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It was supposed to happen Thursday, but The Telegraph in the UK reports that Tesco has already opened its first Fresh & Easy Neighborhood Market store in Southern California. The unit has been unveiled in Hemet, a small city about 70 miles from downtown Los Angeles.

Five more are supposed to open by the end of this week in various Southern California locations, followed by five next week in Las Vegas and then one in San Diego.

The Financial Times reports that Tesco “has staked its fortunes on an innovative new store that is about a quarter of the size of the traditional US supermarket, building on the success in the UK and Europe of its Tesco Express local stores. Some elements of the Hemet store will be familiar to UK shoppers. But the store also includes a ‘kitchen table’ where a staff member heats up samples of prepared foods such as pizza and chicken curry. In a further innovation, all the check-out registers require customers to scan their own goods, with staff on hand to assist.

“More than half of the products are being sold under Fresh & Easy's own label, from staples such as butter and sugar to ‘wild blueberry muffin mix’ and ‘udon noodle salad’. Tesco is also taking an aggressive approach to pricing of basics such as milk and eggs.”

And, FT writes, “The Hemet store has attracted intense interest from Tesco's competitors including, on its first day. a group of five note-taking visitors from Wal-Mart, which operates a Supercenter with groceries less than two miles away.”

They probably won’t be the only visitors. In California, the Press-Enterprise reports that Tesco’s Hemet store is “taking on six big-chain grocery stores within a five mile radius -- four Stater Bros., one Albertsons and one Vons -- along with a Henry's Farmers Market about three miles away.”

No surprise, Tesco’s unveiling of the Fresh & Easy Neighborhood Market concept this week is getting an awful lot of media attention on both sides of the Atlantic. This despite the fact that, according to the Financial Mail, Tesco CEO Sir Terry Leahy has ordered a news blackout, swearing employees and suppliers to silence in advance of the openings. The early opening of the first store seems consistent with the kind of disinformation program that Tesco has been running to keep competitors – and even some suppliers – in the dark about its total strategy.

The Financial Mail reports that the windows of two of the stores, in West Covina and Anaheim, are blacked out, with security guards on duty, and there seem to be concerns that “leaks would provide ammunition for critics who have labelled Tesco as 'Britain's Wal-Mart'.” And, the paper reports, “Tesco's softly-softly stance is partly understandable with US giants such as Wal-Mart and Safeway shoring up their defences. Safeway, with 380 Vons stores in the region, is diverting investment into refurbishing stores close to new Tesco outlets.”

However, that doesn’t mean that Tesco is being completely mum about what its plans are. In fact, it has posted on – and provided a link from its own site – a video that previews some of what the store has to offer, including a major emphasis on private label, wrapped fresh produce, prepared/packaged meals, fresh fruit juices, sushi, and free recyclable shopping bags.

The video can be seen at:

The Financial Mail also reports that the “UK supermarket giant has already succeeded in aggravating some locals. Trade unions are at boiling point even before the company has opened a single store, irritated by anti-union sentiments expressed in early job adverts.”

Also from the Financial Mail: “Most store managers that Financial Mail spoke to at Trader Joe's, a chain seen as a direct rival, said they had been approached by Tesco recruiters or knew someone who had.

“Tesco will focus on fresh, healthy, additive-free food with no added trans-fats and no artificial colours. Fresh & Easy will also seek to undercut rivals, whose prices in California are up to 30% higher than in other states” … “'Tesco is going to take everyone by storm,' said Burt Flickinger, an American retail expert. 'California has a high population density and a high traffic density and Tesco will seek to use that to draw sales and volume. For Tesco, it will be about having ‘great’ value compared with competitors' ‘good’ value.' Flickinger said its quality benchmark would be above Safeway and below Whole Foods Market, while beating both on price.”

Meanwhile, the Los Angeles Times notes that the Tesco openings this week are only part of ramped up grocery competition in the region:

“Whole Foods Markets Inc. is opening a two-story emporium on Arroyo Parkway in Pasadena on Wednesday that will be its largest store west of the Rockies. More than 50% larger than a typical Ralphs or Vons grocery, it will include a wine and tapas lounge, a massage room, an in-house fresh jam and jelly center, a sandwich bar and a seafood counter serving ceviche and shrimp cocktails.

“A day later, British retailer Tesco will launch its U.S. chain of small Fresh & Easy Neighborhood Market stores with six Southern California branches. About 75 more are to follow locally over the next year.

“In stores the size of a typical Trader Joe's, Tesco said, it will offer a California-oriented blend of prepared foods, fresh (and often organic) fruits and vegetables, and wine. It's aiming for in-and-out service akin to convenience stores.

“And on the following Sunday, Sprouts Farmers Market, a Phoenix-based purveyor of ‘natural’ and organic food, will open a store in Irvine, its third in the region. Additional stores are planned for Tustin and Seal Beach next year.”

And, the Times notes, “Their traditional competitors are not standing idly by. Ralphs now has 44 Fresh Fare stores that sell more gourmet wines and meats as well as heirloom tomatoes and other produce once found mainly at farmers markets. Vons owner Safeway Inc. now pitches its own ‘O Organics’ brand and a greater selection of prepared food. Stater Bros. recently added 120 products from the Full Circle brand of ‘natural’ and organic goods.”

The upshot of all this activity is a supermarket business that is exceedingly competitive – albeit mostly at the upper end of the scale where price doesn’t seem to as matter as much. What makes Tesco’s Fresh & Easy stores interesting – and probably more risky – is the fact that the company seems to be trying to have it both ways, with stores that are both appealing to discerning palates and value-driven.

Again, from the Financial Times:

“The discount element is reflected in the simple, almost warehouse-style interior and in the use of utilitarian shelf-ready cartons for goods such as sugar or corn oil.

“Unusually for the US - though not for the UK and Europe - fresh vegetables and fruits are packaged and displayed without the energy-consuming chiller cabinets used in a traditional supermarket.”

And here’s an indication, from FT about how far the retailer will go to stress its environmental consciousness: “The Fresh & Easy brand stresses all natural ingredients and environmental awareness - the green- painted stores include parking reserved for hybrid cars and bicycle racks and the new distribution centre will have one of the largest solar roofs in the US.”

The Financial Mail draws the comparisons in dramatic terms: “A big publicity push for the chain will come next month when the store-opening programme begins in earnest and includes its highest-profile site at Hollywood Boulevard. Star names engraved on the pavement outside include Raquel Welch, Charlie Sheen and Bob Hope.

“In stark contrast, an outlet in gang-riddled Compton, scheduled to open in four months, is still under construction. It is close to a store that was raided six weeks ago by a shotgun-wielding robber who held a member of staff to ransom before escaping. The mobile phone store opposite is guarded by an ex-Marine armed with a Heckler & Koch pistol.”

In the UK, The Independent reports that as Tesco opens stores this week, it will “be picketed by a fearsome coalition of community activists, church leaders and union organisers in LA whose exploits include preventing Wal-Mart from gaining a toe-hold in a black-majority inner-city area.

“The Alliance for Healthy and Responsible Grocery Stores has no objection to Tesco's stated goals – to serve impoverished areas, provide well-paying jobs with health benefits and advocate corporate environmental protection.

“But the activists are not sure yet whether to take Tesco at its word.”

KC's View:
The early opening really isn’t much of a surprise. In various conversations with Tesco suppliers, I’ve heard as remarkable range of stories and accountings of what Tesco’s strategy is believed to be…so much so that I wondered if some of it was being orchestrated.

It is way too early to pass judgment on whether the Fresh & Easy concept is going to work, but it isn’t too early to suggest that Tesco’s US efforts are going to force everybody to raise the level of their operations. Tesco is too good, too formidable and has too much money invested in this process to expect anything other than a rash of innovations – or imitations – from other players in the markets that Tesco is serving.

Sounds like fun.