business news in context, analysis with attitude

Notes & commentary by Kevin Coupe

REDONDO BEACH, CA. -- Having had the night to think about – and sleep on – first impressions of the Fresh & Easy Neighborhood Markets opened by British retailer Tesco in Southern California this week, here are five things to think about when considering the probability of their success.

1. The format is unique…but is it unique enough to generate consumer advocacy? It was just yesterday that MNB reported on a new IBM study suggesting that relatively few consumers take on an advocacy role when it comes t the supermarkets where they shop – “advocacy” being defined as the kind of customer “who would recommend their grocer to others; would not switch if another valued grocer moved into the area and would increase purchases if the grocer offered other products.” Which under the circumstances seems like a timely notion to consider when looking at the Fresh & Easy stores.

Of course, it is possible that Tesco doesn’t need that level of commitment from its shoppers, that it just needs to nibble away at the market shares enjoyed by a number of its competitors. But I don't think so. Whether it is the strategies and tactics employed by Tesco in rolling out the stores, or the hype generated by the media (including MNB, by the way, to be absolutely honest about it) in covering them, the Fresh & Easy stores would appear to be aiming to create transformational shopping experiences.

2. Will consumers accept the high level of private label? The jury will be out on this one for some time. Other retailers have tried and failed to convert Americans to a more European acceptance of own-label shopping, though to be fair, Trader Joe’s certainly has managed the trick.

But there seems to be a difference between Trader Joe’s and Fresh & Easy at this point in time. Trader Joe’s not only is almost 100 percent own-label, but its shelves have a far denser mix of product. Fresh & Easy is only 50 percent own-label, with what appears to be a far more edited selection. I continue to believe that Tesco will shift a higher percentage of products to private label if the Fresh & Easy stores are successful, but the question is whether the company has the mix right for US consumers. And while a lot is being made of the enthusiastic lines that formed yesterday as a number of the stores opened, it is important to keep it in perspective.

3. Why is the demo counter facing the back wall? This I just don't get. Tesco talked a lot – as much as it talked about anything pre-opening – about the “Kitchen Table” where people could taste various products being sold in-store. But not only is the ‘Kitchen Table” just a sampling counter, but it faces the back wall, not the front door where it could welcome and engage the entering customer. There’s probably a really good reason for this, seeing as the folks at Tesco are a lot smarter than I am…but it seems to me that they are burying what could have been a tangible point of difference for the stores.

4. Why is Tesco ignoring two of its strengths, online shopping and database marketing? This may just be temporary, as Tesco almost certainly has additional plans that it hasn’t revealed yet. But the fact remains that two of Tesco’s real strengths in the UK are its online shopping platform and its ability to do database marketing, neither of which are being done in the US.

One other note, by the way, about things not offered by Tesco. Who decided it was a good idea not to offer customers the ability to get cash back at the checkout, and instead refer them to a nearby ATM? Just curious.

5. What do you think? Here are some pictures…


KC's View:
None of these comments are meant in any way to diminish what Tesco has accomplished, albeit still on a small scale, with its Fresh & Easy stores – these stores actually are something different, a unique and innovative take on the food shopping experience. That’s no small achievement.

However, it is possible to be overcome by the hype. One of the press accounts of the openings yesterday noted that before the doors opened at 8 am, somebody shouted, “Open the doors, we’ve been waiting 30 years for this store!”

Give me a break. Thirty years ago, Tesco wasn't the Tesco that we know today…in fact, it was just beginning the transformation from “pile it high, sell it cheap” retailing to become the integrated, sophisticated, multi-channel powerhouse that is the world’s third largest food retailer.

Which suggests two lessons. One, don't get caught up in the hype. Two, don't look at Fresh & Easy as an end product, but just the first step in Tesco’s US adventure.