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American Food & Ag Exporter

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Tesco Tries
‘Automatic Markdown System’

Jim Prevor’s Perishable Pundit, February 12, 2008

With all its talk about “green” and organic, it sounded like Tesco was positioning itself to be the Saks Fifth Avenue of fresh food. Now it seems that the company is trying to be the Filene’s Basement of freshness.

We have thoroughly covered the Fresh & Easy launch in America, and we have mentioned reports of rampant discounting at its stores. We received notice here and here about Tesco freely giving out coupons for $5 off when you buy $20 worth in the store, including even handing the coupons out at check-out.

We have now received several reports that Fresh & Easy, perhaps to combat the shrink we wrote about here, is moving to an “automatic markdown system” reminiscent of discount clothiers such as the old Filene’s Basement or Syms to this day.

This letter came from a fellow who recently sold a small restaurant chain:

My wife and I frequent the new Fresh & Easy stores near our area. First Hemet, [California], then Vista and now even closer; Fallbrook. Just yesterday, we noticed and discussed something very new at the store: DISCOUNTING and marking down perishable items at set times every day.

We discussed this with a “green” person in the store and was told, “Yes, previously, we would pull all out-dated product (bakery, produce, prepared, all meats — fish, pork, poultry, beef) on the expiration date, take them back to our distribution plant and re-distribute them to food pantries and local shelters. Beginning last week, we have started in-store discounting. Now we discount them at 10:00am at 50%, then again at 4:00 pm another 25%.”

There were two people at 10:00am yesterday walking around with this nifty bar-code printer and hand-held computer, scanning and printing. After a few minutes, people were following them around picking up ½ off product.

For several reasons, this intrigues us. Firstly, there was an article in the Hemet paper about how their expired product was directly given to the local shelter.

Secondly, a few weeks ago we were given flowers when leaving the store in Vista, California. When asked, we were told they can give away flowers nearing their end date, but can’t do that with food. ??????? OK, so now things have changed and you tell me.

I cannot think of any other grocery market that times their date-end products incrementally several times each day.

No, we can’t think of anyone else doing that — and for a whole load of good reasons.

First, this is food, not clothing. It is either healthy to eat with adequate shelf life for the consumer or it is not. If it is healthy, why discount it? If it is not, why are they selling it?

Second, this can’t end up being good. Either the product won’t sell because consumers will fear it is too old, not fresh, and maybe dangerous. Or it will sell, in which case consumers won’t buy the full priced items.

Third, Fresh & Easy, supposedly an Every Day Low Price (EDLP) retailer, is now training its customers to look for sales and discounts. The whole point of EDLP, its marketing advantage, is that it builds confidence in consumers that they are always getting a good deal. Now, however, if I zoom by a Fresh & Easy at 9:30 am, I know that my choice is to hang around the store for a half hour or get ripped off on my purchase.

The whole idea smacks of desperation. Fresh & Easy doesn’t make anywhere near enough on each item to be cutting the price by 50% or 75%. It will have to wind up raising other prices to compensate.

Plus Tesco doesn’t seem to be cognizant of what effect it will have on its shopper mix. If you want to attract more than an impoverished clientele, the key to a discount operation is to keep things hip and pleasant enough that people of all incomes want to shop. But if this works, many a middle class shopper won’t want to be in the store when the hordes descend looking for about-to-expire bread at a discount. In fact, middle class shoppers may not want to be associated with such a store at all.

The problems Fresh & Easy has in this area are simple:

  1. A ridiculous date system that makes Fresh & Easy remove perfectly good food — especially fresh produce — from the shelves.
  2. A lack of micro-marketing so the assortment in each store is wrong and thus not appealing to the local clientele.
  3. A poor ordering system that both over orders and under orders — thus the out-of-stocks and the enormous volume being removed from the shelf.
  4. A product mix lacking the brands that American consumers look for.
  5. Excessive costs caused by idiosyncratic requirements of suppliers that make it difficult to price competitively.
  6. Low traffic counts due to an unattractive store without a compelling offer.
  7. Secondary locations taken on in a mad rush to open stores.
  8. Lack of consumer information — as the company has in the UK — because of not offering a loyalty card.

These are very serious problems and represent only a portion of the challenges Fresh & Easy faces. The solution has to come from solving these problems, not from a gimmick.

Americans are not unfamiliar with these scheduled markdowns. They are still practiced in some chains such as Syms. (Did you know that Karen Caplan and the Caplan family of Frieda’s are featured prominently in Marcy Syms’ book Mind Your own Business and Keep It in the Family?)

In 1982, The New York Times ran a piece on Filene’s Basement, which was an early adopter of the automatic markdown concept. The piece was entitled Shopper’s World: Boston’s Favorite Bargain Store and described the “automatic markdown plan” this way:

According to the system, every article is marked with a tag showing the price and the date the article was first put on sale. Twelve days later, if it has not been sold, it is reduced by 25 percent. Six selling days later, it is cut by 50 percent, and after an additional six days, it is offered at 75 percent off the original price. After six more days — or a total of 30 — if it is not sold, it is given to charity.

Perhaps it didn’t show up in all that research that Tesco did in coming to America, but it is worth noting that Filene’s Basement filed its Chapter 11 petition for federal bankruptcy court protection on August 23, 1999.

We thank our correspondent for his letter.

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