Fresh & Easy Expanding at Slow & Steady Pace

Discussion
Sep 09, 2009
George Anderson

By George Anderson

When Tesco first announced it was bringing a new small store
format to the U.S., there was a good number (including some inside of Tesco)
who believed the company would reshape food retailing in the U.S.

Later, when Tesco’s Fresh & Easy format got off to a less
than smashing start, there were plenty around who saluted their own prescience
in predicting the British retailer’s all too certain failure.

The truth of the situation, as usual, probably lies somewhere
between a retailing renaissance and ruination. According to a Financial
Times
report, Fresh & Easy has put the second
stage of its expansion in northern California “on hold” while continuing
to acquire space and open locations in southern California as well as the
Las Vegas and Phoenix markets. The retailer has opened 125 stores in two
years in the southern California, Vegas and Phoenix areas.

While the chain has not been pushing to open store sites in
northern California, it has continued to acquire space for 50 stores in Sacramento,
San Francisco and San Jose. Commercial real estate professionals say Fresh & Easy
has shifted from a strategy of leasing to looking to purchase space.

Discussion Questions:
What do you make of Tesco’s real estate strategy in the U.S.? Are you
more or less confident about Fresh & Easy’s chances for success than when
they first entered the market?

Please practice The RetailWire Golden Rule when submitting your comments.

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12 Comments on "Fresh & Easy Expanding at Slow & Steady Pace"


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David Livingston
Guest
11 years 8 months ago

Seems to me that Fresh & Easy has had blunder after blunder from site selection, store operations, merchandising, front-end service, pricing, and public relations. Their sales per square foot and individual store volume barely qualifies them as a competitor. They have been an ineffectual competitor in every way possible. For a retailer to fail at every level as has Fresh & Easy, it’s as though they were doing it on purpose. I recently attended a seminar on Fresh & Easy and the room was filled with laughter as the analyst that presented pointed out all the amateurish errors made. My confidence level in Fresh & Easy is zero.

Joan Treistman
Guest
11 years 8 months ago

On a recent visit to southern California I shopped in a Fresh & Easy store. As a US consumer, I have to admit I didn’t understand the concept. My British friend explained it to me and I still found the shopping experience unsatisfactory. The store shelves looked depleted with minimal choice per category, the merchandising was unattractive, and ultimately the value for the money (mine) was unapparent.

Based on my recent experience, the article presented by RetailWire suggests that Tesco is investing in real estate rather than retailing. If the real estate market improves, their ROI will offset any losses in the retailing venture.

I’ll be interested to see what other members of the panel have to say about this initiative.

Ryan Mathews
Guest
11 years 8 months ago

I think it’s always better to crawl before you walk and in this case, Tesco needs to crawl slowly and carefully. There is a good deal to get better at before they run off and expand much further. If this was a pure real estate investment play, they would have been better off investing in condos in Miami. The price is still low but that market shows some promise of eventually recovering.

Aaron Spann
Guest
Aaron Spann
11 years 8 months ago

I still believe their choice of markets was poor. Rarely could one look at Southern California, Las Vegas and Phoenix as typical American trade areas. I understand their cluster from a logistical point but the true, time-tested American Beta Sites are East of the Mississippi. Places like Ohio, Michigan and some of the upper-South states are more representative of the actual American Consumer.

I’m just saying they could expand to some new markets and maybe find better success as it sounds like they didn’t really do their homework when selecting entry points.

Mark Barnhouse
Guest
Mark Barnhouse
11 years 8 months ago

David Livingston is absolutely correct on this one. Fresh & Easy is Tesco’s Waterloo–but this time, the Brits are playing the role of the French. In addition to the execution woes cited above, I’m hearing reports from a co-worker who recently visited locations in Riverside of dirty stores, dirty uniforms (e.g., unwashed after several wearings), and merchandise that is well past its sell-by date. F&E will never succeed unless they can manage to get these very basic elements right.

Then, if they can manage that, they will have to figure out exactly what kind of store they ought to be–not the current model, but a new one. F&E needs to serve an actual need for Americans, a need currently unmet by anyone else, and they need to do it in a way that builds loyalty. Right now they have no raison d’etre.

Charles P. Walsh
Guest
Charles P. Walsh
11 years 8 months ago

It seems that I may be alone here in my belief that Tesco will ultimately prevail in this market, though the format will undergo a good deal of change between now and then.

Clearly Tesco counted on Americans to intuitively buy in to the concept that has been wildly successful in Britain and are coming to grips with the need to get it right within their current geography.

Tesco may be a little in front of the curve with the small scale, fresh food, urban convenience shopping footprint; but better early than late.

Their efforts to continue to secure real estate underpins this reality and will put them in position to be a key player as the market for the format develops.

Dennis Serbu
Guest
Dennis Serbu
11 years 8 months ago

When your results differ from your theory, go with your results and get a new theory. The “exhaustive research” allegedly done prior to launch was discarded in favor of a preconceived belief system. Until they adapt to the realities of the US market, they will continue to stumble. It is unfortunate as they are actually very nice people to work with. Senior management needs to discard the Kool Aid.

Steven Johnson
Guest
11 years 8 months ago

If success leaves clues Tesco is learning quickly. New products, better packaging and new pack size. They are responding to the US consumer. If you’re in doubt about the future of their success, simply look at what is happening to middle market food competitors in Arizona or other markets. The consumer wants Grocerant-style food and Tesco is delivering better than many others.

James Tenser
Guest
11 years 8 months ago

Despite the miscues, I’m still generally positive about Tesco’s chances with Fresh & Easy. Reining in its geographic expansion is a prudent choice. Its concept is so dependent on operating efficiencies that filling in existing geographies is a wiser option right now. Buying sites instead of leasing is merely a reflection of the present economics. If you have cash in today’s market, it’s very often cheaper to buy.

Before we write this experiment off let’s also consider the challenging timing of the F&E launch, and its challenging location — in several of the markets most severely impacted by the housing price meltdown.

As the experiment continues, look for F&E to continue to adjust its merchandising formula, and to learn how the core concept must be adapted to better fit the car culture of the American Southwest. As the song goes, “If they can make it there, they can make it anywhere.”

Craig Sundstrom
Guest
11 years 8 months ago

Having not yet been exposed to an example of this new species, I’m dependent on others’ observations, and while I don’t mistrust them (the observations), the fondness for hyperbole makes it rather hard to separate fact from fancy (as our over-the-Pond neighbours might say)

At this point I think the concept–whatever, exactly, it is–was somewhat overhyped pre-launch, and the subsequent performance is being over-dramatized. I’ll cast another vote for giving Tesco more time.

Camille P. Schuster, PhD.
Guest
11 years 8 months ago

On my last visit to a Fresh & Easy to check them out, I had to drive around the parking lot to find a parking place. That has never happened before and says something about consumer acceptance.

Andrew Seth
Guest
Andrew Seth
11 years 8 months ago

Having worked with Tesco for many years as CEO of a British company (Lever) and knowing them well, I would just say they are an organisation which has enormous capacity to learn from experience, including mistakes. That’s what has propelled them right up there in world leagues as well as to a position of dominance in the UK market.

Underestimate them at your peril. They read consumers better than most retailers, perhaps including Wal-Mart–surprising as this may seem to American readers.

If you want to read about them, you could try our books ‘The Grocers’ and ‘Supermarket Wars’ which try to explore the whole picture. Seth and Randall, published 2001, 2005.

I went to see them in the LA area last year and don’t quite subscribe to the more acid of the comments earlier in this discussion. Having said this, there are clearly modifications required.

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