Yucaipa Buys Fresh & Easy. What’s Next?
Tesco’s American nightmare is at an end. Yesterday, Ron Burkle’s Yucaipa Companies announced it was purchasing 150 Fresh & Easy Neighborhood Market stores along with the company’s distribution and production facilities in Riverside, CA. Some 4,000 current employees of Fresh & Easy will keep their jobs as a result of the deal, which is expected to close within three months.
The deal is being valued at £150 million (roughly $235 million) and Yucaipa will receive a loan for more than half of that (£80 million) from Tesco. The Wall Street Journal reported that Tesco would not receive any money in the deal and was "essentially paying" Mr. Burkle’s company to take on liabilities associated with Fresh & Easy.
The chain, which offered prepared meals in stores that were completely self-checkout, made numerous attempts to correct missteps since opening its West Coast locations, but none were sufficiently to convince Tesco’s management the investment was worth continuing. The British retailing giant is said to have lost around $2 billion during its five-year attempt to make it in the U.S.
"Tesco should be applauded for giving their customers an affordable, healthy, convenient shopping experience. Its dedicated employees and great base of customers give us a solid starting point to complete Tesco’s vision with some changes that we think will make it even more relevant to today’s consumer," said Mr. Burkle in a statement. "We plan on continuing to build Fresh & Easy into a ‘next-generation convenience retail experience,’ providing busy consumers with more local and healthy access for their daily needs."
No announcement was made concerning the new name of the chain going forward, although speculation has arisen that Yucaipa, which owns the Wild Oats brand name, would use that as the banner. An unnamed Los Angeles Times‘ source said to be familiar with thinking on the subject said, "There will be an announcement about Wild Oats in the coming months. It will not be the rebranding of the Fresh & Easy stores as Wild Oats."
Discussion Questions
What do you think Yucaipa will do to build Fresh & Easy into the “next-generation convenience retail experience” described by Ron Burkle? Will these steps be enough to allow Yucaipa to succeed where Tesco failed?
Not sure what’s next. We’ve heard all the rumors about Wild Oats, spinoffs of some to Aldi or others. Whatever happens, it will be an improvement. Ron, I think, was a little too nice in complimenting Tesco on the shopping experience it brought to the U.S.A. I can see doing a Wild Oates concept in many stores, obviously closing a bunch of them and spinning off to dollars stores and Aldi. I’m sure Ron has thought this through and will carry out the usual private-equity programs.
Converting “Fresh & Easy” into the “next-generation convenience retail experience” is an intriguing vision. But Ron Burkle has drawn a golden rainbow that will be a challenge to achieve. Perhaps there is a smart fall back position in Ron’s playbook.
Can he accomplish his retail dream? Let’s hope so – otherwise he has the skill to move his newly purchased stores into a financial real estate ploy.
Fresh & Easy could have been a model for food retailing in the 21st century except for three small issues – sub-optimal locations, off target merchandising and bad timing. The idea that consumers don’t want or need to go to a full-line supermarket or supercenter everyday is a good one. The idea that a food store can actually make life easier for its shoppers is an even better one. What I envision as a successful approach to the new small format retail food store is a combination of the old superette that had a market-tuned selection of national and store brands, and an urban bodega that offers full and partially prepared meals. And, it needs a passionate staff, not dissimilar to the baristas at Starbucks. Add a distribution system that ensures product freshness and you have yourself a winner.
Not a surprise in that the rumor about Yucaipa’s purchase had been around for some time. Also, the price was really a surprise especially since the purchase price is a loan from Tesco.
The vision outlined is a grand one, but not sure that it can be achieve based on the location of many of the units. In my experience large format retailers have difficulty in successfully operating smaller format locations. This is especially true if they integrate them into the parent company. Kroger has been successful by creating and maintaining a fairly dedicated c-store business unit.
The devil is in the details in these types of “transfer/sale” agreements, and there are few details. Although Tesco had a good concept, they failed to gain relevancy, and the longer they remained in the market the more obvious it became that they could not see the forest through the trees.
The announcement is good PR for both companies—well, as good as Tesco can expect. I’ll be looking forward to Burkle’s “next generation convenience retail experience,” since he’s been successful in developing niches and categories. The real gem for Yucaipa is the state-of-the-art, eco-friendly distribution and production facilities in Riverside.
Fresh & Easy should’a, could’a worked and now, Burkle will be competing against everyone from Walgreens to Walmart in the small format convenience category. Fresh & Easy’s locations are problematic, but I can see how a stronger message and clearer focus on organic, healthy offerings ala Wild Oats could change the game.
The comments in the LATimes article (and I thought they had an unusually good analysis, so props to them) tended toward the idea of upscale convenience/”European” market (however you may interpret a cliched term such as that), so I’ll jump on the bandwagon as well. Imagine a 7-Eleven with coolers full of mircobrews instead of Bud and gourmet sausages instead of 99¢ hot dogs. Which all sounds swell, save for the fact of the locations, which are concentrated in more downscale areas, and which—of course—are the one component Yuicapa can’t do anything about…so we’ll see. Good luck, Ron.
This one is puzzling to me! Yucaipa usually is very good at analysis prior to a purchase so we will have to see if there is a retail model that is not in business in the area or has not been tried before. Even the real estate is questionable in this move.
I see three concepts for the Fresh & Easy stores. First is a hard discounter which has been very successful in Europe. Second is a limited assortment format like Aldi. Third is a smaller format supermarket with limited service. The stores will be re-banded and new color scheme inside more in line with American tastes. Expect some fixture changes. There will be an increase in branded merchandise and a decrease in Private Label. Never, never bet against Yucaipa. They very talented and experienced people with years of experience.
It will be interesting to see what Keyes tries if he is involved. I live in Reno, NV and remember some years ago Mr. Keyes was CEO of Blockbuster, his prior gig being at 7-Eleven.
In an effort to reinvent Blockbuster, Reno was a test market. They installed in-store electronics departments with televisions, video games, etc., for sale. They also installed in-store popcorn machines, soda fountains, coffee, milkshake machines, etc. It was interesting, and fairly well executed, but not well received by customers.
I hope for the best. I have come to like more about Fresh & Easy as I’ve tried more of their products. Yeah they were crummy from a store walk perspective, but some of the ready made foods and bakery items were very good, and the produce seemed to actually be okay quality, just odd presentation and you never knew how fresh it would stay for how long, despite the date coding on each piece. I am a little disappointed Sacramento is the only, so far, disclosed “full market exit” area since those stores were closest to me. I feel bad for their Lincoln Store, it was quite an effort with a really good manager.
Being an avid customer, I think the Fresh & Easy concept still has legs and won’t see radical change.
I reckon that by closing every fifth store the majority of locations remaining will be in the black or pretty close to it. I would assume they will do away with any expensive Brit-expats still around, shut down the expensive El Segundo HQ by moving all operations inland, get liquor licenses for all remaining locations, and carefully raise prices as they do with their Express locations.
The biggest mistake they would make is to alienate the current customer base who have come to appreciate their niche as a private-label-heavy yet high quality compact supermarket.
Burkle’s opportunity is to sell them even more while doing a better job of communicating the F&E value proposition to other high-quality customers.