buzz archives), linked bibliography of stories offering analysis, arguments and suggestions put forward by Fresh & Easy Buzz regarding Tesco's need to move towards the value propostion with its positioning, merchandising, operations and marketing of Fresh & Easy Neighborhood Market USA.

Additionally, we include a few links in which we suggested in stories that Tesco's Fresh & Easy should include selective radio advertising in its marketing mix, and needs to offer better promotional price points in its advertising fliers, along with issuing those fliers on a much more frequent basis. Both, along with the overall value proposition, are elements which the grocery chain is now attempting to incorporate into its merchandising, marketing and operations.

>Fresh & Easy Buzz Redux: On the Fresh & Easy value propostion and value-oriented positioning imparitive. A sampling of past stories from Fresh & Easy Buzz:

February 21, 2008: A Look At Fresh & Easy @50 (Stores): An Analysis and Some Suggestions For Going Forward. [Click here to read.]

April 3, 2008: Our 'Fresh & Easy Stores' Lack A Sense of Place' Theory is Growing; Read What We and Others Are Saying Tesco Needs to Do With Fresh & Easy

June 8, 2008: Las Vegas Region Market Report: Signs of Recession in Usually Immune Las Vegas; Why Isn't Tesco's Fresh & Easy Touting its 'Value Proposition'?

June 18, 2008: Tesco's Fresh & Easy and it's 'Value Proposition:' We Asked, They Answered; Discussion, Deconstruction and Fresh & Easy Buzz Analysis

June 8, 2008: Arizona Region Market Report: First Signs of A Weakening Might Be Starting to Show in the 'White-Hot,' 'Super-Competitive' Arizona Market

March 29, 2008: Tesco's Fresh & Easy 'Taking a Pause' From New Store Openings: A Full Review In the Works

August 4, 2008: The Value Proposition: Whole Foods Market's New Focus on 'Value' Demonstrates the Importance of the Value Proposition Currently in U.S. Food Retailing

June 30, 2008: Southern California Region Market Report: The Coming 'Store Wars' in the High Desert Market; Kroger Co.'s Ralphs Lowers Prices, Ups Value Proposition

May 4, 2008: Aldi USA, the Fastest-Growing Small-Format Grocer in the U.S. Promotes Everything But the Kitchen Sink (and Maybe That's Next) In its Weekly Store Ads

November 24, 2008: A Single Bird in the Ad (Even Wrapped in Bacon and Sage) Does Not Make For A Good Thanksgiving Promotion For A Neighborhood Grocer For 'Everybody'

November 20, 2008: Analysis & Commentary: Fresh & Easy Neighborhood Market and Tesco's Lowered Expectations

November 12, 2008: Breaking News: Tesco's Fresh & Easy Considering Two Major Changes, One Physical the Other Design Oriented, to Increase Sales in its 100 Stores

November 16, 2008: November 16, 2008: Tesco Fresh & Easy CEO Tim Mason Says He's 'Deliriously Happy' With the Chain's Progress Thus Far; We Prefer Andy Grove's 'Only the Paranoid Survive'

September 4, 2008: News & Analysis: Tesco's Fresh & Easy Launches New Direct Mail Promo Piece Full of $5-Off Discount Coupons; Is it Taking Deep-Discounting Too Far?

October 1, 2008: 'The Promotional Pundit:' Fresh & Easy Buzz Analyzes, Offers Suggestions and Grades Tesco Fresh & Easy's Bi-Weekly Advertising Flyer

November 12, 2008: November 12, 2008: Analysis: Hard Times at Fresh & Easy - Northern California Expansion to Be Postponed or Shelved Do to Economy; But its Only a Symptom Not the Cause

December 15, 2008: Food & Grocery Retailing in the Recession: Wal-Mart CEO Describes Changes in Consumer Behavior-More Cheap Basics, More Cooking at Home; More Leftovers

December 12, 2008: Marketing & Promotions Report: Manufacturers' Coupons Becoming the 'New Black;' Use Among Consumers Soaring; Marketers Distributing More Than Before

January 30, 2009: Breaking Buzz: Tesco's Fresh & Easy Distributes its First Promotional E-Mail Alert Today; Has the Grocer Been Reading Fresh & Easy Buzz This Week?

[Click here for more related stories regarding the value proposition, needed pricing model, ect. for Tesco's Fresh & Easy Neighborhood Market.]

>Fresh & Easy Buzz Redux: Tesco's Fresh & Easy and radio advertising:

Linked below are a few pieces suggesting strongly that Tesco's Fresh & Easy should use selective radio advertising as part of its marketing-media mix, particualrly putting a focus on the value proposion. Note we first offered the selective radio advertising suggestion as part of our analysis of Tesco's Fresh & Easy over one year ago.

February 21, 2008: A Look At Fresh & Easy @50 (Stores): An Analysis and Some Suggestions For Going Forward. [Click here to read.]

April 1, 2008: Supermarket News' Fresh & Easy Cover Story: Industry Analysts and Others Agree With Our Multi-Month Argument That Fresh & Easy Stores Need Local Focus

April 17, 2008: Vegas Baby!: Tesco Announces Ten More Fresh & Easy Grocery Stores For The Las Vegas Metro Region; it's All About 'Critical Mass'

>Fresh & Easy Buzz Redux: On Tesco Fresh & Easy's need to promote deeper price discounts, create value, and issue more frequent advertising fliers and implement other promotional vehicles.

[Click here for a selection of stories/posts from Fresh & Easy Buzz on these related topics.]

Value isn't just discount prices

If you read through the Fresh & Easy Buzz archives, you will notice the concept of the value-proposition informs many of the analysis pieces we've written and published in the Blog, along with informing our merchandising, marketing and operations suggestions for Tesco's Fresh & Easy Neighborhood Market.

It is important to point out, as we always do, that value does not merely mean offering deep- discount prices on items. It is though a key part of the process, and one that is important, particularly right now from a price-impact basis.

Value proposition is a comprehensive strategy

Value is the offering of low, everyday prices as well as promotional prices. But that's just one tactic in the strategic value proposition strategic mix. Good promotional pricing is a tactic, the value proposition is the overall strategy that informs the various tactics, including good promotional pricing and discounting.

Value means creating a grocery chain in which consumers not only perceive that it's a solid place to shop for low-priced food and grocery items but also where they believe can obtain the best overall "value" for their food and grocery shopping dollars.

Among other criteria, achieving value means offering the best price-to-value (quality) formula in the market. For example, cheap chickens only offer value if they are of a certain level of quality -- the price/value ratio. Safeway last week offered Foster Farms brand whole chickens for 77-cents a pound. Fresh & Easy offered its value store brand whole birds at 69-cents a pound last week and this week. Consumers will determine the price-to-value-ratio in that eight cent per-pound difference. The market is wonderful in that regard.

Also, great prices like Fresh & Easy's $9.99 per-dozen bunches of long-stemmed red roses for Valentine's Day last month are only good if a retailer is able to maintain a decent in-stock level on the product. It's OK to run out of the red roses on the holiday. But many if not most Fresh & Easy stores ran out of the $9.99 a dozen red roses pretty much everyday at noon beginning the very first day of the promotion, according to reports we received from a number of store-level employees and customers. (At that price people weren't just going to buy them for Valentine's Day, after all.) Read the comments in the comments section as well here: [The Valentine's Day (Retail Promotional Price) War of the (Dozen Long-Stemmed) Red Roses: And the Winner Is... Tesco's Fresh & Easy.]

A simple solution to this chronic out-of-stock problem would have been to only offer the $9.99 dozen long-stemmed red roses deal on the Friday before, and on Valentine's Day, which was on a Saturday. That also would have added store foot traffic on those two specific days.

Tesco's Fresh & Easy has to be careful not to repeat such mistakes (it was a corporate buying problem) because such chronic out-of-stocks actually take away from the value proposition despite the item pricing being so hot. What value is it to a shopper if they are unable to buy the $9.99 roses even three days before Valentine's Day after two trips to their local Fresh & Easy store in an attempt to do so? The answer: zero value.

There is a need for better coordination and communication between corporate merchandising and the stores at Fresh & Easy -- particularly from headquarters in listening to the store-level employees. For example, we know many store managers were telling headquarters to load up on the $9.99 red rose bunches because sales were going to be massive. But it didn't happen. The result: numerous unhappy shoppers. Value lost.

Towards the value proposition and value-based positioning?

We see Tesco's Fresh & Easy moving closer to the value-based positioning we started suggesting it needed to do a year ago with its "dollar sections" in the stores, value-priced produce and meat packs, beginnings of more frequent item promotions and more advertising fliers and use of other media like radio and the Internet. It's our analysis that each of these introductions has been a positive one for Fresh & Easy. And we like the 98-cent value produce packs and the $1 sections in the stores, for example, from the perspective of building that value postion.

But the grocer needs to do much more. And most important, it needs to create take all of these tactics and combine them in that overall value proposition in its merchandising, marketing and operations, and integrate them -- value as the hub, all else as the spokes.

We are seeing a movement in the right direction though in terms of the increased focus on the value proposition by Tesco Fresh & Easy.

And over the last 3-4 weeks we've seen a difference in the customer counts at a number of Fresh & Easy stores we've monitored over many months, as well as having received reports from regular Fresh & Easy Buzz correspondents in California, Nevada and Arizona that they have in some cases been seeing the same thing in the specific stores they monitor for the Blog.

We will be covering where this beginning goes, as always, in Fresh & Easy Buzz.

A Healthy 'Mea Culpa': Tesco Fresh & Easy CEO Tim Mason Says 'We Got it Wrong;' Comments Tend to Agree With Fresh & Easy Buzz Analysis and Arguments

Pictured above is the Fresh & Easy Neighborhood Market store on famous Hollywood Boulevard, in Hollywood, California. The Fresh & Easy market is nearby the Kodak Theatre, where the annual star-filled Academy Awards show, also called the Oscars, will take place tomorrow night. The envelope please: It's now about 15 months since the fist batch of Fresh & Easy stores opened. Will Tesco Fresh & Easy Neighborhood Market CEO Tim Mason be able to make the small-format, convenience-oriented grocery and fresh foods chain a "star?"

In a brief story to be published in tomorrow's Sunday London Times, Tesco Fresh & Easy Neighborhood Market CEO Tim Mason and the Southern California-based grocery and fresh foods chain's chief marketing director, Simon Uwins, tell the Sunday Times' William Kay that the retailer's "extensive" market research in the Western U.S. market regions of California, Nevada and Arizona, research Tesco has been touting as top-flight and comprehensive for over two years, was wrong and mistaken.

"We may have assumed that certain elements of the Fresh & Easy brand would do the work for us and we would not have to go down and dirty on price. That may have been a mistake," Tim Mason, CEO of Tesco's Fresh & Easy Neighborhood Market USA, is quoted as saying in the report.

It not just about getting "down and dirty" on price though, although that's a reality in the current deep economic recession. It's all about creating a comprehensive Fresh & Easy format rather than the current muddled format, placing value at the center of that comprehensive format and then communicating it in a clear and regular way to consumers, as we've been suggesting the grocer needs to do since we started Fresh & Easy Buzz.

We reprint the full Sunday Times' report below (in italics):

Tesco admits: We got it wrong in US
February 22, 2009
The Sunday Times
By William Kay, Los Angeles

THE head of Tesco’s US operation, Fresh & Easy, has said its early market research was mistaken and it may make big changes to the stores.

“We may have assumed that certain elements of the Fresh & Easy brand would do the work for us and we would not have to go down and dirty on price. That may have been a mistake,” said Tim Mason, head of Tesco’s US business.

Ahead of Fresh & Easy’s launch in November 2007, Mason trumpeted the in-depth research that was done to identify a gap in the West Coast grocery market.

Marketing director Simon Uwins said: “We went into people’s houses, talked to them about food and food shopping. We went into their kitchens and poked round pantries.”

Unfortunately, Mason now admits, they did not poke around their garages, where they would have found huge freezer chests bulging with stockpiled meat bought on special offer.

“There’s less loyalty in the American market,” said Mason. “A Brit has to hear it a few times before you accept that people make up their mind where to go each week when they check out the special offers round the kitchen table.

“In a key moment at a focus group, one man told them that he had stopped shopping at Fresh & Easy because they no longer sent him a flier promoting the latest special offers.

“We came out of that meeting and said we had better make sure we hit everyone in the area with fliers.”

Recession has slowed expansion. There are 113 Fresh & Easy outlets and plans to have 200 branches have been put back at least six months. [Here is a link to the story as well.]

Analysis: Tesco Fresh & Easy CEO Tim Mason takes a page right out of Fresh & Easy Buzz

Mr. Mason's comments and quotes should sound rather familiar to regular readers of Fresh & Easy Buzz.

For over a year we've been writing and offering analysis in numerous pieces that Tesco's "extensive" pre-Fresh & Easy launch research was questionable, since the grocer failed to discover so many basic aspects and practices of how food and grocery retailing in America works.

These research failures include such simple basics as how Americans prefer fresh, bulk produce over pre-packaged, to (a major Fresh & Easy Buzz theme) the regional, sub-regional, sub-sub regional and local nature of grocery retailing in the U.S. -- that there are regional markets like the Western U.S., then sub-regional markets within those which have extensive differences, like California, Nevada and Arizona, then additional sub-sub regional markets within those, such as Southern, Central and Northern California, and then even local markets within those sub-sub regional ones, right on down to the neighborhood level. There are niches within the niches. Just ask Safeway Stores, Inc. what it discovered when it finally started taking its neighborhood merchandising-marketing program seriously in the late 1990's.

We've suggested that despite the research being bad, something Mr. Mason has only admitted now, such things happen, but that Tesco's Fresh & Easy should have admitted it long ago and then course corrected. It has started doing a bit of that course correcting of late, including taking our advice in terms of beginning to build a better value proposition. But it is nearly a year too late in doing so, as we've written previously.

Another major theme in all of our writing and analysis has been that's what lacking with Fresh & Easy's merchandising, marketing and operations is the creation of a value proposition and then the communication of that proposition in a clear, concise and repetitive manner. It appears our argument has now found receptive ears.

By value proposition we of course mean discount pricing, both everyday and promotional -- after all from day one Tesco claimed Fresh & Easy was and is about 15% cheaper everyday than its food retailing competitors stores are, which hasn't tuned out to be true based on our research -- but not just discount pricing. Value is much more than that. Value is appealing to consumers on multi-levels, and it must include their pocket books. It's Convincing them your offering provides the best value for the best price.

As we frequently suggest, for Tesco's Fresh & Easy,that value proposition needs to be the hub of its wheel, with all of its other offerings -- prepared foods, natural and specialty foods, specialty wines, ect. -- then being the spokes of that hub and wheel.

Based on our extensive research, which has included talking to numerous past Tesco Fresh & Easy employees, it's, as we've previously reported and discuss in the Blog, our analysis that what Tesco has done to date with Fresh & Easy is essentially assume it could force-feed its model of British food and grocery retailing into the Western U.S. and convince consumers that they would prefer it to what they are used to and like -- food retailing Western USA style, which means appealing to the consumer and focusing locally like a laser beam on the communities and neighborhoods served.

The U.S. is a decentralized (there really is no national chain, Wal-Mart comes the closest to being one), super-competitive, multi-format food retailing market. And unlike the United Kingdom, regional supermarket chains and independents are a key and significant force in U.S. grocery retailing.

In California alone there are numerous multi-billion dollar, privately-held chains that are top market share players in their sub-market regions. These include Stater Bros. (about $4 billion in annual sales) in Southern California's Inland Empire region, Bashas (about 3.4 billion in annual sales) in Arizona, and Raley's (about $3.6 billion in annual sales) and Save Mart (about $6.5 billion annual sales) in regional markets in Northern California.

There are a few others over the billion dollar annual sales mark as well, along with many multi-store independents approaching a billion dollars in annual sales, and even more in the hundreds of millions and high tens of millions in annual sales.

Then there's the really big guys -- Wal-Mart, Costco, Target, Safeway, Kroger Co., Supervalue, (and many more), along with the big niche players -- Trader Joe's (about $5 billion), Whole Foods Market (about $6 billion) (and numerous medium and smaller niche players too) -- and the ethnic grocers (particularly Latino consumer-focused food retailers) in California, Nevada and Arizona).

Did we forget to mention the legions of high-volume single store independent grocers in the U.S.? And California is one of the strongest single-store independent markets in the nation, as one example.

And let's not forget the mega-drug chains like Walgreens, CVS-Long's and Rite-Aid, all of which increasingly are offering and discount promoting more and more food and grocery items. For example, this weeks 12-page advertising circular from Walgreens, the largest U.S. drug store chain (maybe should change the name to Walgreen's drug & grocery) looks more like a supermarket ad circular -- about 60% of the items are groceries, including dairy and deli items -- than a traditional drug chain (or Walgreens') advertising piece.

We aren't sure if this "British food-grocery retailing model "force-feeding" approach by Tesco has been because of pure hubris, which is something former and present company employees have suggested to use is the reason. But whatever the reason, in our analysis its been in many ways "Ted Mack time" (an important American pop culture reference to know) by Fresh & Easy's leaders thus far for Tesco, which is one of the best overall global retailer's in the business.

[If you do a search in the "search box" at the top of Fresh & Easy Buzz -- use words like "value proposition," "localism," "research" -- as well as looking through the Blog archives (even better) -- you will find that Mr. Mason's revelation in the Sunday Times' piece mirrors our analysis, arguments and suggestions rather closely in terms of where Tesco's Fresh & Easy has gone thus far -- and where it needs to go.]

It is said that admitting mistakes is the first step towards correcting them. We hope that's the case for Tesco's Fresh & Easy, especially because the grocer has some of the finest and most dedicated store-level employees in the business.

It's also important to note that unlike Tim Mason, many CEO's will never admit, particularly in print, that they "got it wrong." Instead, they would rather go down with the ship still saying they were right; that the environment was just wrong. For example, look how long it has taken General Motors' CEO Rick Waggoner to admit GM "got it wrong." And the timing was pretty close to the company's asking for billions of dollars in loans from the U.S. government, at that. Therefore we give Mr. Mason credit for having the confidence and wisdom to say what he said.

But the fact that Mr. Mason is admitting the grocer "got it wrong" should also shed some light on just how serious (as in not so positive) Tesco's struggles with Fresh & Easy are. Keep in mind Tesco will soon report its financials, including those at Fresh & Easy Neighborhood Market USA.

We have seen some positive signs in recent weeks in terms of changes in Fresh & Easy's merchandising and marketing. Of particular note appears to be the movement, albeit in baby steps, by the grocery chain more towards the value proposition-based model we've long been suggesting it needs to do. On the item side of this equation these developments include the introduction of what Fresh & Easy calls its 98-cent value produce packs. It also includes the addition of more nationally branded grocery products into the stores.

Fresh & Easy also has been sharpening its promotional pricing -- offering better deals -- and improving its in-store merchandising, particularly in the grocery category.

For example, when we visited a number of stores between the 2008 Thanksgiving and Christmas holidays we noticed pre-pack shippers being tastefully used in the stores. Prior to that Fresh & Easy had a "clean floor" policy, in which it didn't allow shippers on the store floor. The shippers we viewed then were all featured national brands, which is a good idea for the grocer because it helps augment the primarily store brand (about 60%) model and focus in the stores. The shippers, many of which contained items with a higher ring but were price-discounted well, also help increase market basket size for the stores.

We also saw an end-cap display we liked. It featured a number of well merchandised fresh & easy store brand grocery items. On the display were stacks of paper Post-It Notes, along with a sign that basically said: "Take a Post-It Note, write-down your favorite fresh & easy brand items and stick it on the display." The display (shelving) was covered with Post-It Notes, with customers' favorite fresh & easy branded items hand written on the slips of paper.

This is the type of creative merchandising the grocery chain needs to nurture and do more of. It's creative and interactive, inviting shoppers to participate in the grocer's business. We suggest Mr. Mason find out who came up with this idea and put them in charge of "creative merchandising" for the entire chain.

But it's our overall analysis at this point in time that Tesco's Fresh & Easy has yet to create this comprehensive value proposition and merchandising and marketing program. We suggest it follow up on its recent value-based offerings and the type of creative and successful (the items on that particular store's Post-It Note display were selling at a brisk pace) merchandising exemplified by the display we described, and build these various elements (the parts) into a value-based overall (the whole) merchandising and marketing program which then must be positioned and communicated well.

Value needs to be the hub of the Tesco Fresh & Easy wheel (format and overall offering) and then all of the other offerings (prepared foods, natural-organic-specialty groceries, wines, ect.) need to be the spokes. The other offerings are important. But they need to fit in with the overall value proposition and support it rather than detract from it in what we've termed as a "model or format muddle" that exists with Fresh & Easy at present.

We will return later for some further analysis on the topic and issue. But that's all for now.

A Single Bird in the Ad (Even Wrapped in Bacon and Sage) Does Not Make For A Good Thanksgiving Promotion For A Neighborhood Grocer For 'Everybody'

Analysis & Commentary: Tesco Fresh & Easy Neighborhood Market's Thanksgiving 2008 Advertising Circular and Promotion

Benjamin Franklin's famous letter to his daughter Sally about why he wanted the turkey to be the national bird of the United State's instead of the bald eagle. Franklin wrote the letter to Sally on January 26, 1784 from France. She was in Philadelphia -- "For my own part I wish the Bald Eagle had not been chosen the Representative of our Country. He is a Bird of bad moral Character. He does not get his Living honestly. You may have seen him perched on some dead Tree near the River, where, too lazy to fish for himself, he watches the Labour of the Fishing Hawk; and when that diligent Bird has at length taken a Fish, and is bearing it to his Nest for the Support of his Mate and young Ones, the Bald Eagle pursues him and takes it from him.

"With all this Injustice, he is never in good Case but like those among Men who live by Sharping & Robbing he is generally poor and often very lousy. Besides he is a rank Coward: The little King Bird not bigger than a Sparrow attacks him boldly and drives him out of the District. He is therefore by no means a proper Emblem for the brave and honest Cincinnati of America who have driven all the King birds from our Country . . .

"I am on this account not displeased that the Figure is not known as a Bald Eagle, but looks more like a Turkey. For the Truth the Turkey is in Comparison a much more respectable Bird, and withal a true original Native of America . . . He is besides, though a little vain & silly, a Bird of Courage, and would not hesitate to attack a Grenadier of the British Guards who should presume to invade his Farm Yard with a red Coat on."

Fresh & Easy Buzz has been writing for some time about the fact Tesco's Fresh & Easy Neighborhood Market has failed to create and communicate a solid, clear value proposition for its small-format, convenience-oriented grocery and fresh foods stores, in our analysis.

We believe the primary reason this is the case is because the retailer has yet to define what the format is (is Fresh & Easy a discount grocery or specialty foods chain? Or both? Or more?) and it's retailing mission and focus are (are the stores really for "everybody" like Tesco says they are? If so, why is such a limited consumer demographic, mostly consumers aged 19-35, shopping the stores primarily? And not enough of them at that?)

As a result, the positioning of the Fresh & Easy is a muddle, as we've been arguing since December, 2007. We said give them time then. We said give them time in June and July of this year. But it's now nearly the end of November, 2008, and has been one year since the first batch of Fresh & Easy stores opened. The failure to position the stores is still as bad as it was in December, 2007, in our analysis. Why? Because of the reasons we stated above: The retailer still hasn't figured out the chain's format and mission, therefore there is no clear, comprehensive and solid focus and positioning for Fresh & Easy.

The grocer is using a shotgun form of positioning, merchandising and marketing (fire a bunch of shot out there and see what sticks) rather than a rifle approach, which is a clear, focused position and a comprehensive marketing communications program to then create the Fresh & Easy retail brand.

In fact, based on the thrust of Tesco's overall merchandising and marketing since the first batch of Fresh & Easy stores opened in November, 2007, our analysis is that the Fresh & Easy Neighborhood Market executive team is running a specialty foods chain, Fresh & Easy, and merchandising and marketing the stores in the main in that direction. Nothing wrong with that -- except that's not what Tesco says Fresh & Easy is.

The everyday low price, discount aspect of the stores has largely been obscured in the merchandising and marketing of the Fresh & Easy chain. The value proposition, which Tesco touted for over a year before the first store opened as being its key positioning factor for Fresh & Easy, along with convenience, has been nearly non-existent -- an after-thought when it comes to positioning, merchandising and marketing.

For example, for Thanksgiving Tesco's Fresh & Easy is promoting in-store, through a press release and in its current November 12-26 online and mass-mailed advertising circular, a gourmet, ready-to-cook turkey dinner, under the theme "Thanksgiving made easy," featuring a whole ready-to-cook turkey wrapped in smoked bacon and sage, along with including prepared side dishes and trimmings for six people for about $49, or $8 per-person. Here's the dinner promotional offering:

Ready-to-cook
fresh&easy Whole Turkey Wrapped in Smoked Bacon and Sage -- $2.29 Lb.

Prepared: Ready-to-heat
fresh&easy Mashed Potatoes -- $4.99/28 oz, or
fresh&easy Mashed Sweet Potatoes -- $3.99/24 oz
fresh&easy Herbed Stuffing -- $3.99/16 oz
fresh&easy Roasted Vegetables -- $4.99/19 oz
fresh&easy Turkey Gravy -- $3.49/20 fl oz
fresh&easy Cranberry & Orange Sauce -- $2.99/12 oz
fresh&easy 9" Pumpkin Pie -- $2.99 each

The $49 price for the gourmet turkey and trimmings (the turkey is gourmet while the trimmings are more mainstream) Thanksgiving dinner isn't bad at all -- it's about the same price nearly all of Fresh & Easy competitors in California, Nevada and Arizona are selling similar prepared Thanksgiving turkey/side dish/dessert dinners for. Except, the competitors' whole turkeys are already cooked in many cases, and they are your basic bird rather than being wrapped in bacon and sage or anything else. Many of these also feed 8-10 people rather than six.

We aren't saying a bacon and sage-wrapped turkey doesn't sound like it might be very tasty. The problem isn't with the dinner created by Fresh & Easy's in-house chef -- it's fine. The problem is, the Fresh & Easy Thanksgiving meal promotion is one a specialty or gourmet food store would offer, not one (at least making it its only advertised promotional offering) a neighborhood market that's positioned for everybody and claims it offers everyday food and grocery prices 15% -to- 20% lower than those of competing supermarkets would offer as its only Thanksgiving Turkey promotion. There is a disconnect from the attempted positioning of being a low-priced neighborhood market designed for all consumer segments and offering only the gourmet turkey promotion.

Such an offering would be fine as a secondary one by Fresh & Easy, say along with a value-priced Thanksgiving dinner (including just a basic, raw bird), as well as promoting basic, whole Turkeys at a hot price in the advertising circular.

But that's it. The gourmet bacon and sage-wrapped bird is the only turkey the grocer is promoting in its holiday ad. Fresh & Easy isn't promoting a value version of the dinner for say under $30 like the small-format Aldi USA discount grocery chain is doing, nor is the grocery chain offering fresh and frozen whole turkeys on sale for hot prices like Safeway Stores, Ralph's, Bashas and all of its other key competitor's are.

Aldi USA's value offering, which you can view here, is only $27.16 and includes a 14 pound Butterball brand whole turkey, which is one of the most popular brands in the U.S. The complete Thanksgiving meal fixings feed at least eight adults.

The positioning of Fresh & Easy with its Thanksgiving promotion is that of a specialty or gourmet market, plain and simple. If we may use a turkey metaphor: 'If your Thanksgiving holiday promotion looks like a gourmet turkey promotion (a bird wrapped in smoked bacon and sage), walks like a gourmet turkey promotion (higher-priced, prepared side dishes only) and is priced like an gourmet turkey promotion (higher than most consumers can afford this Thanksgiving holiday even though the price is decent for the perceived quality, and you offer no additional value-based options), it's a specialty/gourmet turkey dinner (promotion.)

For example, in addition to offering prepared turkey dinners at about $49, chains like Safeway (Vons in Southern California and southern Nevada, Safeway in Arizona, Northern California and northern Nevada) Ralphs, Albertsons, Bashas, Frys, Stater Bros, Food-4-Less and most others (all key competitors) all are offering a variety of turkey variations on sale this week. These range from promoting whole frozen birds for 38 cents -to- 49 cents per-pound if customers spend a minimum of $25 at the store, to selling frozen turkeys for 69 cents a pound (and some even less) with no minimum purchase requirements, to offering whole fresh birds for from 79 cents to about $1.39 per-pound.

These same supermarkets also are offering higher-end, premium birds, such as the popular Diesel brand free-range, all-natural turkey for as low as $2.29 per-pound, along with organic birds for a higher promotional price-point. A couple chains also are offering free turkeys (12-16 pounds) with a minimum total purchase of $100.

This Advertising and promotion is traditional. Every Thanksgiving U.S. supermarkets offer a wide range of turkey's -- usually at least three brands of frozen (a lower-end, medium range and high-end) and at least three brands of fresh turkeys (low, medium and high-end) -- for sale the week before Thanksgiving in their advertising circulars. Most also offer additional brands and versions, including premium, free-range and organic, as well as a couple value-added versions such as smoked, honeysuckle, ect. They do this because it works -- it appeals to the entire consumer spectrum, from lower income shoppers to the wealthy, or those who aren't wealthy but are willing to splurge and spend more for a premium turkey and higher-end trimmings.

It's our analysis that by promoting only one Thanksgiving offering, a ready-to-cook turkey wrapped in smoked bacon and sage, along with higher-priced ready-to-heat side dishes only, not only is Fresh & Easy missing the boat on drawing the majority of shoppers into its stores, its running a specialty food store promotion. There would be nothing wrong with this if Fresh & Easy was a specialty grocery. But it says it isn't. Rather it says it's a discount or everyday low price-format neighborhood grocery and fresh foods market designed for all consumers.

If that's the case, and positioning, then where are at a bare minimum the discount-priced and advertised fresh and frozen whole turkeys? And why not a value-version of a complete Thanksgiving dinner, along with the smoked bacon and sage-wrapped gourmet offering, like discount grocery chain Aldi USA is offering here, for example.

We say this with all humility and with zero pleasure: Tesco Fresh & Easy's November 12-16 Thanksgiving advertising circular is one of the worst Thanksgiving holiday promotions we've seen a grocer produce in nearly 30 years of working in and participating in the food and grocery industry in the U.S.

There's just no there there in the ad. No meat on the promotion's bones. No real value offered. No reason for a consumer to read it, comparing it to Safeway's, Kroger's and the other chain and independents Thanksgiving holiday promotions in California, Nevada and Arizona, and saying: 'I've got to shop Fresh & Easy for my Thanksgiving turkey and groceries.'

And in terms of promoting just the one turkey, the bird wrapped in smoked bacon and sage, most American consumers like a plain old bird for their Thanksgiving dinner. They then season it the way they choose. Feel free to ask the various U.S. poultry industry trade associations for their annual sales figures by type of bird sold if you don't believe us about the overwhelming popularity and sales of the plain old bird at Thanksgiving compared to all other variations.

A few consumers/cooks might even choose to wrap their plain old whole turkey in bacon, although we would guess that percentage would likely be about 1% of the U.S. population.

Additionally, most Americans like to buy a plain turkey because they generally serve Thanksgiving dinner to a number of family members, as well as often including friends at their holiday dinner celebrations.

Most if not nearly all U.S. consumers will shy away from buying a turkey wrapped in smoked bacon and sage because perhaps Uncle Jeff, who has high cholesterol, has been told by his doctor not to eat bacon, so he can't eat it. Or maybe because son Tom's wife is Jewish and doesn't eat pork. Then there's that crazy cousin Larry who hates bacon period. Not to mention all the kids who when they see a turkey wrapped in bacon and sage don't want any part of it. Too gross they might say, even though those of us who've enjoyed such a bird know its not gross at all. The plain turkey, seasoned by the home cook, is therefore the default bird for Thanksgiving in America.

Offering promotional variations in ads, like the bacon and sage-wrapped bird, on the plain whole fresh and frozen turkeys and turkey dinner package like Aldi's is fine. But they aren't a substitute, (rather an addition to) to offering the plain bird, unless the grocer doing so isn't concerned about sales. or drawing in holiday shoppers to its stores.

The point is, when feeding numerous family members, many from out of town or out of state even, on Thanksgiving Day, most Americans want to please all. Therefore they go for a basic, plain turkey most of the time and season it so that it appeals to most if not all of their dinner guests. Many offer a second entree as well.

The bacon and sage-wrapped turkey sounds tasty, although we prefer wrapping ours, on those rare non-Thanksgiving holiday occasions when we do so, in Pancetta. However, by making it the only offering in its Thanksgiving Day promotion and advertisement, Fresh & Easy is appealing to the smallest of consumer segments, rather then appealing to "everybody," which it could have done had it offered a plain bird, value version of the full Thanksgiving dinner, along with offering at least one frozen and one fresh whole turkey at a super hot price, like Safeway, Ralphs, Stater Bros., Food-4-Less, Bashas, Albertsons, Frys, Save Mart, Raley's and most others are doing, in its Fresh & Easy Thanksgiving holiday advertising circular.

Additionally, aren't ready-to-eat prepared meals a key aspect of Tesco's Fresh & Easy? Why no pre-cooked, ready-to-heat-only or ready-to-eat turkeys advertised for the holiday?

We suspect Fresh & Easy didn't advertise and promote this version, despite it being key to its prepared foods merchandising, because it feared it would be stuck with too many pre-cooked turkeys, having to mark them down 50% and toss many of them away after Thanksgiving. Safeway, Ralphs and most other chains are offering fully-prepared Thanksgiving meals for 8-10 for about $49 -to- $59, that include a pre-cooked turkey that just needs heating at home. Or in some cases if shoppers can get the pre-cooked birds home fast enough, keeping them hot, they just need to be carved and served.

If you view Fresh & Easy's November 12-16 advertising circular here, which is the grocer's Thanksgiving holiday promotion, we think you too will ask the same two questions we did when we first saw it: Where's the value proposition? Why no basic turkey dinner at a hot price? And where in the world are the fresh and frozen plain whole turkeys at a discount price? We had a couple other questions as well. But those were the key ones.

American consumers haven't been as financially strapped as they are this Thanksgiving since perhaps the recession of the 1970's. For many its even far worse than that. Based on its no frills, discount model, Tesco's Fresh & Easy should be offering at least one value-based Thanksgiving dinner, along with those discount-priced frozen and fresh whole turkeys we mentioned above, in its current holiday ad. By not doing so the retailer is missing the boat for what is the number one consumer spending holiday in the U.S. -- Thanksgiving. Where's the holiday value proposition? Look through the entire ad as well. Not much value. Few items even.

It's a time-tested empirical fact of American shopper behavior that U.S. consumers purchase most of their Thanksgiving holiday dinner, dessert and related food and grocery products at the store in which they decide to purchase their turkeys at, which the vast majority still serve on the holiday, although some serve ham or beef roasts. A few even serve chicken, lamb or a goose as their main course instead of turkey. But the mighty bird loved by Ben Franklin still remains far and away the number one Thanksgiving holiday dinner center of the plate item in American homes on the American-only holiday this Thursday.

In tough economic times like now many shoppers will cherry pick ads, going to two or three stores to purchase their holiday fixings. However, they still will buy lots of incremental items at the store where they purchase their turkey, ham or beef roast. That's why major U.S. chains and independents feature numerous varieties of turkeys (and hams , beef roasts, ect.) in their Thanksgiving holiday advertising circulars and promotions.

The promotional objective is to appeal to all segments of the consumer base -- from the lowest income end to the mid-range and often even the high-end. It's also to offer hot buys on the birds (often loss leaders in fact) in order to get consumers into the stores so they will buy other items. Get shoppers in with the cheap bird and hope they buy higher margin items along with other advertised products is the philosophy and practice.

Specialty markets on the other hand, especially those focused on the upscale shopper which most are, tend to focus only on the high-end Thanksgiving shopper, which this year is comprised of far fewer consumers. These are the consumers who would be more likely to buy a turkey wrapped with smoked bacon and sage to grace their holiday dinner table.

But we think most higher-end consumers wouldn't buy the bacon-sage-wrapped bird either. Rather they tend to go for a free-range, broad-breasted, organic turkey, then choose how they season it on their own. Perhaps rubbed with extra virgin olive oil and fresh garlic, then seasoned with sea salt, fresh, cracked black pepper, fresh rosemary, sage and thyme, which is a popular version for Thanksgiving.

Our analysis is Fresh & Easy has missed this empirical reality of U.S. food retailing and promotion this Thanksgiving. It's holiday promotion is pure specialty foods store, which would be fine if that's what Tesco would say Fresh & Easy is. But it isn't, according to the company. It's a neighborhood grocery and fresh foods market with low-prices positioned for all consumers, according to Tesco. But based on its Thanksgiving promotion it looks specialty foods store to us.

Tesco's Fresh & Easy and it's 'Value Proposition:' We Asked, They Answered; Discussion, Deconstruction and Fresh & Easy Buzz Analysis

In this piece," Las Vegas Region Market Report: Signs of Recession in Usually Immune Las Vegas; Why Isn't Tesco's Fresh & Easy Touting its 'Value Proposition'?," Fresh & Easy Buzz once again asked the question we've often asked in stories in the blog: Why doesn't Tesco's Fresh & Easy Neighborhood Market tout and reinforce it's value proposition, especially in these bad economic times in its respective U.S. market regions, which could be a way to create additional new business in its current 61 small-format, combination basic grocery and fresh foods-oriented, price and value-premised grocery stores?

On Monday (June 16, 2008) Tesco's Fresh & Easy Neighborhood Market essentially offered its first try to answer that question in this press release designed to garner media attention (and thus reach consumers and other stakeholders) with this press release titled: "Fresh & Easy Keeps it Simple and Keeps Prices Low." The release attempts to reinforce Fresh & Easy's value proposition by describing a "new" distribution model the grocery chain has adopted, also touting the environmental benefits that go with doing so.

Here's what the supermarket industry trade publication Progressive Grocer wrote this morning in the opening paragraph of it's brief report on the press release (the rest of the PG report is essentially a reprint of the press release:

"In an ongoing public relations campaign to reinforce its value position, Tesco-owned Fresh & Easy Neighborhood Market yesterday said it and its suppliers have streamlined their distribution models to reduce direct store deliveries, which saves money on fuel and allows the retailer to pass these savings on to customers."

Read the entire Progressive Grocer report here.

Here is what the food and grocery industry blog Morningnewsbeat.com had to say about the press release:

"Tesco’s US operation, Fresh & Easy, said yesterday that it is working with its supplies to streamline its distribution model “to reduce direct store deliveries, which saves money on fuel, allowing the company to pass these savings on to customers. This innovative, yet simple, distribution model also helps the environment by reducing the amount of CO2 emissions, fuel consumption, as well as neighborhood traffic congestion and noise that multiple deliveries create … To eliminate extra and unnecessary delivery trips, Fresh & Easy has created a new way of stocking stores with these same products with fewer deliveries by asking the company's suppliers to deliver directly to the company's centralized distribution center.”

Here's Morningnewsbeat.com editor Keven Coupe's comment on the Tesco Fresh & Easy press release:

KC's View: Sounds like the tweaking taking place at Fresh & Easy HQ is more than just brightening up the stores…Of course, cynics will say that this is just another way for the company to slow down its hemorrhaging expenses…

And here is what a Morningnewsbeat.com reader, Bob Reynolds, offered about the press release in an email to Morningnewsbeat.com which was reprinted in the blog:

Bob Reynolds: I know you are tired of Fresh & Easy stuff. However, maybe this is a bit of a different twist.

I was in four LA F&E's last week, I had been in some of the same stores in February.

Some perspectives I have not read from others:

• Out-of-stocks are a very visible problem. And, the out-of-stocks appear to be concentrated in promotional items.

• Because the SKU count is small in these stores, out-of-stocks stick out like a sore thumb. Little or no opportunity for a consumer to do a brand switch.

• Same items were out-of-stock in more than one store, suggesting a distribution problem.

• While I have no objective data, it appeared that there were more national brand items in the store last week than in February. The product selection is still dominated by F&E brand products

• Perishables and ready-to-eat, ready-to-cook products are bland and uninteresting. They don't say "buy me." Color is badly needed in this bland environment.

• Many perishable, code-dated products were at or near code dates. Products dated the Wednesday I was in the stores, were marked 1/2 off.

• All self-checkouts -- One employee at front end to assist customers -- This system eliminates many non-tech-savvy potential customers.

• While I did not do an objective price survey, my impression was "no bargains here."

• All four stores faced nearby competition from conventional name brand supermarkets. So much for the "under-served neighborhood" concept.

• I saw little reason for a consumer to shop F&E rather than its familiar near-by competitors.

• Stores were lightly shopped on the Wednesday, midday that I visited.

• I also visited the Safeway/Vons "The Market" small format store in Long Beach. Store has been open about a month.

This store is right at the beach, 100 yards from the Belmont pier. Looks like a miniaturized version of Safeway's Lifestyle store format with all major perimeter departments. Lots of grab-and-go stuff. Large wine and liquor dept. Good looking deli and bakery. Service meat. Limited selection of dry groceries. Attractive but small produce selection. Good selection of refrigerated non-alcoholic beverages.

Looked like a great beach store but was lightly shopped at Wednesday, 11 AM.

I liked this store a lot. Bought my lunch there.

[Note to Bob Reynolds, much of what you observed has been covered, and is regularly covered in Fresh & Easy Buzz. We hope you find the blog if you haven't yet.]

Read both pieces directly on Morningnewsbeat.com here.

Lastly, the food and grocery industry website Retailwire.com currently has an ongoing discussion about Tesco Fresh & Easy's value proposition in the form of CEO Tim Mason's comments in Sunday's Financial Times piece, which we ran the other day, that the retailer is now combining a high-low promotional strategy along with its EDLP strategies, which forms the basis for Fresh & Easy's merchandising policy as a neighborhood grocery store for all consumers. [You can read a transcript of the Financial Times' interview with Tim Mason here.]

You can view the ongoing discussion at Retailwire.com here. There's also a reader poll which currently shows 44% of those who have thus far responded say price and value (the value proposition) are key to Tesco Fresh & Easy's success, an argument Fresh & Easy Buzz has been making since late last year. Only 2% thus far say the value proposition is unimportant.

The 'Value Proposition:' Fresh & Easy Buzz Analysis

Below (in italics) is the text of Monday's press release issued by Tesco's Fresh & Easy Neighborhood Market:

Fresh & Easy Keeps it Simple and Keeps Prices Low
Streamlining distribution saves fuel, reduces prices and helps the environment

EL SEGUNDO, Calif., June 16 /PRNewswire/ -- Fresh & Easy Neighborhood Market and its suppliers have streamlined their distribution models to reduce direct store deliveries, which saves money on fuel, allowing the company to pass these savings on to customers. This innovative, yet simple, distribution model also helps the environment by reducing the amount of CO2 emissions, fuel consumption, as well as neighborhood traffic congestion and noise that multiple deliveries create.

(Photo: http://www.newscom.com/cgi-bin/prnh/20080616/AQM550)

A traditional grocery store receives many deliveries a day, including fresh and frozen food, produce and direct store deliveries from numerous suppliers. To eliminate extra and unnecessary delivery trips, Fresh & Easy has created a new way of stocking stores with these same products with fewer deliveries by asking the company's suppliers to deliver directly to the company's centralized distribution center.

"By keeping our distribution model simple Fresh & Easy is able to save fuel and offer honest, everyday low prices on all our products," said CEO Tim Mason. "Reducing fuel consumption is also consistent with our commitment to be a good steward of the environment."

To further conserve fuel, Fresh & Easy has employed state-of-the-art technology in its shipping fleet. Fresh & Easy trailers feature a hybrid refrigeration vector unit which minimizes the amount of diesel used to safely cool and transport store products. The trailers also include automatic refrigeration shut-off when optimum temperature is reached inside the cooling chamber as well as a complete engine shut-off once parked at the stores. Electrical stand-by technology also minimizes the impact on the environment by using no diesel fuel to run refrigeration units on the trailers while parked at the distribution center.

First, regarding the press release itself, as you can tell by reading it, it's targeted (either intentionally or not) to the food and grocery industry trade press, at least based on the way it's written and its intended or unintended target. There isn't much of an angle in the way it's written to excite a consumer or business publication editor to run a story based on the release. We aren't criticizing the release or Tesco's Fresh & Easy because of that, just stating a fact of public relations.

Now, regarding the content of the press release: What Tesco's Fresh & Easy Neighborhood Market is talking about in the first paragraph, the "streamlining of their distribution model," might be new for Fresh & Easy but its old hat in the U.S. food and grocery retailing industry. It's essentially what's called cross-docking, something numerous U.S. supermarket chains ranging from Safeway Stores, Inc. to regional players like Northern California-based Save Mart, Inc. (and numerous other U.S. chains) have been doing with various vendors in various categories for decades.

For example, both Safeway and Save Mart (California-headquartered chains) cross-dock all of their specialty and natural foods category items/orders with their respective distributors. (Safeway self -distributes much of its specialty/natural foods category items but uses a distributor as well.) The distributor sales representative writes the specialty/natural foods category item orders in the stores (in some cases store-level employees write the orders) and then transmits the orders back to the distributor's headquarters via computer modem on the reps hand-held computer.

The distributor then picks and builds the orders and delivers them to the respective retail chain's distribution centers for the respective region the stores are located in. The retailer then bundles the orders with the warehouse direct grocery orders being delivered to the given store and ships all the pallets together. This is called cross-docking.

These two chains do the same thing with other categories besides specialty and natural foods. These are multimillion dollar categories for both chains annually. In return for doing this, the specialty and natural foods distributors, as do other vendors, give the grocery chains a flat rate discount such as 5% off invoice on total purchases. Most of the stores receive at least two, and often three, deliveries per-week in these two categories, which also include ethnic food products like Hispanic-targeted consumer goods and Asian foods.

Fresh & Easy is correct that cross-docking--a vendor shipping to a food retailer's central distribution center and then the retailer bundling various orders and shipping them together to the stores--can save on fuel consumption (although not really for the retailer), carbon emissions and noise in neighborhoods where stores are located due to frequent daily DSD deliveries.

DSD delivery also has an important place in U.S. food and grocery retailing however, especially in the case of highly-perishable and labor-intensive product categories like fresh breads and bake goods, especially those brands which are niche items in the category. These items need near-daily rotation and crediting out (labor intensive) and often are low volume (specialty,artisanal and gourmet breads and baked goods for example). The DSD system has generally proved to work best in these categories from both freshness for the consumer and overall store-level operations perspectives.

There's also the issue of store-level labor. Nearly all of the major supermarket chains in the Western U.S. where Tesco has its Fresh & Easy stores are union shops, which means a full-time store employee with one year's experience makes about $20 hour, compared to the $10 hour Tesco pays Fresh & Easy store clerks. Tesco Fresh & Easy Neighborhood Market, like Trader Joe's, Whole Foods Market, Inc. and Wal-Mart, is non-union.

Additionally, these unionized chains offer store employees what is among the best health benefits package in U.S. business (of any kind or level), which the union chain's and the UFCW union agrees adds about $10 hour to the workers' hourly pay. In other words, the fully-burdened hourly wage of these unionized store-level workers is close to $30 hour with the benefit package. Tesco's Fresh & Easy offers store-level workers who work 20 hours or more a week a health insurance package. However, like is the case with nearly every other non-union grocery chain's plans, it isn't as comprehensive or as inexpensive to the worker as the union supermarket's plan is.

As a result of this fact, union supermarket chains, with the UFCW union's blessing (most of the DSD vendors like bread companies also are unionized), like to have some DSD in critical perishable categories (read labor intensive) because it is very expensive to have near $30 an hour clerks doing these tasks. If they did, the cost would have to be reflected in retail prices to consumers, which would make for some serious competitive difficulties for the union chain's, which already is the case because they pay much more than non-union competitors.

These union chains do deliver their store brand(s) fresh bread and related baked goods items directly to their stores, bundling with regular grocery and perishables direct store shipments from the distribution center.

However, many of the fresh bread and related items the stores carry--including specialty, artisanal and ethnic products--come from small, niche vendors, and it makes little sense to have these vendors ship direct to the retailer's distribution centers since the volumes are small and the labor to stock the goods at store-level time consuming based on the sales return they offer the retail chain.

In terms of fresh produce, most U.S. grocery chains supply the majority of produce to their stores directly from their own distribution centers. Therefore, there really isn't much DSD activity at store-level in the category. There is some, which is primarily because many chains are now putting a major emphasis on locally-grown produce to augment their basic offerings. In some cases this local produce is delivered DSD. Although, much of it is cross-docked in the way we've described above.

Lastly, we like the hybrid system Tesco is using for its Fresh & Easy trucking fleets. It's a wise decision. However, it isn't anything new in American food distribution.

For example, distributors like United Natural Foods, Inc. and Tree of Life, Inc., having been using such hybrid dry grocery/refrigerated/frozen truck and trailer units since the 1980's in the U.S. These distributors regularly deliver dry, refrigerated and frozen natural, organic and specialty foods directly to stores and adopted the hybrid system nearly 30 years ago to primarily save having to make multiple trips (a dry grocery run and then a perishables run) to the same store. The secondary benefit was that it saved energy and thus costs. Other U.S. distributors and direct distributing grocery chains do the same thing, and have for decades.

Additionally, for the vast majority of self-distributing American supermarket chains, combining dry grocery and perishable items in the same tractor-trailer just won't work. These stores carry too many skus and do too high of volume to make it feasible.

For example, take a typical, modern 55,000 -to- 60,000 square foot Safeway Lifestyle supermarket, or any grocery retailer's similar version. These stores require multiple weekly deliveries in each of the three categories--dry grocery, frozen, refrigerated--just to keep the stores stocked. Each of the deliveries generally requires the full cube of a standard tractor trailer just to hold the amount of product ordered. In other words, seldom will you see an order arrive at one of these supermarkets in which the trailer isn't full.

Therefore, there is no waste in terms of utilizing the space in the trailer for the product delivery. The chains make sure of that. Further, if the entire trailer isn't used--say in the case of frozen which isn't uncommon--they will make sure it is full, delivering to multiple stores in the same area one after another. It takes generally no more than three stores to cube-out the trailer. There is no delivering half a trailer to a store then going back to the distribution center.

Interestingly, Safeway and other supermarket chains, as well as home delivery-only grocers like FreshDirect on the east coast, use trucks similar to what Fresh & Easy is describing--dry, frozen and refrigerated combined--to deliver Internet-ordered grocery orders to customers homes. Safeway began its home delivery service in California in the early 1990's using such trucks and continues to use them to this day, as do the other U.S. grocers who offer this service.

So the "innovation" is one for Tesco's Fresh & Easy internally, compared to how they were doing things in part in the past, but it's old hat in the U.S. food and grocery distribution industry. It could help Tesco's Fresh & Easy internally to enhance it's value proposition, but as you can see from our analysis above, it offers no competitive advantage since American grocery distribution and retailing has been doing the same for a rather long time in most cases.

We take nothing away from Tesco for making the change, and wanting to communicate it. In fact we congratulate them--especially if it works well and saves money as well as contributes positively overall to the environment.

However, since it isn't a new industry innovation in the U.S., it isn't going to offer Tesco's Fresh & Easy Neighborhood Market any competitive advantages in the main vis-a-vis its competitors, which could result in creating an enhanced value proposition for consumers at retail. That has to be done on a retailer-to-retailer competitive basis elsewhere for Tesco.