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Safeway’s Steve Burd’s Comments
Buttress Pundit’s Fresh & Easy Analysis

Jim Prevor’s Perishable Pundit, March 14, 2008

There’s more back up support for the Pundit’s assessment — also buttressed by a report from the Willard Bishop consultancy — that Tesco’s Fresh & Easy store volumes are only running at around $50,000 a week, per store, once the grand opening period passes.

The “evidence” of Tesco’s volume can be deduced from a statement by Safeway CEO Steve Burd. In a piece in the East Bay Business Times focused on a plan by Safeway to move toward “better everyday value” pricing, Steve Burd says this about Tesco:

Burd also said he’s not particularly worried about the entry of Tesco PLC, the British supermarket giant, into its home turf of California, where Safeway operates nearly 600 stores under the names Safeway, Vons and Pavilions. He said that each one of Tesco’s Fresh & Easy Neighborhood Market stores that open within 1.5 miles of a Safeway has only 10 percent of the impact of the opening of another conventional supermarket.

If we are generous and say a typical new supermarket opening is 50,000 square feet (if you exclude supercenter-type concepts, it is actually smaller) and if a Fresh & Easy sold on par with the per square foot sales of an American supermarket, we would expect Fresh & Easy (at 10,000 square feet) to draw 20% of the business that a 50,000 square-foot supermarket would draw.

Fresh & Easy was budgeted by Tesco to start out with sales of about $200,000 per store, per week. Working with Fresh & Easy’s approximately 10,000-square-foot footprint, that comes to about $20 per square foot. Now, assuming that a conventional 50,000-square foot supermarket generates about $500,000 per store per week, or roughly $10 per square foot in its first year, Tesco’s number requires sales per square foot to be about double what a US supermarket typically does.

If a Fresh & Easy is 20% of the size of a major supermarket, but doing twice the volume per square foot, we would expect a single Fresh & Easy store to draw 40% of the sales from a neighboring Safeway that a normal supermarket opening would draw.

If Fresh & Easy was averaging the same sales per square foot as US supermarkets (approximately $10 per square foot in its first year), its sales per store would equal about $100,000 per week. If we assume that it is 20% of the size of a US supermarket and doing the same volume per square foot as a US supermarket, we would expect that the opening of a Fresh & Easy would draw about 20% of what the opening of a regular supermarket does from a nearby Safeway.

But Steve Burd says that the opening of a Fresh & Easy only affects a nearby Safeway by 10% of the effect that a supermarket opening has. If the square footage is 20% of the size of a supermarket, you can only get to that 10% number if sales at Fresh & Easy are half the typical sales per square foot of an American supermarket or, roughly, $50,000 per store, per week.

But Steve Burd’s comments are just one more indication that Tesco is looking at a division in need of a dramatic revamp.

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