FEATURE: Tesco Opening: Fresh, easy, and different

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FEATURE: Tesco Opening: Fresh, easy, and different

By Renee M. Covino, Convenience Store News - 12/01/2007
As widely anticipated, international retail giant Tesco is clearly putting the "less is more" theory of food retailing to the test on U.S. soil, via the first batch of its much-anticipated Fresh & Easy Neighborhood Markets, opened in Southern California last month.

The California stores, many of which opened to large crowds and strong initial traffic, are being joined by locations in Las Vegas and Phoenix. Tesco says it will have a whopping 200 units up and running by the end of 2008.

Compacted into 10,000 square feet of selling space and with only about 3,500 SKUs, approximately half of which are Fresh & Easy (F&E) private label items, the stores aim to deliver shoppers fresh, easy, and affordable meal choices, as well as staple grocery items in a streamlined "neighborhood market" format.

Before the unveiling in early November, analysts, likely competitors, and would-be customers were expecting Fresh & Easy to resemble a specialty format, with many even speculating the stores would be similar to Trader Joe's.

But the industry buzz now is that while it exhibits traits common to Trader Joe's and other specialty stores (most especially its offering of fresh, unique prepared foods and meals that it creates in its own off-site "kitchen"), the Fresh & Easy retail formula is actually more tuned to an "everyday shopping" experience, with warehouse-like ceilings, concrete floors, and a bare-bones store ambiance that no one had anticipated.

Learning curve

"Fresh & Easy is very different -- it's less about specialty and more about capturing the mini fill-up trip," observes Jonathan Dodd, global director of the retail and shopper practice at G2, a global activation marketing agency network based in New York.

Dodd maintains that Fresh & Easy has more of a "semi-soft discount presentation," and less of an "emotional engagement," than he expected, which he recognizes as being part of intentional strategies that Tesco will continue to weigh as it goes through a learning curve.

"I've got every confidence that they'll be able to evaluate and understand how to evolve the offering as they move forward," says Dodd. "They are a very shopper-centric business. And wouldn't it be fascinating if they straddled the grocery and c-store channels in a way that nobody else has done?"

No doubt, as the world's third-largest retailer (behind Wal-Mart and Carrefour) and England's largest retailer, Tesco has already attracted the competitive fascination of both of those channels (but especially grocery) with its American presence. Whether it attracts both channels' primary customers by filling a gap in the market remains to be seen.

The company, meanwhile, claims to have done years of homework to give American shoppers a totally unique design that's nothing like the highly successful multichannel chains it operates in England.

The Fresh & Easy stores were "designed specifically for Americans, from the way they told us they live their lives here," says chief marketing officer Simon Unwins, who initially came over from England to get to know his company's potential American consumers, and has now made his home in the El Segundo, Calif. area, where the operation is headquartered.

"There's nothing like this anywhere in the Tesco group," he adds. "It's designed from scratch from what we've heard here."

And some of what they've heard is that consumers don't want so many choices in such a mammoth shopping space, nor do they want stores that are illogically laid out, especially when looking for meals or snacks on their lunch hour, or when picking up dinner on the way home from work or school. What they wanted from a neighborhood store, they told Tesco, was simple: to be able to get in, easily find fresh meals and other grocery staples, and get out, quickly and without pain.

From this research, the main theme at Fresh & Easy naturally developed into "keeping it simple," both from a customer point of view and operationally, according to Unwins.

For example:

--All stores are currently identical in terms of layout, product range, and prices, regardless of their neighborhood locale.

--Prices are everyday low prices, which Unwins says are "about 20 percent less than the major supermarkets."

--Reusable plastic crates or cardboard shippers keep all items neatly stacked and easily stocked on deep shelves, with much less labor required. All cartons are recycled by a partner that set up a recycling facility in Fresh & Easy's distribution center; this is the key way the chain is able to keep prices so much lower than "regular" grocers, according to Unwins.

--There are no loyalty cards, because consumers told the company they were cynical about the concept, and had too many of them to deal with already.

--Regarding payment, Fresh & Easy takes cash, credit, and debit cards, but no checks, because checks weren't in line with keeping the checkout operation simple, says Unwins.

--No candy, gum, or magazines are sold at the checkout, because moms said their kids pestered them to buy such items, and, again, the goal was to move customers through the registers quickly and easily. (These items are sold, however, along a back wall right before customers get to the checkout area).

--Customers have their choice of checking out entirely by themselves, with the full scanning and bagging help of a store clerk, or anywhere in between those two options.

"We want to serve every neighborhood, irrespective of the type of household," notes Unwins. "They're not designed to make that much money [per store]; they're designed so that we can produce a lot of them and make them very accessible to people."

So what effect will these neighborhood stores have on traditional supermarkets? "It's giving everybody food for thought," says G2's Dodd. Kroger executives were spotted walking the aisles and taking notes on opening day in Los Angeles. But Dodd doesn't believe there will be many knee-jerk reactions from national players -- at least not until after customers have voted in a year or two with continual foot traffic.

Competitive regional reaction will undoubtedly come first.

"I think the food retailers who are most concerned are those that operate in the markets Tesco has said it will enter," says Brian Sharoff, president of the New York-based Private Label Manufacturers Association (PLMA), who has watched Tesco closely, especially due to its nearly 50 percent emphasis on private label. "Having said that, nobody I know is smart enough to know what the full impact will be; it will rely on consumer behavior. The format is different from what some people thought it would be, so it will take time to evolve."

Dodd recognizes that many strong food players "were already awake to improving and refining their meal offerings anyway, but Tesco might tune them in differently now."

Tesco's presence has certainly encouraged everyone to be on their "A" game. "They've shown they're extremely professional, very savvy, and they didn't bring this Fresh & Easy format to [the United States] by accident," says Sharoff. "Everything they do is after careful evaluation of a marketplace.

"But Tesco would be the first to admit, none of this guarantees success," he adds. "There are many food retailers right here who are equally savvy, but with a hometown advantage." Only time will tell if U.S. consumers will want out-of-town player Fresh & Easy to be their neighborhood market.