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Produce Business

Deli Business

American Food & Ag Exporter

Cheese Connoisseur



Headstrong Tesco Claims Success
With 98-Cent Fresh & Easy Line

Jim Prevor’s Perishable Pundit, February 6, 2009

As part of our in-depth analysis of Tesco’s journey to America in the form of Fresh & Easy, we recently ran a piece titled, Fresh & Easy’s 98-cent Sale Causes More Consumer Confusion. As part of that piece, we ran the assessment of a noted retail produce expert:

Fresh & Easy currently has a big outdoor sign saying that it will feature six 98-cent items each week.

This week it is: 2# cello carrot, 1# roma tomatoes, 2# bag yellow onions, 4 pack of very small peaches, 3 each gala apples, and 1.5# of minneola tangerines.

They have all of the 98-cent items as the first in line in produce with 6 RPCs and signing.

My thoughts:

It is hard to make a price impact with just 6 produce items especially with Fresh & Easy as they sell so much by the package, not by net weight so consumers can’t figure out if it is a good deal or not.

Fresh produce is the opportunity to make a quality statement for the store. Promoting it solely on price means the store misses out on that opportunity. It degrades the produce and the store.

Fresh & Easy now features a grocery end with “Everything under $1”. They have canned tuna mustard, pasta, canned green beans, rice, and pasta all in private label on the end.

We also questioned whether it was the right solution to the problem:

We know value is the hot thing today and, certainly, consumers like a deal. However, one day the store is promoting its green credentials; the next day it’s the place you get stuff for under a buck.

This is no way to build a consistent image.

We also wonder if it is actually addressing the problem consumers experience in shopping for fresh produce at Fresh & Easy.

If it is true as the press release implies — that consumers have been switching from fresh to canned to avoid spoilage in tough economic times — we suspect that what consumers really want is the ability to buy the quantity they need.

Maybe they want one apple, two Minneolas, an onion, two peaches. Whatever the price, people feel cheated and wasteful if they have to throw out half the product because the only option was a prepack of produce.

Let consumers buy what quantity they want, as most stores in America do, and consumers won’t have the same problem with waste. This 98 cent plan may be a solution to the wrong problem.

Well now Fresh & Easy is claiming it has a fantastic success on its hands:

FRESH & EASY’S PRODUCE SALES INCREASE
MORE THAN 11% WITH NEW 98-CENT LINE

98-cent Produce Packs are helping customers
stretch their budgets in tough economy

Produce sales at Fresh & Easy Neighborhood Market stores have increased more than 11 percent since January, when the grocer introduced 98-cent Produce Packs in response to customers looking for fresh fruits and vegetables on a budget. This sharp increase in sales shows people are continuing to look for ways to stretch their budgets while seeking out quality items.

“Our customers told us finding high-quality produce at affordable prices was challenging,” said Simon Uwins, Fresh & Easy chief marketing officer. “We are making changes so our customers have even more options on their weekly shopping trips. The 98-cent Produce Packs offer customers a great way to save money without compromising on quality or freshness.”

The 98-cent Produce Packs are delivered fresh daily to stores and currently include grape tomatoes, yellow onions, green bell peppers, pears, lemons and oranges. Customers can always choose from six different fruits and vegetables that will rotate depending on seasonality and availability.

As is typical with announcements from Tesco, the release sheds more smoke than light on the situation. Sales are up 11% but we don’t know if that means in volume or in dollar terms. We also don’t know if that is a function of seasonal factors or what percentage produce sales fluctuated last year. We don’t know if this is 11% on a same-store sales basis or a corporate basis, including new openings.

The release also doesn’t say if promotional activity changed. Very often people attribute a sales change to a price change but, often, the price change included a promotional effort. Sometimes it is the promotional effort, not the price change, that accounts for the sales increase. We also don’t know if produce sales were up disproportionately to sales in other departments.

Obviously it would be easy to be clear, but Tesco prefers to grab a PR headline and leave shareholders in the dark.

We’ve received some varied feedback on the operation. First a retail expert pointed this out:

In addition to the 98 cents produce promotions at Fresh & Easy, they are turning the heat up on advertising. Their mailer is an 11” x 20” single page with hot specials, their 98 cents produce items, and a $6 coupon off when you spend $30.

I did notice that they were still stocking at the regular retail of 98 cents their 1# bagged regular carrots while they had a 2# bag (same brand and same quality and size) on at 98 cents. Usually when you have something like this special, you do one of two things — discontinue the 1# bag or reduce the price.

So, possibly the fact that they “turned the heat up” on advertising is responsible for the sales boost.

In any case, we then heard more a couple weeks later:

Just some observations on Fresh & Easy:

  • They are doing more bin promotion outside like 8# bag navels at 3.99 and prior it was 5# russets at .99.

  • They are displaying some items on the bottom shelf of the wet rack in original RPCs.

  • They are cross-merchandising bagged avocados with chips, bagged combo lemon/limes in the liquor isle.

  • More non-Fresh & Easy labeled product in produce and meat.

  • They finally dropped the retail on their 1# regular carrot from 98 to 79c. They have had the 2# regular carrot on as one of the 98c produce packs for three weeks.

  • I give them credit for doing the grill combo packs of 4 Italian sausages, 4 beef patties, and 6-8 pieces of seasoned chicken at a really good retail of $5.99 for 4 lbs 11 oz.

  • When they opened, they were in a real hassle with Coke as Coke refused to deliver to their distribution center and not do Direct Store Deliveries (DSD). Pepsi went along with the request. I don’t know how the product is getting to the store, but I do notice the Coke products are advertised specials and have promotional spots.

  • They do not allow any of the vendors to do DSD and that includes all of the chip companies.

  • They have reduced their out-of-stocks significantly in the center of the store.

  • They still have a lot of perishable out-of-stocks in the evening and prior to their load arrival.

  • They are doing a better job of scheduling their labor to their work load as I noticed a few times as many as seven people stocking the perishables when the load came in.

It is all very interesting and there are some real improvements. It is, however, not likely any of this will change the fundamental problem of the concept.

Part of the problem is that they are just “headstrong”.

In a commentary we published in April last year, Reading Tesco Between The Lines, David J. Livingstonincluded his assessment that Tesco’s propensity to speak in “coded language” was an “insult to everyone in the industry.”

Late in 2008, he had been out in Las Vegas looking at stores and made that point in a note he sent the Pundit:

I have never seen a company so headstrong about building so many low volume stores.

— David J. Livingston
DJL RESEARCH, LLC
Waukesha, Wisconsin

David is right, they are headstrong, and now that they have slowed expansion the competitors are starting to make life even tougher. We discussed Wal-Mart’s Marketside here, here and here. But we also see a change in the competitive response of other retailers.

Kroger’s Fry’s division, for example, ran a promotion late in 2008 in which it accepted all competitors’ coupons, including those from Fresh & Easy, thus blunting the usefulness of Fresh & Easy’s prime promotional weapon.

Safeway has been running $10-off-a-$50-purchase coupons. Add in more Wal-Mart Supercenters, Neighborhood Markets, Trader Joe’s, etc., and all Fresh & Easy needs is for Aldi to declare Phoenix, Las Vegas and Los Angeles its next three markets and they can just turn off the lights.

Fresh & Easy has a strategic problem and a merchandising problem. The strategic problem is that it locked itself into an enormous warehouse and infrastructure model, so it is not feasible to be profitable with the current store count. Yet headquarters has lost faith in the concept and won’t give them money to expand into other regions.

The merchandising problem is simple: The idea of offering a uniform merchandise offering across a range of demographic and ethnic groups is a loser… and a big one.

It needs drastic surgery. We suggested here splitting the chain up into an Aldi clone and a Trader Joe’s clone. We suggested here bringing Bruce Peterson in to be CEO.

If they try to muddle through, expect them to either merge the operation with a US operation as an exit strategy, buy a much larger US company — we suggested Meijer here — as a face-saving way to make the Fresh & Easy numbers go away or, despite the ego invested in the concept, put a lock on the door.

It is incredible that such a brilliant company should do such a bad job. We suggested here that the real problem is that we both speak English.

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