Tesco’s Fresh & Easy Reassessed
Many were expecting great things before Tesco opened the first of its Fresh & Easy Neighborhood Markets. Some even spoke about how the format could potentially revolutionize food retailing in the U.S.
As is often the case, the opening of the first stores brought out the critics. A number of analysts wrote reports suggesting that Tesco’s entry into the American market was performing well below expectations and that the chain was trying to figure out a fix.
When Tesco announced in March that it was taking a three-month timeout on opening new stores, many were quick to use that as evidence that Fresh & Easy was struggling.
Many openly dismissed assertions by Simon Uwins, the chain’s marketing director, in a company blog that Fresh & Easy was taking a short pause to “kick the tyres, smooth out any wrinkles, and make some improvements that customers have asked for.”
In the past week, a new light has been shed on Fresh & Easy’s performance. A report in the Financial Times made public key findings of consumer surveys conducted by Executive Research in the U.S. The firm, according to the paper, has no relationship with Tesco.
According to the report, “Fresh & Easy is the new cult retailer. At the risk of doing the job of Tesco’s public relations department, F&E is already an incredible success story.”
Executive Research conducted interviews with 700 customers outside of Fresh & Easy stores in Las Vegas, Los Angeles and Phoenix. Nearly nine in 10 of those interviewed said they would “highly recommend” Fresh & Easy to family and friends. Researchers placed traffic at the stores at between 20 and 30 people an hour.
What isn’t known yet is how that traffic and customer goodwill translates into dollars spent in Fresh & Easy stores. According to the Financial Times’ report, Tesco has maintained that its sales were above the industry average of $8.70 a square foot. The chain is said to need to hit between $14 and $21 to meet the goals set for individual stores.
Executive Research said stores it sampled were generally doing between $6 and $12 a square foot but that some of the better performing locations were up around $20.
“We estimate that within five years F&E will make sales of $12 billion,” wrote Executive Research.
Discussion Questions: How do you rate Fresh & Easy’s prospects? What is your reaction to this new research?
What retailer entered a market recently with that number of stores and the number planned in structured growth? Not many. Innovation isn’t easy. But, innovation does change things. If nothing, Tesco’s F&E stores have made the industry take a look–a real look. Certainly, the naysayers will be there no matter what they do.
Personally, what I have interpreted and perceived from all that I have read and seen about the stores is real fear. Yes, fear. What if they really did something the customer really liked? I read nearly pure glee in any report of potential failure. Those that predict their demise should take care. I rather doubt that’ll be the result.
Like them or not, they are gutsy. Really gusty. They had the nerve to enter a new market with a completely innovative and challenging concept once again to conventional retailing. Will it work? It may be too early to tell. And, even Tesco is carefully accessing the results. Yet, I doubt the intention is to fail. Like Wal-Mart, Tesco doesn’t have a real record of that type of performance. In the end, or even a short time from now, I would expect some measure of real success here for their stores. Maybe not the store they have today–but success even with a slightly refined concept. Consumers have a tendency to reward that type of effort. Let’s face it, they are looking for it. What is it? I am not quite sure that Tesco has the final F&E yet. Nevertheless, it is innovative and different. Certainly it may take some getting used to. I’ve yet to visit, but I certainly would like to. In the absence of that, I can only research, listen, and observe those that have.
More likely what may be in the back of the minds of the fear I hear in those nay saying is “Why didn’t we think of that?” What they have done here is good for our industry. It challenges innovation. It usually takes that in our market. What they have done and will do should not be ignored. Ask the thousands of former General Motors employees what happens when you ignore innovation in your industry.
First off, to paraphrase Winston Churchill, another great UK leader, never, never, never, never, never, never underestimate Tesco. The early critics will ultimately make themselves look foolish. Tesco knows exactly what they are doing, and they are great at analyzing the customer’s shopping habits, tweaking their model, and fixing any small problems that the chain might have.
Will F&E revolutionize retailing? Probably not. But will they be successful in the US market? Most likely yes. And every customer that shops a Fresh and Easy store is not shopping another store. Every dollar spent at Fresh and Easy is a dollar not spent at a store where the customer previously shopped. The chain is here to stay, and if I were a retailer competing in the same market, I would start to innovate to make my stores better and more unique than Fresh & Easy. The ratcheting up of innovative retailing will only benefit all consumers, as well as suppliers who are fortunate enough to have their products on shelf.
Is it me or should we wait for independent confirmation of this research? There’s something a tad suspicious about a U.K. based firm being the first to detect progress at F&E.
Tesco is a great company and its ability to course-correct is legendary but too often “research” gives you back a reflection of the researcher’s bias rather than the truth. We don’t know what questions were asked or how they were phrased. If we did, it might make these findings easier to evaluate.
I had the good fortune of hearing the “in the beginning” story of the F&E design from the designer himself at the recent In-Store Marketing Institute Summit. It was a story of one of the best and most direct translations of strategy into execution I have ever seen in retailing. Literally down to the level of how the “Fresh” side of the store (perishables and prepared) and the “Easy” side (packaged center store) come together.
When the presentation was over, I approached the designer to complement him and to also ask a question. My question was this “OK, if I’m a marketing strategy guy and I think everything you said for the last hour was brilliant — how come I didn’t ‘get it’ when I walked into my first Fresh & Easy?”
After several weeks of reflection, I think that perhaps it comes down to this…you have to experience it to get it. First impressions are not going to do this format justice. But as experience reveals its simplicity and functionality, I think it is going to grow on the U.S. shopper.
When I had a healthy back and knees that worked, I used to introduce a lot of people to skiing. I always said that if I could get them to go the SECOND time — they were hooked for life. I think it will be the same with Fresh & Easy.
If the dollars per square foot are correct, they need to double their sales to hit their target. How likely do we think that would be? Of course, if they royally screwed up their introduction, it might be possible. Has anyone out there ever seen a store double its sales?
I will take the wait ‘n see approach to Fresh ‘n Easy. It is a new concept that will take some time getting used to especially in lower velocity markets. I think Tesco made a good move in slowing expansion to work out the kinks.
North America is still The New World and Tesco’s concept is a great idea but we New Worlders are a fickle bunch and we don’t embrace new formats easily. Using markets like LA and Vegas is not a good indicator of consumer opinion. Where is Middle America in all of this? I want to know what they think in Omaha and Des Moines. Tesco should considering opening in these markets to test the waters.
I’m going to follow Ben Ball’s advice and take a look at another Fresh & Easy store next week. My first impression was of a store where many costs had been removed that should make it easier to hit a break even point. But, while the store was shopper-friendly in the sense of being small and easy to navigate, it certainly didn’t have much to offer on the “fresh” side of the equation and only looked like it could achieve a loyal following from former c-store shoppers or those who frequent poorly run independents.
One needs to take a good look at this “research.” It is only representative of people who already shop at Fresh & Easy. I’m glad that they had a good experience. That having been said, Tesco admits that not enough consumers are going into Fresh & Easy. It’s hard to lure consumers back after they sampled a brand and found it to be wanting.
I agree with the other panelists that one should never write off Tesco. But this little patch of good news seems to be more PR spin and less solid evidence of Fresh & Easy turning the corner on what was a far less than satisfactory start in the US.
I think that most people who have studied Tesco around the world will agree that this is a great, innovative company. More importantly, they are not afraid to hold a mirror up to themselves and admit that something may not be working.
What we’re seeing now is just the first iteration of Fresh & Easy. Stores are built and merchandised in such a way that they probably could be reset in two days. That kind of flexibility is key. Let’s see where they are this time next year.
First, it is important to recognize that shoppers have little idea of what makes a good store, since every store they have ever been in has “trained” them to think the aggregate experience is “the way it is supposed to be.” So there is always a massive amount of conservatism/inertia in moving shoppers to something new.
Fresh & Easy has adopted a few “no brainer” shopper friendly ideas that come close to guaranteeing their success–assuming they don’t abandon their usual execution skills. This largely revolves around implementing their name–Fresh AND Easy.
Focusing on the easy, build a 10,000 square foot store (it could have been even smaller), stock it with 3500 items (10 times what the typical household actually buys annually), chop the gondolas down so that most shoppers can more or less see over them–OPEN SPACE ATTRACTS–and guarantee that every checkout lane is OPEN ALL THE TIME–self-checkout, exclusively.
These are MAJOR features that are actually shopper friendly/focused. And have a HUGE impact on the shopping experience. The tragedy is that the rest of the industry is mostly living in a delusional world of believing THEY are shopper centric, when in reality they have built stores that please the retailer/brand supplier partnership.
“What isn’t known yet is how that traffic and customer goodwill translates into dollars spent in Fresh & Easy stores.”
Gee, that seems like somewhat of a (huge) problem with this “survey,” don’tyathink?
I’m also a wee bit wary of remarks like this:
“Executive Research said stores it sampled were generally doing between $6 and $12 a square foot but that some of the better performing locations were up around $20….”
It’s a common tactic to try to spruce up unappealing averages by throwing in the “or better” component, and leaving out the “or worse” side.
Comment for Herb and Lance:
Herb — I agree that inertia is going against a novel concept like Fresh & Easy but their biggest mistake, which can be corrected, is their assortment. If you are going to limit your assortment, which I find beneficial, you need to know exactly what sells. England is known for its celebrity chefs, not the taste of its food. Success needs a bit of trial and error.
Lance — Trader Joe’s, without a doubt the most successful store in SoCal, also prices its bananas by the unit. Not saying that’s a good thing but it is a method to avoid comparison shopping.
I believe Fresh & Easy to be a good concept that will succeed in the US if properly promoted.
We conduct market tours for our packaged goods clients in the same geographies serviced by Fresh & Easy. There is a lack of awareness by consumers in the RTA on the Fresh & Easy proposition. However, consumers who shop at the grocer speak very highly of it.
Long term success is a reality, but readdressing short term communications needs can and will bring success quicker to the franchise.
During the recent Food Marketing Institute and United Fresh Produce Association shows in Las Vegas, I and several other editors from The Packer had the pleasure of touring a Fresh & Easy location. Chris Harris, Tesco’s produce honcho in the U.S., was there to answer questions.
Here are some of my observations:
– In the produce section, there are no scales. Every item is priced per unit. Bananas were 18 cents apiece. Other than convenience stores and airports, I’ve never seen bananas sold individually. At Fresh & Easy, this results in some bruising that might not occur if they were sold in bunches.
– The practice of date-coding every product and aggressively discounting them as they get older should lead to some very good deals for shoppers who are looking for TODAY’S meal. An individual-sized salad was marked down to about 69 cents. Throw in the discounted fresh-cut apples for $1.20 or so, along with some discounted protein and carbs, and one could eat healthfully and cheaply.
– Some of the value-added items were truly innovative. The challenge for Fresh & Easy will be tailoring these to the preferences of shoppers at each location.
– The store we visited was built expressly for Fresh & Easy. Tall windows gave the store ample natural light. I have heard that some locations in previously existing storefronts do not benefit from the same lighting.
In all, Tesco has some major hurdles, but there were plenty of shoppers when I visited the store around 4:30 on a Sunday. One woman exclaimed how she thought Fresh & Easy consistently had the best blueberries she had ever bought, and that she keeps coming back for more. Undoubtedly some other retailers probably have better blueberries. But Fresh & Easy was able to convince this woman that theirs were better.
Retailing is like life, perception is everything.
Tesco has certainly made some huge blunders with Fresh & Easy. I’m sure some heads will roll. Based upon the individual store volumes I’ve seen, their future is in doubt. Their reception reminds of Fleming’s YesLess stores that lasted maybe a year. Fresh & Easy first needs to get their prices in line. Next, get rid of the self checkouts. Finally, pick good locations instead of the “B” and “C” locations. Aldi has done a fine job of opening high quality, low price stores by simply opening in the outlots of Wal-Mart Supercenters. Perhaps Tesco could do something like Aldi on the West Coast.
That’s me standing in there with the guys who have lots more questions about the questions that were (and were not) asked and of whom (as well as who was not asked). My people on the ground in SoCal and Las Vegas have gone into Fresh & Easy with an open mind, not inclined to be as persnickety as I will be when I get there later this year. They each paid several visits and came out unimpressed for a variety of reasons. Neither hated it but neither loved it. Probably not as scientific as the published research but of course, going back to my first point, there is no guarantee that that was scientific either. (And yes, I do heartily dislike and distrust Tesco while recognising the principles of capitalism which are its guiding philosophy.)
I agree with Mr. Warady. Never underestimate Tesco. Fresh & Easy stores are five months old, some less. The hype that came before the opening was just that hype.
And the negative stories that we’ve seen lately are coming from people who have never opened a store, let alone started a new retail concept. They simply haven’t a clue as to what it takes to make such an endeavor work.
Once again, the critics have got it wrong. Yes, new retail concepts often do double their sales after customers have “discovered” the stores. And about questioning research done by a British firm, Tesco is a publicly held company with headquarters in Great Britain. Since many of the company’s stockholders are in that country it is perfectly logical for a British firm to conduct such research.
Having talked with dozens of customers coming out of Fresh & Easy stores over the last few months I’ve found that most absolutely love shopping in the stores. They like the selection, values, and convenient shopping experience. Many of the shoppers I’ve talked with visit the store two or even three times a week. The advice I have for anyone who thinks they have the answer to whether Fresh & Easy will be successful is to simply wait and see what happens over the next year or two. After all, it is a very different kind of food store.
Tesco is one of the smartest retailers in the world, so never count them out. The concept for the US entry is on the mark. The issue is their execution. The stores look too much like Eastern Europe and not American enough. To build hundreds of stores when there is much other work to do will only make the challenge greater.
As a consumer living in Vegas, I have shopped Fresh & Easy. My expectation was a store similar to Wild Oats or Whole Foods. I was let down. Salads with 50 grams of fat? Have you looked at some of your products? Working and stay-at-home mothers want healthier, not just easier. Maybe they ought to readdress their base and make it “Fresh, Easy & Healthy.” There just seemed to be too many “junk food” items that I can pick up at Target or Wal-mart.
Asking the folks who shop at Fresh & Easy what they think? How about asking the folks who don’t shop at Fresh & Easy? How about the folks who tried it once and never came back? And does it matter if their customers love Fresh & Easy but the margins are too low to cover the costs and produce a nice profit? Everyone will know if Fresh & Easy is a winner, because if it’s a winner, Tesco will roll out hundreds of new locations very quickly. It’s not worth copying a new concept until you know if it’s profitable.
And it won’t be “too late.” Being first, in the retail business, often means you help your competitors learn what mistakes to avoid. McDonald’s wasn’t the first burger chain. Wal-Mart wasn’t the first discount store. Nordstrom wasn’t the first department store. Amazon wasn’t the first online bookstore. Home Depot wasn’t the first home improvement chain. Neither Barnes & Noble nor Borders was the first book superstore chain. In every one of these cases, the first was way less successful than the copycats.
This morning, I read close to ten articles about Tesco’s ‘Fresh & Easy;” however, in spite of all the glowing PR, I still can’t see how a concept like that has the mass appeal to produce “billions” of dollars and take the lion’s share of American market.
First off: ‘Fresh & Easy’ isn’t a catchy name–it sounds more like some household cleaning product or something one would hang on the edge of a toilet bowl.
As an American expatriate, eight year resident of the UK, I never could figure out how Tesco was going to go head to head with the brutally competitive American retailers unless they found an anglocentric, niche market. The global markets where they are presently successful don’t have the same sort of demographics and national, regional, and local competition.
The countries in which they presently find success, marketing is basically like shooting fish in a barrel–even here in the UK.(The UK is slightly larger in landmass than Oregon–it’s easy to be a big fish in a small pond.
The ‘Fresh & Easy’ concept is most definitely targeting an upper middle-class market. Somehow, I don’t see the average American service or blue-collar worker perusing ‘Fresh and Easy’ for a prepared meal. I think they are more inclined to check out the Thursday newspaper ads for bargains at the local supermarkets.
The Tesco entrance into the US market is much the same as Victoria and David Beckham’s: They came in on a wave of PR, but didn’t manage to win the hearts and minds of the American public. It ain’t gonna’ work.