Our extensive study of Tesco’s Journey to America as Fresh & Easy continues with lots of news regarding Tesco.
First Tesco announced its sales numbers and faced headlines like this in London’s Telegragh: Tesco Sales Suffer As Clubcard Push Fails
Despite months of heavy promotion and a doubling of Clubcard loyalty points to customers, sales in Tesco’s UK stores rose by less than the City was expecting over the three months to the end of November.
…JP Morgan, the bank, said: “This is disappointing, in our view, in the context of the doubling of the loyalty card rewards and the heavy advertising expenditure incurred.
“It is therefore quite possible that like-for-likes will fall below 1pc in the fourth quarter, which would imply negative real like-for-likes once the benefit of [store] extensions is excluded.”
As if the failure of extensive investment to boost sales over the City’s expectations was not enough, Tesco also got hit by news that Wal-Mart’s ASDA, J Sainsbury and Morrison’s all gained market share while Tesco stayed flat: As the Times of London explained in a piece titled, Wm Morrison Grabs Record UK Market Share:
Wm Morrison, Britain’s fourth largest supermarket, has grown its share of Britain’s grocery trade to a record high of 12.1 per cent in the past three months, according to the latest closely-watched survey figures.
The figures, produced by TNS Worldpanel, a retail consultant, show that Morrison’s market share grew year-on year at twice the rate of the rest of the market. It stood at 12.1 per cent for the three months to 29 November against 11.7 per cent in the same period last year.
…Asda and J Sainsbury also grew their market share to 17 per cent and 16.1 per cent respectively while Tesco, the market leader, has remained flat at 30.6 per cent, after market share loss throughout 2008 and 2009.
Now one seemingly bright spot in the report was the little US operation, Fresh & Easy. The Financial Times focused on the psychology of Tesco’s executives and headlined: Tesco Confident for US Venture as Sales Rise After Revamp:
Tesco, the UK’s biggest retailer, said it was seeing signs of improvement in its fledgling business in the US, where it is battling to make a success of its Fresh & Easy venture….
Sales at Tesco’s US business rose 37.4 per cent. The retailer said like-for-like sales were stronger at Fresh & Easy, after an overhaul of the range in September and its first significant advertising campaign. “We have seen a good increase in the number of customers coming into Fresh & Easy stores and a slight uptick in basket size,” said Laurie McIlwee, finance director.
Consequently, Tesco is maintaining its forecasts for Fresh & Easy. It expects the business to be on track to make a loss over the full year close to its $259m deficit last year.
“It is good that it has not got any worse,” said Mr McIlwee.
A 37.4% increase in sales is strong, although our experience with Tesco is that if it didn’t announce the same store sales number, what the British call like-for-like, it is because the number would look worse, not better.
More broadly, though, the key problem is this: Even with this strong sales performance, they expect to lose another quarter of a billion dollars this year. This indicates that the cost of bringing in the customers and getting sales — either through advertising or discounted prices — is too high. The inherent virtues of the format and product choice are not bringing in sufficient business so they have to go out and buy it. That is a very difficult conundrum to get out of.
There are more reports around, but we have some doubts about the credibility of them. For example, the Financial Times ran a piece titled, Tesco Plans US Loyalty Scheme:
Tesco has indicated that it plans to launch a version of its successful Clubcard shopper loyalty programme for customers of its Fresh & Easy chain in the US.
…A recent advertisement for a new marketing position at Fresh & Easy’s US headquarters in the Los Angeles area lists “2010 planning for loyalty programme” amid the job responsibilities.
That advertisement is pretty thin reed on which to leap to the conclusion that Fresh & Easy is about to introduce a US version of its famous British Clubcard.
We don’t think it is a bad idea. In fact we were shocked when they opened Fresh & Easy without all the tools — loyalty club, micromarketing, etc. — that make Tesco a success in the UK, and we knew that the boss of the US operation, Tim Mason, had been credited with a major role in developing Tesco’s loyalty program in the UK.
Still, we don’t see it in the cards immediately. First, in the UK, Tesco partners with Dunnhumby and it can’t do so in the US where Dunnhumby partners with Kroger, so it would be a big job to set up. Second, it is just not obvious that this should be the priority. The subtle manipulation of data is powerful for Tesco in the UK or Kroger in the US, but Fresh & Easy is so small, its focus should be on building a critical mass of sales, not the subtle manipulation of assortment to squeeze another half a percent in margin.
If we ran Fresh & Easy and could do just one thing, we would focus on accepting manufacturer’s coupons. We once advised them that they needed to accept American Express and they finally did it. Let us see how long they allow other retailers to have this obvious competitive advantage.
Finally, there are press reports out there declaring that Fresh & Easy is going to dramatically expand its southern California campus, as The Press-Enterprise claims in a piece titled, Expansion of Fresh & Easy Hub Planned:
Fresh & Easy Neighborhood Market, owned by British grocer Tesco, will move forward with plans to expand its already large Inland campus at the Meridian business park near Riverside to a total of nearly 2 million square feet on 88.4 acres.
The March Joint Powers Authority’s planning commission approved Fresh & Easy’s final environmental report and site plan for the expansion at a Wednesday morning meeting.
The authority oversees redevelopment of the former March Air Force Base including the Meridian business park being developed by LNR.
Dan Fairbanks, the agency’s planning director, said Fresh & Easy could have its building permits to start construction on the expansion by the summer.
The 767,000-square-foot expansion will add space to the company’s warehouses, parking, office space and kitchen, allowing it to serve 550 Fresh & Easy grocery stores in Southern California, Nevada and Arizona. Today, it could supply up to 235 stores and employ up to 1,250 people.
The company has opened 132 stores and employs about 670 at its Meridian distribution center.
Fresh & Easy had hoped to open 200 stores by the end of 2008 but the company slowed its growth from opening five or six stores a week at first, to now opening about one each week, said company spokesman Brendan Wonnacott, who described the move as “prudent.”
“This is about planning for future expansion,” he said of the efforts to build out its Meridian facility.
After the expansion, the distribution center and kitchen could employ a maximum of 2,750 people in jobs ranging from human resources, information technology, finance, warehousing, drivers, machine operators and food preparers, according to the JPA staff report.
Ben Shearer, director of construction for Fresh & Easy, said about 400 construction workers built the first phase.
Supervisor Bob Buster, a March Joint Powers commissioner, at Wednesday’s meeting called it an “all-in bet” on the future by Fresh & Easy.
Something is off here. First of all, each Fresh & Easy store is about 10,000 square feet, so 550 stores will be 5,500,000 total square feet. Why does Tesco need two million square feet of support space to handle 5,500,000 square feet of retail space? That ratio is all off. Second, surely Tesco has learned that it would be better off paying a little extra to work with wholesalers and brokers and maintain flexibility until its concept is settled and success. To sink money into distribution centers before the retail concept is known to work makes the enterprise unnecessarily risky.
Perhaps they will get the permits but postpone construction or build out the campus as a real estate play. It simply makes no sense to spend the money building this complex to supply a chain of money-losing stores.
We were writing this Pundit while up in Long Island. Mrs. Pundit had run into a Stop & Shop to pick up some pharmaceuticals but she also brought the Jr. Pundits some sustenance in the form of a master pack of Mott’s brand sliced apples.
These are marketed by C.H. Robinson and are part if its niche brand strategy whereby it acquires or creates separate brands for different product lines or categories. So C.H. Robinson uses Mott’s in the apple category, Tropicana in the citrus category and Welch’s in the grape category.
For awhile it had Newman’s Own for use in the organic fruit and vegetable business until Paul Newman, may he rest in peace, got cold feet when, as a result of the spinach crisis, he realized what a food safety issue with fresh produce could do to his brand. Suddenly the licensing fee didn’t seem worth it at all and he brought the project to a halt. Eventually C.H. Robinson set up its own brand, Our World Organics, which we wrote about here, for the organic category.
Paul Newman’s instinct was understandable and we have long said that we have severe doubts that organizations such as Disney have ANY stomach for being associated — even once — with the severe illness or death of a child. The very first such incident will likely be the last because the licensing deal will be terminated.
Yet as we sit here munching on Mott’s brand sliced apples — we stole a few from the Jr. Pundits to check them for quality, which was quite good — it occurs to us that the whole licensing model is kind of upside down when it comes to brands best known for processed product. We are not privy to any secret information but, presumably, C.H. Robinson pays some sort of licensing fee to Mott’s, Tropicana and Welch’s in order to use such well known brands. That is the way the business works.
We would suggest, however, that if these branded organizations had a truly sophisticated understanding of the intersection of their interests and the fresh market, they would pay C.H. Robinson a fee for each box of fresh product sold — especially fresh product, such as these apple slices, that is generously labeled Mott’s at the consumer level.
Why should these branded giants do this? Simple, the halo effect that freshness has on the processed product.
We’ve known about this for years. Ocean Spray has persevered in the very difficult fresh cranberry business long after it was insignificant to either sales or profits, because the consumer seeing those Ocean Spray fresh cranberries each fall in the produce department thought better about Ocean Spray juices year round.
So the real interest of the owners of these brands is to maximize the consumer exposure to the product in a fresh form. Let every mom reaching out for juice or jelly be thinking about delicious Mott’s fresh apples, Tropicana fresh navel oranges and Welch’s delicious fresh grapes. Surely moms will surmise that the processed product is made from the same fresh product that they know and enjoy.
The license fee paid to use the names on fresh must be inconsequential, but the change in consumer perception is priceless.
Focusing on maximizing licensing fees is simply penny-wise and pound-foolish. The focus should be on maximizing consumer impressions to fresh product.
We have written many stories and given many speeches related to sustainability, and since sustainability is not a new concept we were often asked, “Why now? Why the sudden interest in the subject?”
The answer, clearly, was global warming. This both directly created urgency and created the basis for expected government action, such as carbon taxes or cap-and-trade which, in turn, made business leaders certain they needed to get ahead of the issue.
The recent news reports regarding the release — either by a hacker or a leaker, it is a little unclear — of a large number of e-mails and other data from the Hadley Climatic Research Unit (CRU) at Britain’s University of East Anglia has come to be called Climategate.
Just as a “third-rate burglary” known as Watergate brought down a President, the release of these e-mails may well break the global consensus regarding anthropomorphic global warming.
In our reading about global warming, the data and models coming out of CRU were not trivial; they were the key data and key model that informed the case for global warming around the world. It was the data the International Panel on Climate Change (IPCC) relied on for its report, and this report was the basis for almost all government policy in this area. Even the EPA relied on this British data.
Now with some confidence we can say the following:
1. The faculty members who were most influential in this area did not behave as scientists. They were advocates for a position and intent on stifling dissent. They were willing to manipulate the numbers to get the outcome they wanted. They simply became detached from real science.
2. They manipulated the peer review process and so acted to prevent those who came to different conclusions from them from being published and denied data to independent researchers.
3. They were willing to break the law by conspiring to destroy data subject to the British equivalent of a Freedom of Information Act request.
4. The models they used did not, in fact, produce the results they published. Manual interventions were made so that these “buggy” models would come out with the “correct” answer.
5. They destroyed or disposed of the raw data on which all the research was based, thus preventing any third party from either confirming or contradicting their findings. In a sense we are no longer in the realm of science, we are in the realm of faith when we look at their data.
Although many are going on as if all this doesn’t matter, it most decidedly does. Of course, it does not prove there is no global warming but it means the scientific foundation for belief in anthropomorphic global warming is so weak that there is no basis for the world to adopt exceedingly expensive policies to fight global warming.
Really the science needs to be looked at from square one.
This won’t kill off sustainability as that has morphed into a kind of business management system that involves consciousness of all costs.
It is a word of warning to the industry about the dangers of relying on science. When science can be manipulated on the scale of global warming, everyone is at risk, and we are seeing a related issue in the pesticide regulation in Europe, some of which we discussed here.
The danger is the widespread adoption of something called The Precautionary Principle, which basically encourages action to protect the environment even when the science doesn’t justify it.
Daniel Henninger in The Wall Street Journal wrote a great column on the matter, called Climategate: Science Is Dying:
I don’t think most scientists appreciate what has hit them. This isn’t only about the credibility of global warming. For years, global warming and its advocates have been the public face of hard science. Most people could not name three other subjects they would associate with the work of serious scientists. This was it. The public was told repeatedly that something called “the scientific community” had affirmed the science beneath this inquiry. A Nobel Prize was bestowed (on a politician).
Global warming enlisted the collective reputation of science. Because “science” said so, all the world was about to undertake a vast reordering of human behavior at almost unimaginable financial cost. Not every day does the work of scientists lead to galactic events simply called Kyoto or Copenhagen. At least not since the Manhattan Project….
… The East Anglians’ mistreatment of scientists who challenged global warming’s claims — plotting to shut them up and shut down their ability to publish — evokes the attempt to silence Galileo. The exchanges between Penn State’s Michael Mann and East Anglia CRU director Phil Jones sound like Father Firenzuola, the Commissary-General of the Inquisition.
For three centuries Galileo has symbolized dissent in science. In our time, most scientists outside this circle have kept silent as their climatologist fellows, helped by the cardinals of the press, mocked and ostracized scientists who questioned this grand theory of global doom. Even a doubter as eminent as Princeton’s Freeman Dyson was dismissed as an aging crank.
Beneath this dispute is a relatively new, very postmodern environmental idea known as “the precautionary principle.” As defined by one official version: “When an activity raises threats of harm to the environment or human health, precautionary measures should be taken even if some cause and effect relationships are not fully established scientifically.” The global-warming establishment says we know “enough” to impose new rules on the world’s use of carbon fuels. The dissenters say this demotes science’s traditional standards of evidence.
The point is this:
If science is politicized, it won’t stop with global warming. Scientists will be drafted for every political agenda, and that is what is happening with pesticide regulation. Henninger gets the point perfectly:
The Obama administration’s new head of policy at EPA, Lisa Heinzerling, is an advocate of turning precaution into standard policy. In a law-review article titled “Law and Economics for a Warming World,” Ms. Heinzerling wrote, “Policy formation based on prediction and calculation of expected harm is no longer relevant; the only coherent response to a situation of chaotically worsening outcomes is a precautionary policy…”
If the new ethos is that “close-enough” science is now sufficient to achieve political goals, serious scientists should be under no illusion that politicians will press-gang them into service for future agendas. Everyone working in science, no matter their politics, has a stake in cleaning up the mess revealed by the East Anglia emails. Science is on the credibility bubble. If it pops, centuries of what we understand to be the role of science go with it.
If you want some heavy reading, you can review all the released e-mails and data here.
If your taste runs to Jon Stewart, you may get a kick out of his take on Climategate
Thanksgiving’s Journey Of Freedom, brought many kind notes. Most contained comments such as this one:
Your Thanksgiving Journey article is great to read in these days of over consumption. We often times forget to count our blessings. Thanks for reminding us of the importance of doing so.
— Ed Morrison
Yet the piece was also critiqued for a logical flaw — or perhaps a sin of omission. We spoke of what we were thankful for, but failed to state to whom we were thankful. Fortunately an astute reader filled in the gap:
That is a very lovely piece. However, lest we lose the true meaning of this day, I urge you to read and reflect on President Lincoln’s original Thanksgiving Proclamation and take careful note of the object to Whom our thanks must be addressed. Without Him, it is only a “feeling of thanks”, for true “Thanksgiving” can only be made when it is in fact “given”.
Please do not miss this. The greatness of America, past, present and future, can only be found in her national reliance on the sovereign God of the Bible. Each American must not be required to personally participate in His worship, but to continue to ignore or deny Him will be the ultimate destruction of this singular nation in the history of the world.
I urge you therefore, to make yours a “day of Thanksgiving and Praise to our beneficent Father who dwelleth in the Heavens.” Abraham Lincoln, President, the Year of Our Lord 1863.
— Daniel Barth
Super King Markets
Daniel Barth was also kind enough to share a memo he distributed to his associates at Super King Markets:
To All Super King Employees
Once again the calendar reminds us to not just “feel” gratitude but to say it to the people to whom it is due. In this case you are that person. So, thank you for who you are and for what you do every day to make Super King a great place to work and shop!
In his thanksgiving proclamation of October 3, 1863, then President Abraham Lincoln included the words below when he established forever the 4th Thursday of November a “national day of Thanksgiving”. As you read and reflect on them, keep in mind that he was presiding over a nation torn by a terrible civil war.
“No human counsel hath devised nor hath any mortal hand worked out these great things (wealth, abundant harvest and the preservation of the United States). They are the gracious gifts of the Most High God, who, while dealing with us in anger for our sins, hath nevertheless remembered mercy.
It has seemed to me fit and proper that they should be solemnly, reverently and gratefully acknowledged as with one heart and voice by the whole American people. I do therefore invite my fellow citizens in every part of the United States, and also those who are at sea and those who are sojourning in foreign lands, to set apart and observe the last Thursday of November next, as a day of Thanksgiving and Praise to our beneficent Father who dwelleth in the Heavens. And I recommend to them that while offering up the ascriptions justly due to Him for such singular deliverances and blessings, they do also, with humble penitence for our national perverseness and disobedience, commend to his tender care all those who have become widows, orphans, mourners or sufferers in the lamentable civil strife in which we are unavoidably engaged, and fervently implore the interposition of the Almighty Hand to heal the wounds of the nation and to restore it as soon as may be consistent with the Divine purposes to the full enjoyment of peace, harmony, tranquility and Union.”
However you choose to spend your thanksgiving, in whatever manner you and your family celebrate, my prayer is that each of you will take a moment to say “thank you” to someone close to you and that each of us will become more thankful people. Happy Thanksgiving!
Abraham Lincoln’s Thanksgiving Proclamation was urged upon him by a magazine editor, Sarah Josepha Hale and the text is believed to have actually been written by Secretary of State William Seward of Seward’s Folly fame, as his proposal to acquire Alaska from the Russians was then called. We would draw attention to the portion prior to that quoted in Daniel Barth’s letter to the employees of Super King Markets:
The year that is drawing towards its close, has been filled with the blessings of fruitful fields and healthful skies. To these bounties, which are so constantly enjoyed that we are prone to forget the source from which they come, others have been added, which are of so extraordinary a nature, that they cannot fail to penetrate and soften even the heart which is habitually insensible to the ever watchful providence of Almighty God. In the midst of a civil war of unequaled magnitude and severity, which has sometimes seemed to foreign States to invite and to provoke their aggression, peace has been preserved with all nations, order has been maintained, the laws have been respected and obeyed, and harmony has prevailed everywhere except in the theatre of military conflict; while that theatre has been greatly contracted by the advancing armies and navies of the Union. Needful diversions of wealth and of strength from the fields of peaceful industry to the national defence, have not arrested the plough, the shuttle or the ship; the axe has enlarged the borders of our settlements, and the mines, as well of iron and coal as of the precious metals, have yielded even more abundantly than heretofore. Population has steadily increased, notwithstanding the waste that has been made in the camp, the siege and the battle-field; and the country, rejoicing in the consciousness of augmented strength and vigor, is permitted to expect continuance of years with large increase of freedom.
The key to all this is that this was a very difficult time. The Civil War was a long and bloody one, with more American casualties than any other conflict, before or since. This proclamation made no attempt to hide the seriousness of the times:
In the midst of a civil war of unequaled magnitude and severity…
Needful diversions of wealth and of strength from the fields of peaceful industry to the national defence…
Population has steadily increased, notwithstanding the waste that has been made in the camp, the siege and the battle-field…
Yet despite such horrors, there was still much to be grateful for.
Abraham Lincoln was the greatest democratic leader in history. His deep hatred for war causes him to edge out even Winston Churchill, who was a little too exuberant in such matters.
Part of a democratic leader’s greatness must be his ability to maintain the morale and support of the citizenry. Lincoln’s proclamation reminded a war-weary citizenry of the blessings they still enjoyed and the reasons to be optimistic about the future.
In so doing, he helped to sustain the union and thus the source of so many of our blessings today.
Many thanks to Ed Morrison of Interfresh and Daniel Barth of Super King Markets for reminding us of the true purpose of Thanksgiving.