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Pundit Analysis Buttressed: Tesco’s Fresh & Easy Sales Only 25% Of Plan, Says Willard Bishop Report

Jim Prevor’s Perishable Pundit, January 29, 2008

Just the other day, we issued our Tesco Intelligence Report: Slow Start and pointed out that Tesco’s Fresh & Easy concept is not succeeding with consumers:

Here at the Pundit, though, we have our own unique intelligence network, and what happens is that virtually every day we receive calls and e-mails from around the industry on topics of current concern. Tesco being of great industry concern, we receive a lot of messages regarding Tesco. In fact, we are well in excess of 200 comments, most saying nothing more than that a given industry member — a wholesaler, a grower-shipper, a broker, a consultant, another retailer — was just in a Fresh & Easy and was reporting his or her perceptions.

The vast majority of these comments contain a line similar to this: “It may just be the time of day or day of the week or perhaps just this particular store — but, there were practically no customers in the store.”

One comment, two comments, ten comments — and it could be the time of the day, the day of the week or the particular store. But so many reports, from many stores on every day of the week and from a diverse mix of times of day, seem likely to indicate that sales are not strong.

Several suppliers have also told us that orders are well below their expectations and at least some primary suppliers have thought the business not worth the trouble and stepped back into secondary supplier roles.

Although Fresh & Easy has signed on to open stores in San Francisco and Oakland, and plans are proceeding to open a Northern California distribution center in Stockton — all evidence that Tesco is dead serious that this is “…a launch and not a trial…” — it also speaks to the fact that Tesco has yet to prove the viability of the Fresh & Easy concept.

We would expect some major revamps to the concept in the months ahead. The commitment has been substantial, so Tesco will go to great extremes to juggle the variables and get the offer right. But there is no assurance that this size footprint is viable.

Our report came as no surprise to Pundit readers who have followed our extensive reports on Tesco’s efforts to establish a retail operation in the United States.

We have pointed out several times that Tesco, in electing to open an entire chain without test marketing the concept, is following a ”brilliant or bankrupt” strategy — and it is now clear that something dramatic is going to have to happen to save this operation.

Now, Willard Bishop Consulting has come out with an analysis that further buttresses our case. The report is entitled Phoenix: The New Battleground for Express Format Food Stores, authored by Willard Bishop’s Jim Hertel. The title of the report is something of a misnomer since Wal-Mart’s new concept — which we dealt with here — isn’t open yet and thus can’t really be evaluated.

The money quote:

Current performance doesn’t appear to meet initial sales projections of $200,000/store/week. Our very rough estimate is that a typical store is achieving about $50,000/week, or only 25% of initial projections.

This is a catastrophe for Tesco.

The report goes on to explain all this in the context of issues we’ve mentioned before:

  • Light consumer traffic
  • Enormous out of stocks — at least 20% of fresh items completely sold out.
  • Issues with prepared foods

Willard Bishop does say that they have heard some positive feedback on the plastic wrapped produce, which, as we pointed out, can be seen as “cleaner” than bulk.

The report also cautions against assuming failure. It notes that Wal-Mart, which has experience competing against Tesco in the U.K., is showing that it is taking Tesco’s efforts very seriously by its opening of an Express store of its own.

This all being said, Tesco expected sales of $200,000 per Fresh & Easy store. This was about twice the sales per square foot that American supermarkets average. If they are, as Willard Bishop estimates, realizing $50,000 per store, they are averaging not double but, instead, about half the sales per square foot that US supermarkets average.

To add to that, Willard Bishop doesn’t think Tesco has the ability to easily change the operation:

“… ( Tesco/Fresh & Easy) developed a very aggressive expansion plan and as a result must help shoppers appreciate their stores because they don’t have the time or flexibility to modify operations and retain efficiency.”

That is quite a turn of phrase: “…must help shoppers appreciate their stores…” They must, unless they can’t, in which case Tesco may wind up where it started, out of the US market and in the company of Sainsbury’s and Marks & Spencer — all three having failed to crack the US market.

You can read the whole Willard Bishop report here.

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