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More On Fresh & Easy’s
Discounting Policy

Jim Prevor’s Perishable Pundit, February 27, 2008

There is a lot of experimentation going on as part of Tesco’s Fresh & Easy effort in America. The goal is to combat shrink being caused by its practice of putting expire dates on fresh foods, including produce. Hopefully, the company will do it in such a way as to encourage business.

We ran a piece entitled, Tesco Tries ‘Automatic Markdown System’, which detailed Tesco’s efforts to reduce price at set times on product due to come off the shelf.

The piece brought some additional feedback on experimentation from a guy in the foodservice business:

My wife and I just returned from a Fresh & Easy store and found a modification on their Automatic Markdown System that you detailed in the Perishable Pundit.

We decided to try their after-4:00 pm mark-down that you referred to just for fun.

Entering the store, we were bombarded with thousands of discounted Valentine’s flowers at what we could tell from the hand written Sharpie marked-down sign were half off roses. “We already did that holiday last week,” my wife commented. “Let’s see if they have those little peppers on sale.”

Looking around the store, there were items marked down at 25% off date coded for the next day. There were some meat and poultry items at 50% off date coded for today.

I was a bit perplexed; I approached a “green” lady with the little hand-held printer and PDA, as she was knocking down the $$$$$ on some slices of cake and cookies.

“Could you explain what you are doing?”

“Oh yes, we changed our policy on discounting items in all our stores just last week. NOW, we take off 25% on all items in specific areas of the store if they are old on tomorrow’s date. Today, at about 3:00 pm, we started slashing prices 50% if they get old on today’s date.”

“What do you mean we have changed?”

“I just told you we change the prices at around 3:00.”

“Actually, I meant, what policy have you changed?”

“Oh yes, we found people waiting for 10:00 am or 4:00 pm with shopping carts loaded with today’s old food, wanting us to mark them down before they went through the check-out. We just had to change the policy.

“If someone puts an item in their cart at one price, we just can’t change it then for them. They had to pay full price; so we changed. People were getting mad…”

In the “Pundit” piece, you said:

The whole idea smacks of desperation… Plus Tesco doesn’t seem to be cognizant of what effect it will have on its shopper mix… 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.

OK, you were correct; but I think changing the policy in mid-breath could become even worse. These neighborhood markets Fresh & Easy are operating include PEOPLE/customers who get a drift of something they like.

They have been enticed by the press, courted with coupons in their mail, and welcomed with green smiles in the stores. NOW what actually has Fresh & Easy changed; simply attracting and maintaining regular customers?

We appreciate the letter, and it points to many of the difficulties that one has when one tries to change a concept on the fly.

It doesn’t shock us that consumers would hoard items waiting for a markdown. We remember running a produce store in Puerto Rico 25 years ago and, not knowing about food safety then, we used to take damaged melons, cut away the bad part and offer a discount table where we had half melons overwrapped on trays.

It was a marginal business as we gave good prices, and the cutting and wrapping was labor-intensive. It was a little better than throwing the melons away.

In any case one day, one of our regular customers came up to the Pundit and pointed out that her cantaloupe had a hole in it. She knew about our discount program, and she offered to save us the trouble and labor and materials of cutting and wrapping and offered to buy the melon in exchange for a discount. We agreed, figuring we would have a happy customer and could save a little money. Soon we started getting similar requests from other customers, which we also agreed to.

Then one day, we were watching the shoppers from an upstairs window that looked down on the store from an office we had. We noted customer after customer making a hole in the cantaloupe so they could then ask for a discount. Thus ended our discount program.

Yet our correspondent is correct — changing things is hard. Shoppers who were used to getting bargains at 4:00 pm will be disappointed if they discontinue the program. This is one reason retailers usually build one or two prototypes of new concepts so they can work out these kinks before they roll out.

In our piece, Pundit Analysis Buttressed: Tesco’s Fresh & Easy Sales Only 25% Of Plan, Says Willard Bishop Report, we highlighted a Willard Bishop report entitled Phoenix: The New Battleground for Express Format Food Stores. Although the reports estimate that Fresh & Easy stores were selling around $50,000 a week, in some ways the more dangerous assessment for Tesco was this line:

“… (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.”

In other words, for all the talk of modification of Tesco’s plans as it learns from experience, to some extent Fresh & Easy is a train speeding on a track, and changing course is not an easy option.

Our writer asks perhaps the key question: “…what actually has Fresh & Easy changed; simply attracting and maintaining regular customers?”

So far our feedback is that people are shopping Fresh & Easy more like a convenience store than a supermarket. This is one of the major reasons sales are so poor.

It is not obvious that American consumers feel Fresh & Easy has changed anything; that is the root of Tesco’s problem in America.

Many thanks to our correspondent for relaying his experience at Fresh & Easy.

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