Ellen DeGeneres 'Goes Bananas' At A Fresh & Easy Store in Burbank

On Sunday, February 5 we reported (see the story and photos below on the blog or here) on the new "Scan As You Shop" hand-held customer scanning system Tesco's Fresh & Easy Neighborhood Market is testing at its store at Olive and Verdugo in Burbank, California.

Our reporting included a visit to the grocery market last week.

But today the Burbank Fresh & Easy store had a much more famous visitor - at least by proxy.

Television talk show host Ellen DeGeneres sent her writer, Amy Rhodes, to the Burbank Fresh & Easy market, where she posed as the produce manager, for the "Hidden Camera Pranks" segment of the show.

Hidden cameras were placed throughout the store, and the writer, who Ellen sends out on various adventures, was equipped with a hidden earpiece in her ear, which allowed the comedian and talk show maven to interact with customers by instructing her - like trying to convince customers to purchase bananas, for example - through the earpiece, as you'll see in the video of the segment at top.

By the way, that's one of the "Scan As You Shop" units the customer in the produce department is holding and using at the start of the video segment.

Deal Announcement From Grocers Sprouts and Sunflower Farmers Market on Tap

The Insider - Heard on the Street

It was in this November 6, 2011 column - Roll Up Times Two? Sprouts Farmers Market In Talks With Sunflower Farmers Market About Possible Acquisition - when I first broke the news that kissing cousin format grocery chains Sprouts Farmers Market and Sunflower Farmers Market were engaged in acquisition-merger deal negotiations, with Sprouts' either acquiring Sunflower Farmers Market outright or Sunflower being merged into Sprouts Farmers Market, with Sprouts' as the controlling entity.

On January 25, 2012 [See - January 25, 2012: Sprouts Farmers Market and Sunflower Farmers Market Ink Acquisition-Merger Deal] I reported that Phoenix, Arizona-based Sprouts, which operates 103 stores - a new store opens tomorrow in Yorba Linda, California - in Arizona, California, Colorado and Texas, and Sunflower Farmers Market, which is headquartered in Colorado and has its operations office in Phoenix Arizona, had reached a deal, pending the ironing out of a few details.

Sunflower Farmers Market, which like Sprouts Farmers Market is privately-held, operates 35 stores in Colorado (12), Arizona (7), New Mexico (6), Nevada (2), Texas (2), Oklahoma (1), Utah (3) and California (2).

Those details have now been resolved, according to my sources, and the two farmers market-style grocery chains are preparing to make an announcement about the acquisition-merger deal.

The announcement should come before the end of this week. However, there are some logistical and related issues that could result in the announcement coming a bit later.

Roll up: Sunflower makes two

It's been less than a year since the acquisition-merger deal between Henry's Farmers Market and Sprouts Farmers Market became final on April 18, 2011.

In January 2011, I broke the news in this column - Will 2011 See Sprouts Farmers Market Acquiring Henry's Farmers Market? 'The Insider' Says it Could Be in The Cards - that Sprouts' and Apollo/Henry's were in acquisition/merger negotiations.

I continued to report extensively on the deal talks throughout January 2011 and into February. [See those reports and columns here and here.]

On Wednesday, February 16, 2011, the two grocers announced the deal. [See: Breaking: Smart & Final Enters Into Agreement to Sell Henry's to Sprouts Farmers Market. The day before, on February 15, 2011, I published this: Sprouts Farmers Market's Acquisition of Henry's to Be Announced This Week, As Early As Wednesday.

Henry's was owned at the time by private equity firm Apollo Global Management (through its Smart & Final food retailing company), which was founded by Leon Black, who remains its chief deal-maker.

Apollo and Sprouts' founders and part-owners merged the Henry's Farmers Market chain into Sprouts Farmers Market, with Henry's going away and Sprouts' in control of the combined chains.

The deal made Apollo Global Management the majority owner of Sprouts Farmers Market.

In addition to Apollo, Sprouts has about 200 investors, most of them individuals. The investors range from a few who hold a considerable amount of stock to others who hold a few shares. Sprouts Farmers Market is not a publicly-held company, however.

Stan and Sean Boney, the chairman and CEO of Sprouts respectively, and board members Scott Wing and Kevin Easler - the four men founded Sprouts Farmers Market in 2002 - have minority ownership stakes in Sprouts Farmers Market, along with the investors. The individual investors were in place before Apollo's involvement.

Doug Sanders is Sprouts' president. He's responsible for the chain's operations, reporting to Sean Boney. Jim Nielson, who was president of Henry's Farmers Market, joined Sprouts Farmers Market last year as part of the merger deal. He is Sprouts' chief operating officer, reporting to Doug Sanders.

Co-founders Stan Boney and CEO Sean Boney, who is Stan's son, had wanted to acquire the Henry's chain, which was founded by Stan Boney's father Henry, for many years.

Stan Boney was the chairman and CEO of the then family-owned Henry's chain until 1999, when it was sold to Wild Oats Markets, which was acquired by Whole Foods Markets in 2007. Three years later he started Sprouts Farmers Market with his son and the two partners/co-founders.

The deal with Apollo Global Management was a good one for Sprouts, not only because it brought Henry's in-house but because it also provides the chain with a constant source of investment capital, private equity firm and majority-owner Apollo, which is also something the Boney's were after to help fuel their growth plans for Sprouts Farmers Market.

Apollo has even more ambitious growth plans for the chain that the founders did, which of course is what private equity firms do - grow a business and then eventually sell it and make a profit.

The deal also took one of Sprouts' two farmers market-style kissing cousin format cousins out as a direct competitor. Instead, the kissing cousin, Henry's, moved into the same house, called Sprouts Farmers Market.

That other kissing cousin competitor is, of course - Sunflower Farmers Market.

And soon it will join its farmers market-style format kissing cousins; all three - Sprouts, Henry's and Sunflower - under the same roof, and the roll up will be completed.

- The Insider

[Readers: Go to these links - Apollo Management, Mike Gilliland, Sprouts Farmers Market, Sprouts-Henry's Deal, Sunflower Farmers Market, The Insider,  Henry's Farmers Market - for an extensive selection of related stories.]

Fresh & Easy Neighborhood Market Testing 'Scan As You Shop' Mobile Self-Checkout System at Burbank Store

Breaking Buzz & Analysis

El Segundo, California-based Fresh & Easy Neighborhood Market is following the lead of parent company Tesco and testing a version of the United Kingdom-based retailer's mobile self-scanning system at its store at Olive and Verdugo in Burbank, California.

The "Scan As You Shop" mobile self-scanning system being tested at the Burbank Fresh & Easy store is similar to those used by a few U.S. grocery chain's, like Stop & Shop on the east coast (in about 350 of its 375 stores) and Belgium-based Delhaize Group's Bloom chain - which it said last month it's eliminating for lack of performance; converting 42 of the existing 49 Bloom stores to the Food Lion banner and closing the remaining seven units.

In addition to Tesco, Waitrose and Morrisons are two other supermarket chains in the United Kingdom that offer mobile hand-held scanners in some of their stores.

Fresh & Easy's system, from Motorola, features a hand-held scanner device (see above and below) which customers carry with them as they shop the store. Shoppers then scan the product codes on the items they purchase as they shop.

Once a customer completes his or her shopping trip, they then go to one of the two specially designated self-service checkout stands in the Burbank Fresh & Easy store for checkout.

Once at checkout, a store employee randomly checks a few of the items (currently six SKUs) the customer has scanned into the hand-held device in order to check for accuracy.

After the random security check is made, the customer then completes the checkout process. Since the purchases are already scanned into the hand-held device, all that's required is for the shopper to tally the items on the device and make payment at the register.

The "Scan As You Shop" system allows shoppers to keep real time track of their purchases as they shop.

It's also compatible with Fresh & Easy's "Friends" loyalty/rewards card.

Tesco-UK tested "Scan As You Shop" for six months, from spring to the fall of 2010, at a store in Rumford, UK. It's expanded the system into some additional stores in the UK since then.

If the test at the Burbank Fresh & Easy store is a success as defined by Tesco, plans are to expand the "Scan As You Shop" system to additional stores, according to our sources.

Fresh & Easy Neighborhood Market has not publicly announced it's testing the hand-held mobile self-scanning system at its Burbank store. The test was just recently launched.

According to sources, the grocery chain has hopes the "Scan As You Shop" system will result in customers purchasing more items in the stores (at least at the Burbank test store to start) because shoppers are able to tally their purchases as they shop, resulting in higher average market basket sizes (shoppers buying more per-store-visit than they currently are doing) at the Fresh & Easy stores, which is something the grocery chain needs to achieve, as we've discussed in depth in the blog, but hasn't been able to achieve in a significant enough way to help it break-even financially to date.

This hope that the "Scan As You Shop" system being tested in the Burbank store could lead to higher average market basket purchases was discussed at Fresh & Easy's weekly meeting at its corporate offices in El Segundo, California last Wednesday, in fact.

There's no hard evidence out there though, based on our experience and research, that such mobile self-scanning systems result in encouraging shoppers to purchase more per shopping trip. In fact, there's actually some evidence to suggest the opposite can occur, which is that because shoppers are able to keep a real time tally of their purchases as they shop, it better enables them to hold purchases to a set amount, even putting items back that exceed that desired total spend. Therefore, impulse purchases could be reduced.

Fresh & Easy's senior management, led by CEO Tim Mason, also have as a goal with the "Scan As You Shop" system the speeding up of the checkout process in the Fresh & Easy stores, according to our sources.

This is a bit odd since Mason and Fresh & Easy's spokesperson have been saying since the first Fresh & Easy stores opened in November 2007 that one of the hallmarks of the chain's self-service checkout system is that it allows for faster customer checkout than conventional full-service checkout, which is offered by all of Fresh & Easy Neighborhood Market's competitors in California, Nevada and Arizona. Some of those competitors also offer self-service as an option, along with full-service checkout, in some of their stores.

Additionally, as a source with extensive experience working for Tesco's Fresh & Easy points out, the Fresh & Easy stores have only 10,000 square-feet of selling space (there are four 3,000 square-foot "Express" format stores and a handful of 7,000 square-foot stores) and eight grocery aisles, so: "How much time can you really save with 'Scan As You Shop,'" over the current time it takes to checkout in the stores, the source says. " They're (Fresh & Easy) not Costco, with people filling their carts to the brim," he adds.

The source points to another high-tech project, called Agora, that Fresh & Easy spent a considerable amount of effort and money on but hasn't in his analysis (and in ours) provided any tangible benefits to the fledgling Tesco-owned chain.

"I see 'Scan As You Shop' as "another wasteful project, like one called Agora, a triangulation program for users with an IPhone or Android phone, where you download an app for your phone and upload the floor plan of your store, then you can see where you are," he says. "You can also type in, for example, 'rice' and see what's the best path to get to the shelf with rice. But again, F&E only has 8 aisles, how lost can people get?"

He adds: "To do this project (Agora), you'll need 3 detection devices, an app, a specific map of the store and all the SRD (Space Range and Display) plan for the store real time for the consumers. They've piloted this project in the Manhattan Beach store. It seems like a waste of resources to me," the source says by way of comparing the 'Scan As You Shop' effort to it.

"With so much focus on all these special technology projects, I think UK and Tim [CEO Mason] have lost focus on the issue at hand," the experienced Fresh & Easy employee says. "They don't need cool tech to help people - they just need more people and sales. They don't need Agora or 'Scan As You Shop'. They just need someone to fix GO (Group Ordering - written in the UK) so that their just-in-time supply chain doesn't screw up. They need better quality assurance in the fresh dept and for the suppliers," the source says.

Mobile self-scanning systems offer potential benefits for shoppers who choose to use them however, such as having the ability to keep that running tally of what they purchase.

Some systems also include the ability to pay for purchases via smart phone. The test system at Fresh & Easy doesn't offer that feature at present.

But the benefits of the systems for grocers depends on the specific chain and where it's at from a development and financial standpoint.

In terms of time savings, a mobile self-scanning system can perhaps achieve that in a store where checkout is full service, although full-service is often actually much faster than customer self-service. But since the Fresh & Easy stores have self-service checkout only, which means customers unload, scan and bag their purchases at the checkstand anyway, it's hard to see where any meaningful time-savings will be achieved with the "Scan As You Shop" system.

Instead, what occurs is better explained as customer-labor shifting - rather than the customer scanning and bagging at the checkout, they do so while shopping.

It takes essentially the same amount of time to scan and bag while shopping as it does to do it at the checkout though. The only time-savings we can see with the system at Fresh & Easy is if all of the self-checkout lanes in the store have lines, something seldom seen in a Fresh & Easy store, at which point it might be faster using "Scan As You Shop" because the two specially-designated checkout lanes might move faster than the regular self-service lanes, assuming customers are lined up at them waiting to checkout.

Christopher Luna-Vasquez, a customer who used "Scan As You Shop" for the first time today at the Burbank Fresh & Easy store, told Fresh & Easy Buzz he likes the mobile self-scanning system for just that reason - that it allowed him to track his purchases in real time while shopping - and that it was faster for him than using Fresh & Easy's regular self-checkout system.

Whether or not there are enough fans of the "Scan As You Shop" system at the Fresh & Easy store, like Luna-Vasquez, is yet to be seen. But that's what tests are for, as long as they aren't biased tests.

In our analysis, testing the "Scan As You Shop" system at one store is fine. However, on a priority scale of 1-to-10, it doesn't even register in terms of where Fresh & Easy should be focusing it's efforts as a grocery chain, in our analysis.

That job one focus needs to be on the basics of foods and grocery retailing, which we aren't seeing being done in El Segundo, although we do see it being done by workers at store-level, despite a number of limitations placed on them by policies coming out of the home office.

[Photo credits: Christopher Luna-Vasquez and Rafael Luna-Vasquez, special for Fresh & Easy Buzz. Taken February 5, 2011 at Fresh & Easy Neighborhood Market, Olive and Verdugo, Burbank, California.]

Tesco's Fresh & Easy By the Numbers ... In Case You Want to Keep Score at Home or in the Office

Photo credit: Fresh & Easy Buzz.

Analysis/Commentary

Tesco's Fresh & Easy Neighborhood Market opened two new stores today - a 3,000 square-foot Fresh & Easy Express unit at Crown Valley Parkway and Golden in Laguna Niguel, California, and a standard 10,000 square-foot Fresh & Easy fresh food and grocery market at Silver and Goettingen, in San Francisco's Portola District.

The opening of the two stores today brings to eight the number of Fresh & Easy units Tesco has opened so far this year. (see the locations of the eight stores here.)

Fresh & Easy Neighborhood Market ended 2011 with 184 stores in California (135 units), Nevada (21 units) and Arizona (28 units).

The eight new stores opened thus far in 2012 brings the total store-count for the fresh food and grocery chain to 192 units - 143 stores in California, 21 Fresh & Easy markets in Nevada and 28 units in Arizona.

But not for long...

As regular readers of Fresh & Easy Buzz are aware, we broke the news on January 9, 2012 (see story here) that Tesco's Fresh & Easy Neighborhood Market was planning to close 12 stores. On January 10 (see here) we followed up our story with a second scoop, in which we listed the locations of the 12 stores set to be closed. Following the publication of our stories, Fresh & Easy's corporate spokesperson announced the store closures.

All 12 stores (see the locations here) are set to be closed by the end of this weekend. (The latest store closures follow the closing of 13 Fresh & Easy stores in November 2010.) Therefore, Fresh & Easy's 192 store-count is a temporary metric.

Come next week, Fresh & Easy Neighborhood Market will be a 180-store chain - 136 units in California, 20 stores in Nevada and 24 units in Arizona - and Tesco will be operating four fewer Fresh & Easy stores than it was at the end of 2011.

But not for long...

The 180-store number is also a temporary metric: Tesco plans to open a number of Fresh & Easy stores this month, and many more, including its first units in metro Sacramento, California, in March. Additional stores are set to open this year as well.

One of the next stores to open will be the Fresh & Easy Express unit, Tesco's fourth 3,000 square-foot micro-format food and grocery store so far, at Figueroa Street and Jefferson Boulevard, near the University of Southern California campus, in Los Angeles. The store opens February 15.

Tesco plans to open five more "Express" stores between now and the end of March 2012. (See the locations of the eight 'Express' stores here.)

Additionally, Fresh & Easy Neighborhood Market is planning a ninth Fresh & Easy Express store in the Southern California city of Bell. Plans for the store are currently before the Bell City Council.

On November 15, 2011 Fresh & Easy Neighborhood Market sent out a press release in which it said it plans to open 20-plus new stores from January-March of this year. The release listed just the cities the stores would been in but not the addresses.

But we had already reported on the grocery chain's early 2012 new store opening plans, including publishing a list of 28 stores Fresh & Easy was preparing for early 2012 openings. The grocer has yet to publicly announce the majority of the stores on our list. [See our story - November 15, 2011: Fresh & Easy Neighborhood Market to Open 20-Plus New Stores in Early 2012 - We Have What's Not in the Press Release. See the list of 28 stores here.

If Fresh & Easy opens 20 or more (all 28) of the stores by the end of March, that will give the Tesco-owned chain around 200-208 total stores come April Fools Day.

Tesco's fiscal year ends on February 27, 2012. We expect Fresh & Easy to closeout Tesco's 2011/12 fiscal year with no more than 190 stores open and operating.

Tesco's original plan for Fresh & Easy, which former CEO Terry Leahy continued to tout as late as fall 2010 in a meeting with some financial analysts at Fresh & Easy Neighborhood Market's campus facility in Riverside County, California - he retired at the end of February 2011 - was to have 1,000 stores open and operating over a five-to-six year period, beginning in November 2007, which is when the first Fresh & Easy stores were opened.

Four years and a couple months later, there are 180 Fresh & Easy stores.

Tesco CEO Philip Clark, who took over for Leahy in March 2011, revised that 1,000-store public relations fantasy soon after assuming the corner office at Tesco's corporate headquarters in the United Kingdom, announcing that the new plan was to have 400 Fresh & Easy stores open and operating by the end of Tesco's 2012/13 fiscal year, which ends in February 2013, at which time he says the United Kingdom-based global retailer will break-even with Fresh & Easy Neighborhood Market, which lost $112 million in the first half of this fiscal year, on sales of $470 million.

A couple months later, however, Clark announced that instead of 400 stores being needed to break-even with Fresh & Easy, the new magic number was 300 stores, which he said last year is the number of Fresh & Easy units Tesco plans to have open and operating by the end of February 2013, when the 2012/13 fiscal year ends. He said, and continues to say, Tesco will break-even with Fresh & Easy Neighborhood Market at that time, with 300 stores.

Even assuming Tesco were to have 200 Fresh & Easy units open by the end of fiscal 2011/12 (February 27, 2012), that would still mean the retailer needs to open 100 stores from March 2012 to February 2013, in order to reach the magic 300 units. It's going to be a very difficult task for the retailer to do though, considering its about double the amount of new Fresh & Easy stores Tesco will have opened by the end of this fiscal year. It's also about half the number of Fresh & Easy stores Tesco has opened since November 2007.

But, frankly, the math has been fuzzy when it comes to Tesco and its Fresh & Easy chain from day one.

We expect Tesco to report a fiscal 2011/12 loss for Fresh & Easy in the $190 million-to-$230 million range, on sales of about $1 billion. If we're correct (and even if the loss is slightly less than $190 million) that means Tesco has one year to go from that loss amount to break-even, or close to it, based on CEO Clarke's statements about breaking-even with Fresh & Easy by the end of fiscal 2012/13.

To put this in perspective, if Tesco loses $200 million on Fresh & Easy in fiscal 2011/12, which ends in a little over three weeks, it will be an improvement of just $53 million over the $253 million it lost on Fresh & Easy in its 2009/10 fiscal year. That loss was on sales of $544 million. As noted, we project sales of about $1 billion, nearly double two fiscal years' ago, for Fresh & Easy for fiscal 2011/12.

Tesco lost about $300 million, on sales of about $818 million, on Fresh & Easy in its 2010/11 fiscal year, which ended February 26, 2011. There were 164 Fresh & Easy stores open at the end of the 2010/11 fiscal year.

About $55 million of that loss can be attributed to Fresh & Easy's buyout of its produce (Wild Rocket Foods) and meat (2 Sisters Food Group) suppliers, however. If you deduct the $55 million, it still leaves a loss of $245 million for the most recently-ended fiscal year, an improvement of only $8 million over the $253 million loss in fiscal 2009/10, despite the fact sales for the 2010/11 fiscal year were about $274 million higher than the previous year.

Tesco reported a loss of $208 million, on sales of about $305 million, for Fresh & Easy in fiscal 2008/09, which was the first full-year of operations for the U.S. chain. There were 115 Fresh & Easy stores open at the fiscal 2008/09 year-end.

Fresh & Easy's loss was lower in 2008/09 ($208 million) than it was in 2009/10 ($253 million), even though revenue was $305 million in 2008/09, compared to $544 million in fiscal 2009/10. Not a good sign, as we pointed out in our analysis at the time.

On October 5, 2011, Tesco reported a half-year loss of $112 million, on sales of $470 million, for Fresh & Easy. Tesco touted the fact the half-year loss was 21-23% less than the $151 million half-year loss from the previous year. However, as we noted above, about $55 million (half being $27.5 million) of the $300 million loss for fiscal 2010/11 can be attributed to the buyouts of the two suppliers, which is also something Tesco noted in its financial reporting, saying that it explains in part why the loss was so much higher than the previous fiscal year loss.

But Tesco can't have it both ways - touting as positive a 21-23% decrease in the fiscal 2011/12 half-year loss at Fresh & Easy, over the half-year-ago same period, while at the same time using the fact it made the buyouts as an explanation for why the 2010/11 fiscal year loss ($300 million) was so much higher than the $253 million it lost in the previous fiscal year. The supplier buyouts were made in the 2010/11 fiscal year.

Instead, we suggest the fiscal year 2011/12 loss Tesco reports in a couple months for Fresh & Easy should be compared to the $253 million loss it reported for the U.S. chain for fiscal 2009/10, rather than the $300 million last fiscal year, because it's a more realistic and informative comparison.

For example, if the 2011/12 fiscal year loss for Fresh & Easy is $200 million, we will be evaluating it as a $53 million decrease (based on the 2009/10 loss) rather than a $100 million improvement over last fiscal year, because of the one-time buyout of the two suppliers, which Tesco itself said inflated the 2010/11 loss amount. We suggest you do the same if you want to get a better picture of Tesco's progress towards break-even with Fresh & Easy.

You should also compare the fiscal 2011/12 loss and revenue numbers with the annual revenue and loss metrics for the previous fiscal years detailed above.

For example, if Tesco reports sales of $1 billion, with a loss in the $190 million-$230 million range, compare that to its loss of $208 million in fiscal 2008/09, when the sales for the year were just $305 million, along with the 2009/10 metrics. Do the same regardless of the loss amount Tesco reports for Fresh & Easy in a couple months.

The point being that the annual revenue-to-annual loss spread should be decreasing much more than has been the case. As an example, If Tesco doesn't report a loss for fiscal 2011/12 that's at least half (which would be $104 million) of what it reported three fiscal years ago (the $208 million loss in fiscal 2008/09), can it really expect to go from a loss of $200 million or so this year to break-even 12 months from now?

Bottom line: It's going to be a struggle for Tesco to have 300 stores open by the end of February 2013. And it's not going to break-even with Fresh & Easy by then. If we are wrong, we will be the first to say so.

We suspect if Tesco reports a loss in 2013 of  around $130 million or less for fiscal 2012/13 (ends February 2013), it will call that a success. But even getting there is going to be a struggle, in our experience - which includes four-plus years of observing, reporting on and analyzing Tesco's Fresh & Easy closely - and analysis. It's also not break-even, or even close to it.

Related Stories

January 11, 2012: Tesco Reports 19.3% Comparable Sales Growth at Fresh & Easy Neighborhood Market For 6 Week Holiday Period

December 26, 2011: Solid Performance Gives Tesco 'Fresh & Easy' Wiggle Room - But CEO Clarke Shouldn't Sleep Soundly Every Night

December 8, 2011: Tesco Reports 11.9% Q3 Comp Store Sales Gain for Fresh & Easy ... But On Heavy Discounting

November 18, 2011: Fresh & Easy Neighborhood Market Combining Big Seasonal Foods Assortment With Promos and Discounts to Lure Holiday Shoppers

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

October 8, 2010: 'The Insider' - Incoming Tesco CEO Philip Clarke Needs to 'Imagine' When it Comes to Fresh & Easy Neighborhood Market USA

October 10, 2011: Gov. Signs AB 183: End of Self-Service Checkout Only in California For Fresh & Easy Neighborhood Market if Stores to Still Sell Alcohol

October 5, 2010: Philip Clarke's Early Welcome to America: Tesco Logs $151 Million Half-Year Loss For Fresh & Easy Neighborhood Market

October 4, 2010: Tuesday's Tesco Interim Report Offers A Road Map of Sorts For the Future of Fresh & Easy Neighborhood Market

April 19, 2011: Tesco's Fresh & Easy Neighborhood Market Posts Biggest One-Year Loss Yet - $307 Million Loss on Sales of $818 Million

March 21, 2011: Fresh & Easy Neighborhood Market Flooding its Northern California Store Neighborhoods With Margin-Busting Store Coupons

February 28, 2011: Changing of the Guard: Clarke Takes Over the Reins as Tesco CEO Wednesday

February 23, 2011: 'The Insider' - Incoming Tesco CEO Philip Clarke Visits America - And Fresh & Easy Neighborhood Market

December 7, 2010: Tesco Reports Solid Third Quarter Same-Store-Sales Growth For Fresh & Easy Neighborhood Market

October 5, 2010: Philip Clarke's Early Welcome to America: Tesco Logs $151 Million Half-Year Loss For Fresh & Easy Neighborhood Market

October 4, 2010: Tuesday's Tesco Interim Report Offers A Road Map of Sorts For the Future of Fresh & Easy Neighborhood Market

April 20, 2010: Strong Group Revenue & Profit For Tesco... But $253 Million Loss at Fresh & Easy

April 19, 2010: Tesco Reports Fiscal 2009 Results on Tuesday, April 20; Estimated $250-$259 Million Loss For Fresh & Easy

April 21, 2009: Tesco PLC Reports Record Sales and Profits; But Takes £142 Million ($208.05 Million U.S.) Loss For Fresh & Easy Neighborhood Market USA

April 20, 2009: Tesco to Report Full-Year Financials Tomorrow; We Estimate £110-£150 Million Full-Year Loss For Fresh & Easy Neighborhood Market

September 30, 2008: News & Analysis: Tesco Reports Half-Year Financials; Reports Loss For Fresh & Easy USA and Sales Per Square Foot Averages

September 29, 2008: Tesco PLC to Report Interim Financials Tomorrow; Including Guidance on Fresh & Easy Neighborhood Market USA

September 26, 2008: Tesco PLC, Fresh & Easy and the Numbers Game; Will Tesco Release Hard Numbers For Fresh & Easy Next Week? If So, Will They Be Meaningful?

Sprouts Farmers Market and Sunflower Farmers Market Ink Acquisition-Merger Deal

The Insider - Heard on the Street

In my November 6, 2011 column - Roll Up Times Two? Sprouts Farmers Market In Talks With Sunflower Farmers Market About Possible Acquisition - I reported that representatives of Arizona-based Sprouts Farmers Market and Colorado-headquartered Sunflower Farmers Market were engaged in negotiations regarding either an outright acquisition of Sunflower by Sprouts' or a merger-type acquisition of Sunflower Farmers Market into Sprouts Farmers Market, with Sprouts' and its majority-owner private equity firm Apollo Global Management absorbing Sunflower into Sprouts' corporate structure and operations, like it did with the Henry's Farmers Market deal last year.

Today I can report that, according to my sources, Sprouts Farmers Market and Sunflower Farmers Market have reached an agreement in principle for such an acquisition-merger, which they currently plan to announce no later than two weeks from today, assuming some additional details and specifics can be worked out between the two farmers market-style grocery chains.

My sources tell me representatives of both grocery chains have signed a memo of understanding or letter of intent to merge the two food retailing companies, with Sprouts Farmers Market in the lead role, and that those additional details and specifics are currently being negotiated on by the two chains.

Neither Sprouts Farmers Market or Sunflower Farmers Market has publicly announced they've been engaged in deal talks, nor have they confirmed or denied my November 2011 report. Additionally, based on my research using the major Internet search engines, no other publications besides Fresh & Easy Buzz have reported on the deal talks to date.

Sprouts Farmers Market currently operates 103 farmers market-style grocery stores in California, Arizona, Colorado and Texas.

The retailer closed three stores - Rollingwood, Sunset Valley and Anderson Lane -  in Austin, Texas, in December 2011. The store closings were the result of having too many units too close to each other in Austin, following the Henry's Farmers Market merger last year. Henry's had some Sun Harvest banner stores in Austin which were nearby existing Sprouts locations, resulting in the duplication issue. No other Henry's or Sun Harvest banner stores have been closed to date.

Sunflower Farmers Market operates 35 farmers market-style stores in eight states in the Western U.S. - Colorado (12), Arizona (7), New Mexico (6), Nevada (2), Texas (2), Oklahoma (1), Utah (3) and California (2).

The Sunflower format, as was the Henry's Farmers Market format, is virtually identical to Sprouts Farmers Market's format.

Based on information given Fresh & Easy Buzz by the chain late last year, along with my analysis of added sales from new stores open since then, I estimate that Sprouts Farmers Market currently has annualized sales in the $1.2 billion-to-$1.4 billion range.

Additionally, based on conversations with sources at Sunflower Farmers Market, I estimate the chain's current annual sales to be in the $600 million-to-$700 million range.

Neither grocery chain is publicly-held. Therefore Sprouts and Sunflower don't released annual sales publicly as a matter of record. However, senior executives of both chain's publicly mentioned annual sales numbers in interviews last year. I expect a mention of those metrics to be made again as part of any deal announcement.

Both Sprouts Farmers Market and Sunflower are expanding rapidly, focusing in large part on the same Western U.S. States.

For example, both farmers market-style grocery chains are putting a major new store opening emphasis in Northern California for 2012, where each plans to open numerous new stores this year.

Sprouts and Sunflower both also plan to open new stores (one each respectively) in Phoenix, Arizona this year, along with in Colorado.

Sunflower Farmers Market though, unlike Sprouts, has a wider geographical reach with its growth strategy, currently operating in eight states, compared to Sprouts Farmers Market's presence in four states, which are California, Arizona, Colorado and Texas.

For example, in 2011 Sunflower Farmers Market expanded into Northern California and Oklahoma, where it plans to open at least one new store this year, which will be its second unit in the state.

Sunflower currently has two units in California, in Roseville near Sacramento and in Modesto, which is in the Northern Central Valley. It currently has plans to open four new stores in Northern California this year.

Sunflower Farmers Market has no current plans to open stores in Southern California, which is where Sprouts has the highest number of stores out of its total store base.

Sprouts Farmers market currently plans to open at least three stores in Northern California this year.

A deal with Sunflower Farmers Market (a combined Sprouts Farmers Market and Sunflower) will give Sprouts' an immediate presence in four additional states - Nevada, Utah, New Mexico and Oklahoma. All four of these states fit well geographically with where Sprouts Farmers already is geographically.

Additionally, Sunflower's growth focus in Northern California, which mirrors that of Sprouts Farmers Market - and the fact it has no stores in Southern California (no duplication) - is also synergistic in terms of a combined Sprouts' and Sunflower, as is the fact the two grocery chains operate stores of the same farmers market-style  of which are virtually identical to the Henry's Farmers Market chain. Sprouts' has now changed all the Henry's and Sun Harvest stores to the Sprouts Farmers Market banner.

To put is directly, a year ago there were three farmers market-style grocery chains in the U.S. - Henry's, Sprouts and Sunflower - all operating in the same Western U.S. states. Today there are just two - Sprouts (with the combined Henry's) and Sunflower Farmers Market. If all goes according to plan, there soon will be just one such chain, Sprouts Farmers Market (the combined Sprouts, Henry's and Sunflower), otherwise know as the house the Boney family built.

A little over one year ago I broke the news in this January 5, 2011 column - Will 2011 See Sprouts Farmers Market Acquiring Henry's Farmers Market? 'The Insider' Says it Could Be in The Cards - that Sprouts Farmers Market and the owner of then Irvine, California-based Henry's Farmers Markets were engaged in talks involving an acquisition/merger deal between the two farmers market-style grocery chains.

In a series of follow-up columns - and in various news stories published in January and February 2011 in Fresh & Easy Buzz, we further reported and developed the story, adding new information about the deal talks between private equity firm Apollo Global Management, which owned Henry's through its Southern California-based Smart & Final LLC retail company and is now the majority-owner of Sprouts Farmers Market.

On February 15, 2011 Apollo Global Management announced through Smart & Final that it would merge its Henry's Farmers Market chain with Sprouts, in a deal that would give Apollo majority ownership of Arizona-based Sprouts Farmers Market (the combined Sprouts and Henry's chains), with Henry's being absorbed into Sprouts' existing corporate structure and operations.

On April 15, 21 I reported that the Sprouts-Henry's deal would be final on April 18. [See: Sprouts Farmers Market's Acquisition-Merger of Henry's Farmers Market to Be Final On Monday, April 18.]

On April 18, 2011, Sprouts Farmers Market announced the deal was final in a press release. [See: Sprouts Farmers Market Confirms Our April 14 Scoop: Sprouts' Acquisition-Merger of Henry's Farmers Market Final Today.]

The Devil is always in the details, as I carefully noted at the top of this column. But, according to my sources, where things stand today, what I've called the (farmers market-style food and grocery retailing format) "Roll Up Times Two" (Henry's being the first one) is on the way, unless the Devil messes with those details.

- The Insider

[Readers: Our extensive reporting, analysis and commentary of and on the Henry's Farmers Market-Sprouts Farmers Market deal in 2011, the Sprouts'-Sunflower deal talks, and much more can be found at these links: The Insider, Sprouts Farmers Market, Sprouts-Henry's Deal, Sunflower Farmers Market, Apollo Management, Henry's Farmers Market.]

Vote of Confidence: Warren Buffett Increases Ownership Stake in Tesco to 5.08%

During an interview on the CNBC business network in November of last year famed investor Warren Buffett was asked if he saw any good long-term opportunities in European equities. His response: "If the price came down on some Tesco, I'd buy some more of that."

Buffett has done just that, following last Thursday's 16% drop in the United Kingdom-based global retailer's stock share price, which was the result of Tesco's issuing of a profit warning due to it poor Christmas season financial results at home in the UK, which accounts for nearly 70% of its annual revenue. [See this story for details - January 11, 2012: Tesco Reports 19.3% Comparable Sales Growth at Fresh & Easy Neighborhood Market For 6 Week Holiday Period.]

On Friday, the following day, Buffett increased his stake in Tesco from 3.21% to 5.08%, at a cost of about £500 million ($774 million), according to a required regulatory filing submitted to government authorities by his Berkshire Hathaway holding company, dated January 13, 2012.

Tesco owns and operates Fresh & Easy Neighborhood Market, which is based in El Segundo, California and has 189 stores stores in California (140 units), Nevada (21 units) and Arizona (28 units).

Tesco is closing 12 Fresh & Easy stores, a story we broke on January 8 (read here) and January 9 (read here). A few hours after we published our January 9 follow-up report, Fresh & Easy Neighborhood Market's corporate spokesperson began calling and e-mailing editors and writers at various publications, ranging from the Financial Times and the Orange County Register to supermarket industry trade publications, announcing the store closings.

Current plans call for Fresh & Easy Neighborhood Market to close the 12 stores by the end of this month to early February 2012.

Buffett's big buy is an important vote of confidence for Tesco following last week's big decline in its value. After all, when it comes to investing, he is regularly referred to as "The Oracle of Omaha."

Buffett, who also owns around $2.5 billion of Walmart Stores, Inc. stock, particularly likes Tesco's growth prospects in Asia, and most particularly the future growth opportunities afforded the global retailer in China, where CEO Philip Clarke is putting a major focus.

Prior to taking over as CEO from Terry Leahy in March 2011, Clarke was in charge of Tesco's Asian and European operations, along with heading up the retailer's corporate information technology efforts.

It is a stretch though to suggest Buffett's increased stake in Tesco is a specific vote of confidence for its money-losing Fresh & Easy chain in the U.S., however, because the legendary investor has as recently as late last year voiced serious concern over the enterprise.

It is fair to say though that Buffett is bullish enough on Tesco as a whole that he would increase his stake in the company by such a significant amount even though he harbors such concerns over the U.S. chain.

The "Sage of the Plains," another nickname for the man from Omaha, is a long-term value investor. So buying when he did, when Tesco was down by such a significant percentage last week, is classic Buffett. In other words, based on his proven research methods and track record, he knows a deal when he sees one. Buffett's seldom wrong.

But Tesco does face some big challenges, both at home an abroad.

It's competitors in the UK are getting much better and bigger, for example. And Tesco's focus on price-focused promotions, such as its recent 'Big Price Drop" promo, which is being called the "Big Price Flop" in the UK, aren't working so far.

Globally Tesco is focused on breaking even with Fresh & Easy by the end of its 2012/13 fiscal year, which ends in February 2013. It's not going to literally break even by then, in our analysis. And even if it does somehow achieve that objective by closing stores and cutting costs it must figure out a strategy to make its Fresh & Easy chain not only less of a financial drain but also a real contributor and asset to group Tesco.

But for now, in terms of Buffett's vote of confidence in Tesco, "Every Little Helps."

Related Stories

June 24, 2010: Warren Buffett Strikes Again: Buys 2 Million More Shares of Tesco Stock For 3.2% Ownership Stake

March 3, 2010: Mr. [Tesco] Three Percent Warren Buffett Still Has That 'Oracle' About Him

March 1, 2010: Warren Buffett, 'The Oracle of Omaha,' Wants you to shop at Tesco...But He Doesn't Mind if You Shop at Walmart

February 28, 2009: Warren Buffett: 'Our Country Has Faced Far Worse Travails': A Paralyzing Fear Has Engulfed the Country. But America's Best Days Lie Ahead.'

See addditional related stories at these links: Berkshire Hathaway, Warren Buffet, Warren Buffett and Tesco.

[Illustration credit: The ink-on-paper illustration of Warren Buffett at the top, titled 'The Oracle of Omaha," is coutesy of artist Andrew Mitchell. You can learn more about his work at his site here.]

Fast-Growing The Fresh Market Chain On Track to Launch in California This Year

California here they come: The Fresh Market opened the store pictured above, at 421 North State of Franklin Road in Johnson City, Tennessee, on January 4, 2012. Yesterday the grocery chain opened a new store on the east coast, in Scarsdale, New York. Another new Fresh Market store opens next week, on January 25th, in Rockville, Maryland. Many more stores are set to open this year.

On August 3, 2011 we reported in this story: [Fast-Growing Specialty Grocer The Fresh Market Targeting Mid-2012 For First California Store] that North Carolina-based specialty grocery chain The Fresh Market planned to open its first store in California, most likely in Palo Alto in the north, in mid-2012.

Since we published our story in August 2011, the fast-growing 112-store grocery chain has been focusing on achieving just that goal. And while it might come a bit later in the year than mid-2012, The Fresh Market plans to open its first one or two stores in Northern California's San Francisco Bay Area and metro-Sacramento region before the year is out, according to our sources.

One of the first Fresh Market stores to open - in addition to the Palo Alto store we reported on in the story linked above - could be in a vacant approximately 25,000 square-foot Borders Books store at Rocky Ridge Drive and Douglas Boulevard in Roseville, near Sacramento, a city that's seen a spate of new grocery store openings over the last couple years, including units opened by other recent entrants to the region, like Sprouts Farmers Market and Sunflower Farmers Market, both of which have additional new stores set to open this year in the Sacramento region and elsewhere in Northern California.

Publicly-held The Fresh Market, which has been turning in solid comparable-store-sales growth and profits over the last couple years, is also looking for additional store locations in Sacramento and the metro region, including Elk Grove and Folsom, where Tesco's Fresh & Easy plans to open stores in March of this year, along with in the San Francisco Bay Area.

Fresh & Easy Neighborhood Market opened two new stores in Northern California's Bay Area last week, on January 11, giving it 18 units in the northern part of the state. The two stores are in Brentwood in the East Bay and Mountain View, which is in Silicon Valley, in the South Bay region.

As we reported on August 3, 2011 [Fast-Growing Specialty Grocer The Fresh Market Targeting Mid-2012 For First California Store], The Fresh Market has been in negotiations with the developer of the Edgewood Plaza shopping center in Palo Alto, California to locate a store in a vacant building at 2800 Channing Avenue in the center. Those negotiations continue, and progress is being made toward a deal, according to our sources, who tell us they expect a lease to be signed by the developer and The Fresh Market in the first quarter of this year.

In addition to offering national, regional and local product brands in its stores, The Fresh Market has its own private brand items in the basic grocery, specialty and natural-organic categories. One of the private brand lines in the natural-organic category is TFM Live Leaner Cereal, which includes the Honey Almond Flax variety pictured above.

The Fresh Market is also looking to open a distribution facility in Northern California, according to our sources, particularly for distribution of its extensive fresh foods offerings, which include produce, fresh meats, deli and ready-to-eat and ready-to-heat fresh-prepared foods. The grocer likes to source locally and plans to take advantage of the fact that so much fresh produce and other fresh foods are grown and produced in Northern California.

Our sources tell us The Fresh Market - which isn't commenting on its specific plans in California at this point, although we expect an announcement about those plans from the grocery chain soon - wants to have its first couple stores open in Northern California by mid-to-late 2012, to be followed by additional store openings in 2013.

The fast-growing - it opened its newest store yesterday in Scarsdale, New York and one in Johnson City, Tennessee (pictured at top) January 4 - North Carolina-based specialty grocer is a serious player in its current markets, competing strongly against both Trader Joe's and Whole Foods Market, for example, in the fresh and specialty grocery niche.

The Fresh Market now plans to take its brand and style of food retailing (see our August 2011 story for details) to what is arguably the mecca of specialty grocery store competition, Northern California. And, based on what we've learned since August 2011, it plans to do so in a significant way - opening numerous stores in the Golden State over the next few years.

Related Stories

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

June 12, 2008: Upcoming New Markets Special Report: Upscale Palo Alto, California is Laying Out the Welcoming Mat to Grocers: Will Fresh & Easy Knock On the Door?

October 15, 2008: Tesco to Locate Fresh & Easy Store in Palo Alto, California; it's First in the City and SF Bay Area Store Number 22 By Our Reporting

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

November 30, 2011: Fresh & Easy Neighborhood Market, Others Eyeing Closing Andronico's Store on Telegraph Avenue in Berkeley, California

January 8, 2012: Tesco to Close Up to 12 Fresh & Easy Stores

January 9, 2012: Exclusive: Tesco's Fresh & Easy Closing 12 Stores; We Have the Locations