Straddling Channels

Will less mean more to American consumers? Now that international retail giant Tesco has served up the first batch of its much anticipated Fresh & Easy Neighborhood Markets in Southern California (which were soon joined by stores in Las Vegas and Phoenix, and totaling 200 units by the end of 2008), many are left to ponder the new player's proposal -- a simpler way of shopping and operating in the western U.S. markets that it has carefully studied and intends to conquer.

Compressed into 10,000 square feet of selling space and with only about 3,500 SKUs (approximately half of which are Fresh & Easy private-label items), the stores aim to bring 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, that terminology prompted some analysts and would-be customers to liken the retail concept to a specialty market; many even speculated the stores would be similar to Trader Joe's. Although they do incorporate some elements of a specialty food store, offering fresh, unique prepared foods and meals created in its own "kitchen," the Fresh & Easy retail formula turns out to be more focused on fulfilling "everyday shopping" needs -- in an environment with exposed, warehouse club-type ceilings and concrete floors.

"Fresh & Easy is very different -- it's less about specialty and more about capturing the mini fillup trip," said Jonathan Dodd, global director of G2's retail and shopper practice, a global activation marketing agency network based in New York. He also maintains that Fresh & Easy has more of a "semi-soft discount presentation" and less of an "emotional engagement" than he expected, although he said Tesco will continue to tinker with the concept.

"They are a very shopper-centric business," he said. "And wouldn't it be fascinating if they straddled the grocery and c-store channels in a way that nobody else has done?"

The world's third-largest retailer (behind Wal-Mart and Carrefour) and England's largest, Tesco has attracted the competitive "fascination" of both of those channels with its American presence; whether it attracts their customers remains to be seen.

But the company claims to have done years of homework to give American shoppers a totally unique design that is nothing like the highly successful multi-channel chains it operates (one of which is a convenience store format, Tesco Express) in England. The Fresh & Easy stores were "designed specifically for Americans, from the way they told us they live their lives here," said Simon Uwins, chief marketing officer. Uwins came over from England to get to know his company's potential American consumers, and has made his home in the El Segundo, Calif. area, headquarters of the U.S. division. "There's nothing like this anywhere in the Tesco group," he added. "It's designed from scratch from what we've heard here."

Some of what they've heard is that consumers don't want too many choices in 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 very simple: to be able to get in quickly, easily find fresh meals and other grocery staples, and get out, pain-free. For example:

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

-- The price strategy is "everyday" low prices, "about 20 percent less than the major supermarkets," according to Uwins.

-- Customers walk into the stores at the produce aisle, and are led naturally past fresh prepared meals, then meat and cheeses, followed by milk and eggs, sandwiches and boxed fresh snacks, cold drinks, wine and fresh desserts. Dry groceries are located in the back aisles of the store -- so customers need not walk all around the store if they're just shopping for a fresh, prepared meal.

-- All fresh products (including produce with the exception of bananas) are sold in see-through packaging that is date-coded on the bottom; bananas are sold for 18 cents each.

-- Reusable plastic crates or cardboard shippers keep all items neatly stacked and easily stocked on very deep shelves, with much less labor required, and all cartons are recycled by a vendor 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, Uwins said.

-- 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 they are not in line with the concept of keeping the checkout operation simple, according to Uwins.

-- No candy, gum or magazines are sold at the checkout.

It's all about keeping the Fresh & Easy format simple (and relatively small) so it can fit a multitude of local neighborhoods. "We want to serve every neighborhood irrespective of the type of household," Uwins stated. "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 convenience stores? Obviously, it's much too early to predict with any accuracy, but a c-store owner located directly across the street from one of the first Fresh & Easy stores opened in L.A. told CSNews that "so far, they have increased traffic to my store. I don't believe they will take away my customers; in fact, just the opposite has happened -- they've brought me new ones."

Dodd agreed, saying "It's hard for me to see c-stores going toe-to-toe with the Fresh & Easy offering; it's arguably a grocery proposition that attracts convenience needs."

Indeed, Fresh & Easy does not compete in two traditional c-store draws -- it does not sell any tobacco products whatsoever, and so far, there are no plans for any gasoline service (or petrol as it is known in England). Regarding the absence of gas pumps, Uwins stated: "I think we have our hands full at the moment -- we're concentrating on making sure these stores work properly."

And yet, petroleum marketers shouldn't underestimate Tesco, especially as it moves the Fresh & Easy concept forward. "I think it's important to keep on file that Tesco has lots of experience with petrols, and if they wanted to expand here with it, they can go left, right and center, because they know all the variations," said Brian Sharoff, president of the Private Label Manufacturers Association (PLMA), who has watched Tesco closely, especially due to its nearly 50-percent emphasis in Fresh & Easy private label.

Sharoff believes that some "dynamic" c-stores, especially those with advanced strategies for fresh, prepared meals on-the-go, may now be inspired by Fresh & Easy "to accelerate their plans and perhaps make some adjustments so that consumers will see them as an alternative to Fresh & Easy stores." Only time will tell if that will be a necessary tactic.
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