Fresh & Easy Going Smaller to Crack U.S. Market
In years past, former Walmart CEO Lee Scott lamented that Asda’s business in the U.K. was being outdone by Tesco in large part because of that company’s Express convenience store format.
It’s not news that Tesco has struggled with its Fresh & Easy business in the U.S., although the company has maintained that it has made a number of changes to address the situation. The latest move appears to be the company importing the Express concept from overseas to see if it will work here, as well.
According to the Fresh & Easy Buzz blog, Tesco is planning to open its first Fresh & Easy Neighborhood Market Express this year in San Pedro, CA. The store will be somewhere between 4,000 and 5,000 square feet, compared to 10,000 for the typical Fresh & Easy, and will include an edited assortment of items found in the larger locations.
Another report by The Wall Street Journal puts store size of the Express units at 3,000 square feet. The advantage of the smaller format is that it gives Fresh & Easy more options for store openings in high density areas and the units can be operated at a lower cost.
The planned Express store is seen as part of Tesco’s planned push into the Los Angeles area.
According to Fresh & Easy Buzz, CEO Tim Mason told a meeting of the Valley Industry & Commerce Association of the San Fernando Valley last December, "We’ve identified 70 opportunities [new store locations] in Los Angeles. .. We’re eager to invest and we want to get on."
The report did not put a number to how many of the 70 potential stores could be Express locations. Fresh & Easy currently operates 176 stores in Arizona, California and Nevada.
- First 4,000 Sq. Ft. Fresh & Easy Neighborhood Market ‘Express’ Store Set to Open in Los Angeles’ San Pedro Community This Year – Fresh & Easy Buzz/Blogspot
- Tesco’s Fresh & Easy Neighborhood Market Looking For Locations For New, Smaller-Format 4,000-to-5,000 Square-Foot Stores – Fresh & Easy Buzz/Blogspot
- Fresh & Easy Neighborhood Market CEO Tim Mason Says 70 New Stores Possible in Los Angeles Area – Fresh & Easy Buzz/Blogspot
- Tesco to Test Smaller Stores In the U.S. – The Wall Street Journal
Discussion Questions
Discussion Questions: Will the addition of Express stores be a positive for Fresh & Easy’s operating results? Is the chain making strides addressing the issues that it has faced since opening in the U.S.?
I don’t know if I would categorize the Fresh & Easy move into the US as struggling. With more than 170 stores in the West they have certainly modified their stores and merchandise offerings to better meet the needs of American shoppers. That is simply the way any savvy retailer does when opening stores in an entirely new marketplace. As other retailers are discovering smaller format stores are another way to grow and serve more communities and customers.
Tesco Express stores on the U.K. are successful and well-tailored to the nuances of the British market. So they know the c-store business. During the past few years they have also learned more about the consumer diversity in California, Arizona and Nevada.
It’s hard to predict if Tesco can duplicate their U.K. success here. But I believe that well-populated SW America is ready to accept something a little different that also supplies the wants and timely needs for convenience, quality, competitive prices and uniqueness. That’s what Trader Joe’s is doing and they are also European-owned.
With the economy in some distress, Tesco will have a challenge but the British bulldog likes challenges. That lowers the odds. I have lingering doubts that a new mousetrap by Tesco can achieve the level of satisfaction and success that Shirley Temple engendered during the Great Depression … but I wish Tesco luck.
Smaller markets aside, the product they put out must be fresh and value priced to meet the neighborhood’s needs. If they can not produce the quality/price matrix, than it will fail, as consumers have many quick lunch and dinner options to choose from. It is difficult to turn fresh product daily, and keep the shrink low enough to profit from it if the business climate is slow, as it is everywhere. Location is huge as well, because the food deserts in the city would appreciate Tesco, as the options are limited. There is little margin for error, as other formats will jump in, so they better get it right pretty quick.
It sounds so easy doesn’t it? Open convenience stores instead. They fit in more places. Sales per square foot will probably go up. Walmart is doing so it must be the right thing to do. I’ve got a better idea for Tesco to keep from losing money on new stores–don’t build any and it will not cost a thing. Earth to Tesco–the convenience store has already been invented.
I’m surprised Tesco didn’t enter with Express in the first place. They could have preempted many of the small format efforts that have now had three or four years to get off the ground. And they already knew how to do Express.
The short answer is yes. When Tesco first announced is they were coming to the U.S. I was asked if I saw them as a threat to the c-store industry. My answer was yes because at the time the thought was that they were talking about the Tesco Express concept. Instead Tesco brought Fresh & Easy. That concept may have some appeal to the convenience customer but was definitely not a c-store.
The Tesco Express concept will allow Tesco to expose its brand to many people who have never seen or shopped in a Fresh and Easy. This additional brand awareness will definitely be a plus for the Tesco in the U.S. The infrastructure that was built for Fresh and Easy will be utilized to support the Expresses as well. While the prepackaged concept may not have been a hit with the F&E target customer, the c-store customer will be pleased that they have an opportunity to get items that an normally not available in a c-store.
The smaller format should allow them to enter into the food deserts with a broader product mix than c-store or other retailers already in those areas. One of the things the article doesn’t mention is whether or not Tesco intends to carry fuel at some or all of its locations. Doing so would add a destination driver bout would also mean site would be harder to find and more expensive.
The small, smaller, smallest battle continues to rage! Looking at the big picture, Walmart, Target, Staples, Best Buy, Meijer–just about every big box out there–is threatening or promising to unleash significant numbers of diminutive alternative formats. The big question is whether Fresh & Easy’s tweaks are a necessary part of the process that now puts them ahead or if they are the result of poor initial planning (in which case, Tesco is woefully behind).
These guys are patient, strategic and good retailers. They know there is business in the U.S. and they will find the right key to make it work. Why do we keep trying to bury them?
Tesco touted the extent of their research prior to entering the US–supposedly they knew the market inside and out. They failed to deliver. One of the problems is the assortment in the stores. Now they are going to go to a smaller format, less assortment, and wait for us all to come running. What makes them think anyone is craving a new store or a new format or a new set of products? David L. is right on target–save money and don’t open stores.
No, no, no. Wrong concept, wrong time, wrong place. Los Angeles, the home of some of the largest freeways in the USA, is not a good place for small, high-density stores. People love their cars, and have no issues driving to get their food. The creation of the first drive thru was in California and it still thrives there. Small stores, with limited access and limited products are not what will be successful in California…and probably not in America.
Sure hope that Tesco is putting the right merchandising mix in these boxes. They are going to have to be highly specialized in the variety of SKUs and certainly the number of them to make this work. And, those SKUs are likely going to have to be customized to meet local market demographic patterns.
This is a long shot for success, particularly in a market like L.A., which loves to regulate retailers selling consumables.
I know that I sound like a broken record to some who listen, but the simple fact is that ONE, is the most common NUMBER of items purchased in any store in the world. This supermarket industry is so jammed up trying to get a few more items into the stock-up basket, that they virtually wrote off the c-store shopper in their own stores 20-30 years ago. Meanwhile, the population has continued to move massively in the direction of immediacy in their purchases. If you don’t need it right now (next few hours,) don’t buy it right now. Stores are increasingly becoming communal pantries – everything you and your neighbors need is right there, and you share the store as your quasi-pantry.
Of course all the fanfare leading up to the Tesco roll-out here several years ago suggested that they were really going to serve this market. But no, they put in small supermarkets, and when they didn’t get the results they wanted, they steadily increased the size of the stores – at least what I have seen from day one and continuing visits several times a year.
So now they are going to get serious about this business? Maybe. But the new Walmart neighborhood market I looked at pre-opening in Fayetteville, was further evolution to a LARGER format than their Marketside stores. Of course Walmart is not Tesco, but obviously neither can figure out how to sell the FEW items shoppers want in the presence of the MANY they might want some time. But then that would require SELLING skills, not in evidence in the this self-service world.
Wonder if these will also feature only self-checkout lanes!
Will their next move be pushcarts? How about about door-to-door like Avon, or school fundraisers? Probably not; but at least those moves would be so desperate we’d know for sure the light in the tunnel was only illuminating the “dead end” sign. This is harder to make out: is it phase two of a careful, well thought-out strategy, or grab-anything-to-stay-afloat desperation? I just don’t know.