business news in context, analysis with attitude

A Guest column by Art Turock

Content Guy’s Note: There may be nobody better at helping companies develop new attitudes and strategies around the concept of sales growth than Art Turock…so when he sent me an evaluation of the strengths and weaknesses of Tesco’s new Fresh & Easy concept, I thought it was worth sharing.)

As a sales growth strategist, there are a range of strategic elements that shape my judgments of any retail format innovation. Two are worth exploring in any consideration of Tesco’s new Fresh & Easy Neighborhood Market format:

• Customer segments: Identifying target customers to serve as well as potential shoppers you’re willing to lose.

• Points of differentiation: Relevance of the retailer’s value proposition expressed in product and services for target customers.

Tesco has repeatedly done a masterful job of executing these elements, so I eagerly anticipated the same strategic astuteness to be evident in the shopping experience of its latest innovation, Fresh & Easy. Simon Uwins, chief marketing officer at Fresh & Easy, describes the value proposition as “fresh, affordable wholesome food located close to home” (especially in urban “food desert” sites). Industry pundits speculated that the format would serve upscale, health conscious, what’s-for-dinner shoppers. In concept, Tesco has identified a white space US retailers have largely ignored or underserved.

How well does the actual F&E serve this opening in the marketplace? After visiting the Anaheim and Arcadia stores, I give this new format a mixed evaluation - largely effective for the specific neighborhoods I toured, but missing the mark for the full potential white space available. Consequently, I’m anticipating Tesco has on the drawing board a second and third iteration for the range of neighborhoods and shopper needs comprising the larger white space including upscale neighborhoods.

Target customers.

Ignoring the pre-opening buzz, I found F&E to be designed for lower to middle income shoppers who want a convenient shopping trip, and aren’t loyal to national brands.

Surrounding the Arcadia store are small homes, apartments, and trailer parks. In close proximity are Hispanic, Asian, and price impact retailers, but few supermarkets (I saw one Ralphs). The Anaheim store is located in a strip mall that includes a G&S Liquor Store and the Anaheim Police Station.

An F&E strength is its minimalist operational efficiency, which conveys the impression of low price and simple to shop through thoughtful practices like:

• EDLP price, no loyalty cards or coupons.
• Abundance of private label products for which they can lower prices while still deriving decent margins.
• Tray-packed grocery products and pre-packaged produce that reduce stocking costs and checkout time.
• Modest labor costs with no service in deli, bakery, or meat. Newspaper job ads suggest the stores will have three full-time personnel - a store manager, a team leader, and a customer assistant - as well as part-time cashiers and stockers.
• Ten self-checkout lanes to speed payment.
• About a 3,500 SKUs edited assortment simplifying product selection.
• Uncluttered aisle space so as not to impede speed of traversing the store.

What shoppers will not be attracted to F&E? First, budget-constrained shoppers who seek national brands will not be attracted by superior prices for bulk shopping trips.

As I was entering the store for my second tour (all right, I’m a bit compulsive), a woman, probably in her sixties, muttered an unsolicited critique, “Don’t bother going in.”

“Now why do you say that?” I asked.

“They’re expensive.” She described a Stouffer’s product selling at F&E for $2.49 that she could get for 99 cents at the Ninety Nine Cent store.

Another shopper, male in mid-40s, commenting on the cut produce items, told me, “They have high quality products so it’s a bit pricey.”

Without a rigorous price comparison, I was led to at least question whether budget constrained shoppers will trade off the convenience of the shopping experience for cheaper prices available elsewhere. Tesco admits it does not intend to compete on prices against the likes of Wal-Mart.

In addition, the assortment is not distinctively tailored for Hispanic shoppers, either in grocery, freshly cut meats and produce (although Tesco claims to have added 250 Hispanic products to their original assortment). There is no Hispanic signage.

Finally, the biggest missed opportunity in the potential white space involves serving the “what’s for dinner” shopper seeking a solution superior to supermarkets on two counts—efficient shopping trip plus quality and variety of easily prepared meals.

Located at the rear of the store, F&E’s 24-foot ready-to-heat prepared foods contain a limited range of dishes, principally chicken, macaroni and cheese, pasta, pizza, soup, and 2-3 beef items. In addition, a refrigerated end cap by the entrance contains sandwiches, sushi, desserts, and salads for grab and go shoppers. There are no hot take-home-and serve items, not even hot rotisserie chicken. Original meal solutions for gourmet appetites are sparse.

I left pondering these questions, “Did they really need to involve a chef with a background in fine-dining restaurant to develop this menu? Did Tesco intentionally design this store with willingness to lose the affluent what’s-for-dinner shopper? Will a different version of this store be developed for upscale neighborhoods like Scottsdale?

Points of differentiation.

Let’s examine how the shopper experiences express the differentiators characterizing the brand “fresh” and “easy.”

Fresh. For communicating the freshness of its offering, F&E gets a mixed scorecard. On the plus side, there’s plentiful signage explaining “enjoy by” dates in bakery, and the daily replenishment of produce and other perishables.

However, Daymon & Associates estimates about 30% of total items are perishables. In a 2006 white paper, Thinking the Unthinkable, the Hartman Group cited research pointing to “the increasing consumer belief that packaged foods—things found in a box, jar, pouch, carton, can, or bag - are, by definition, inferior products; products of lesser quality…” Furthermore, many consumers don’t accurately distinguish between “packaged” and “processed” items in the grocery aisles, but consider “fresh” as items stocked in the rapidly expanding perishable categories. By this standard, a shopper might conclude F&E has less fresh assortment than Safeway, Stater Bros., or Ralphs, which stock larger selections of produce, meat, and bakery item.

Easy. F&E illustrates thoughtful choices in creating an easy shopping trip, with the combination of small stores, speedy checkout, and minimal redundant SKUs. The edited assortment in most categories consists of a couple of national brands and the chain’s private label. While Tesco says that it national brand-private label ratio is 50-50, Daymon Associates estimates that it could be closer to 80 percent private label, though the 100 percent private labeling of all produce items could skew the numbers a bit.

The make or break factor determining F&E’s ultimate success will be how well the private label line gains a compelling brand reputation, much like Trader Joe’s. The accuracy of edited assortment depends on store brand items gaining favorable reception from first-time shoppers who then spread enthusiastic word of mouth endorsement. If shoppers reject the private label items, the ease of edited assortment quickly becomes an irrelevant and unappealing assortment.

F&E’s most publicized attribute is a health benefit—no artificial colors or flavors or added trans fats. But when 80% of items are store brands, they had better have a sterling reputation for two more attributes--great taste or uniqueness. Earning that reputation in part arises from staff well trained to offer frequent and informative sampling. At grand opening, primary sampling was done at a Kitchen Table station in the rear of the store, but with no display of the actual packages, no unique products being sampled (I tried apples and strawberries), no mention of the F&E name. An important branding touch point, sampling, is being squandered during the one chance to make a great first impression.

I have enormous respect for Tesco’s impressive track record and extensive array of retailer capabilities. Consequently, I suspect the Fresh & Easy stores I toured were intended to address needs of their specific neighborhoods, and that additional store versions will be customized for more upscale neighborhoods to capitalize on the full white space opportunity. Tesco hasn’t been a one-size-fits-all operator, and so retailers should anticipate more customer-centric innovations as the full fleet of stores emerge.

To receive a copy of Art Turock’s full critique of Fresh & Easy, plus his strategic recommendations on emerging opportunities that still exist for other food retailers based on the limits evident in the current version of this neighborhood market, please email him at or call 800-473-8997.

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