Interview: Fresh & Easy Fits Where Others Don’t

Discussion
Jun 14, 2010
George Anderson

By George Anderson

Listen to an in-depth interview with Brendan Wonnacott,
communications director for Fresh & Easy Neighborhood Market. See the RetailWire Podcast
below…

Before Tesco opened its first Fresh & Easy Neighborhood Market,
there were plenty of people willing to predict it would rewrite the rules of
retailing in the U.S. When the company hit some bumps in the road, there were
just as many or more willing to claim it was just another British venture that
wouldn’t make it in the States.

While there’s little question Fresh & Easy
has faced challenges, company executives believe the right steps are being
taken to help it achieve its top and bottom line goals. The chain, which now
operates 159 stores and is on schedule to open roughly one a week, is continuing
to focus on putting its stores in locations where locals need them. Fresh & Easy
is looking to Northern California as its next market for expansion.

“People are really looking for a good opportunity to do shopping, right
in their neighborhoods, right by where they live — fresh food at low prices,
an easy shopping experience,” Brendan Wonnacott, communications director
for Fresh & Easy, told RetailWire. “For us now, two and half
years in, we are keeping up with our pace, and are really focused on serving
the communities we are in — and slowly branching out to more communities in
California.”

Among the communities where Fresh & Easy is looking to
open are so-called food deserts that others have avoided due to high crime
rates and other factors.

“We had our job fair for the South LA store earlier this year. We had
hundreds of people show up. We are just now coming up on our hundred-day anniversary
of the store opening and we’ve really seen it’s changed the lives of many folks
that live around that store,” said Mr. Wonnacott. “What we see is
that people want access, that they want to be able to buy fresh produce, meats,
eggs and cheese. And those are indeed the top selling products in those
stores and we’ve been very excited about the performance of those stores across
the board.”

Fresh & Easy believes the smaller footprint of its stores
gives it an edge.

“We are able (because of store size) to get back to a lot of areas that
haven’t had a lot of access. The first store we opened in a neighborhood called
Glassell Park here in Los Angeles hadn’t had a grocery store in, I think,
a decade or two.”

Location and smaller stores, according to Mr. Wonnacott,
have other advantages.

“Our stores are about 30 percent more energy efficient than a traditional
supermarket of similar size, so we spend less on energy and we are able to
keep our prices low because of that,” he told RetailWire. “Another
bit that’s important for us is where we are located — Southern California,
Arizona, Nevada. We have access to an immense amount of great products here,
and depending on season as much as 70 percent of our produce comes from the
states we operate in.”

Discussion Question: Where do you see the greatest opportunities for Fresh & Easy’s
business? Do you think the chain’s willingness to open stores in under-served
areas will help it reach its goals more quickly? Will we see other large
traditional grocers building stores in these areas, as well?

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24 Comments on "Interview: Fresh & Easy Fits Where Others Don’t"


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David Livingston
Guest
10 years 10 months ago

The greatest opportunities for Fresh & Easy’s business are probably in another country. Here, their sales per square foot numbers just don’t measure up to USA average levels.

Opening stores in underserved areas will help Fresh & Easy finally understand what it’s gotten itself into. They will soon realize why chain grocers avoid such areas. I don’t think we see other large traditional grocers building stores in these areas. Most large grocers are very content in letting Fresh & Easy take one for the team.

David Biernbaum
Guest
10 years 10 months ago

Fresh & Easy continues to have its challenges because consumers really do want lots of choices including many niche and specialty items, and that’s difficult for a store the size of Fresh & Easy to do.

However, if Fresh & Easy can continue to strengthen three perceptions and realities, it will grow and succeed. Two of those perceptions are in the name, but consumers need “fresher than the big stores” and “very fast, easy and convenient.” The other is that consumers need to feel that they are not over-paying apples to apples with larger stores, unless of course the apples are a lot fresher and better!

Ryan Mathews
Guest
10 years 10 months ago

I think they don’t have a chance until they rethink their supply chain model and the kinds of merchandising decisions it drives. It’s not that they are placing the stores in the wrong spots, it’s that they are placing the wrong format. It isn’t size that’s the problem, it’s what’s going on inside the four walls in terms of selection.

Steve Montgomery
Guest
10 years 10 months ago

When we first heard that Tesco was entering the U.S., I expected it would be with their proven Fresh Express concept. Instead, they elected to enter the market with a format that was neither convenience store nor supermarket. It was much more a superette/Whole Foods hybrid. I thought the Fresh Express concept had the potential have an impact on the c-store market, but the Fresh Express format doesn’t appear to be a threat to c-stores or supermarkets.

True there is an opportunity to operate in areas the rational supermarkets don’t. However, as pointed out by some of the earlier comments, there is a reason the supermarkets have avoided this market. The operational challenges outweigh the profits. With its product mix and pricing strategy, it will be very interesting to see if Fresh & Easy can sustain these operations.

Len Lewis
Guest
Len Lewis
10 years 10 months ago

My question is this: Has Fresh & Easy decided what it wants to be when it grows up? At first, we saw a convenience-oriented store with lots of prepared foods that would satisfy an upscale niche in many areas. Now, they are putting their best, most politically correct foot forward as the answer to the retail wasteland and food deserts of lower income inner city areas. Can it be both? Can it be either?

As I have said all along, I have great faith in Tesco’s strategy of long-term commitment. This is underscored by the fact that Fresh & Easy continues to be tweaked. But I’m not yet seeing a clear direction for profitable growth.

Ed Rosenbaum
Guest
10 years 10 months ago

The keys to their success is going to continue to be smaller footprints and making a go of it in the local neighborhoods. Once they are successful in getting their game plan focused and delivered; they will have a better chance to succeed. Like many other success stories in the grocery arena; word of mouth will determine if they are going to be successful or fail. The jury is still out.

Companies like Whole Foods continue to determine where to locate and who they should marketing to. They are still competing with the Publix, Walmarts and regional successes such as Wegmans. I can’t leave Trader Joe’s out of this equation. They might be the main competitor in this specialty arena.

George Anderson
Guest
10 years 10 months ago

To the question of products sold in its stores, Brendan Wonnacott told RetailWire that shoppers were responding positively to the company’s fresh prepared foods (no artificial ingredients, no added trans fats, limited preservatives). He said they particularly appealed to people who want to save money while not compromising on taste and quality. Fresh & Easy has introduced a number of new exclusive private labels over the past year that Mr. Wonnacott said were proving “immensely popular” with the chain’s customers.

Bill Emerson
Guest
Bill Emerson
10 years 10 months ago

The food choices and prices available to what is politely called the “underserved markets” are a national disgrace. The reality is that these are largely land-locked communities where the only alternative to fresh, wholesome food involves a long ride on public transportation.

Are these markets complex to operate in? You bet. Is there enough disposable income available to make them profitable? Yes, if the offering fits the market. Does the local community appreciate and reward the presence of retail choices that the suburban shopper takes for granted? More than you can imagine.

Tesco did not get to be its size by being bad at what they do or by not learning and adjusting to the market. Over time, with a little patience, they will figure out the model.

Gene Hoffman
Guest
Gene Hoffman
10 years 10 months ago

My ambivalence is opening up a bit re Fresh & Easy. While F&E has generated negative external reviews, it reportedly gets good reviews from its small cadre of remaining customers who prefer F&E to Trader Joe’s, but I confessedly don’t understand exactly why.

While the Founder and CEO of TJ’s, in a recent private conversation, completely wrote off F&E, we might be wise to remember that Trader Joe’s was once written off when it first launched as being strange people in Hawaii T-shirts, indicating that grocery should be funky. Of course, that proved to be 100% wrong.

Tesco didn’t conquer and dominate the English marketplace without a sustainable strategy. My guess is that they have regrouped and have re-strategized F&E for the California market. The suggestions above are certainly applicable to F&E’s future needs–but let’s not yet assume that Tesco won’t prevail with a successful and sustainable strategy for F&E.

Michael Tesler
Guest
Michael Tesler
10 years 10 months ago

Seems like everyone from the convenience store and supermarket industry loves to trash Fresh & Easy much in the way no one in traditional stores believed that a new format like the Apple Store would work. Shoe stores all said “no way” in regards to Zappos’ chances. I have not been in a Fresh & Easy so I am reluctant to give the concept my full support but typically when the old and struggling formats make light of a new and innovative format, it is the “fresh” idea that ends up winning “easily.”

Jonathan Marek
Guest
10 years 10 months ago

The consumer dynamics haven’t changed, but Tesco has a great opportunity to get in with an advantaged cost structure in this market environment. I’m sure the rents they’re seeing pale in comparison to UK rents. They’ve got a massive pool of potential employees seeking jobs. Tesco has a real “grind-away-at-it” mentality that serves retailers very well. No, I don’t think they will rewrite US retail, but that’s not the standard for a great business.

Camille P. Schuster, PhD.
Guest
10 years 10 months ago

I’ve been to some Fresh & Easy stores that are almost empty. I’ve been to other Fresh and Easy stores where the parking is packed and I had to circle to find a place to park. The two neighborhoods are definitely different. The first is an upper middle class neighborhood and the second is a lower middle class (not poor) neighborhood. While it may be difficult to distinguish between the two when doing location evaluations, Fresh & Easy seems to have finally figured it out. By opening in locations with a need for this type of format and assortment the newer stores are doing better. I would not write their obituary yet.

James Tenser
Guest
10 years 10 months ago
I’m generally a fan of Fresh & Easy and I expect it to succeed. But after early visits to several stores in greater Phoenix and Las Vegas I came to question not its core concept but some of its particulars. The stores are designed to support a highly efficient distribution mechanism, with pallet-deep gondola shelving providing space for a high level of stock-on-hand. They have a compact footprint with no food prep on premises. Everything–including packaged produce, prepared foods, ready-to-cook entrees and baked goods–arrives shelf-ready from the distribution center. F&E private label product amounts to 65% of sales, according to Tesco CEO Terry Leahy. In stores with high foot traffic, the appearance of fresh foods on display was quite attractive. In less busy locations, produce often looked tired beneath the plastic film and some entrees looked downright toxic. I continue to believe that F&E stores need high merchandise turnover to be truly successful. If so, locating in so-called “food desert” and main street locations may not be such a bad idea. High traffic is key… Read more »
Michael Beesom
Guest
Michael Beesom
10 years 10 months ago
First, one isn’t likely to gain a whole lot of insight about Fresh & Easy by talking to the person who is in charge of its PR. Not a knock on the fellow, he does fine. Nor a knock on RetailWire, by any means. It’s just that if you want to really talk about the grocery business you need to talk to a grocer. Unfortunately neither the CEO of Fresh & Easy, its retail operations head or its chief of grocery buying are talking. That, in and of itself should tell you something, since from 2006-2008 they did nothing but attempt to get press. But things are going very poorly now so only the public relations person speaks. If they believe in the chain they need to say so as the guys running it. Fresh & Easy has a format problem, which is at the root of its lack of performance. Its merchandising problems then follow from that. By format problem I mean it’s more than just what goes on inside the stores’ four walls,… Read more »
Chuck Palmer
Guest
10 years 10 months ago

Sometimes it takes fresh eyes to see new opportunity. Fresh & Easy has a great opportunity to meet current demand by going to where there is a real need. If they can localize their assortments and pricing properly, we’ll see a win.

The magic is in making “fresh” and “easy” relevant to all of their customers and learning what is common and what needs to be customized by location. Sometimes fresh means the tomato came from a local farmers market and sometimes it means there is actual recognizable tomatoes on a salad (no matter where they came from). It all depends on the consumers’ attitudes and perceptions.

With their patience and methodical approach, Tesco may learn more about who we are and how we shop than any one retailer out there.

Jack Pansegrau
Guest
Jack Pansegrau
10 years 10 months ago
Good concept but wrong location? Perhaps Florida or NJ first; Trader Joe’s is tough competition for a small-format grocer with limited selection. Some personal experiences: I live 1/2-mile from a F&E and regularly drive 5 miles [10x further] to spend 95% of our grocery budget. We use F&E only for fillers with milk, eggs and fruit. That said, my dozen experiences at F&E have been positive on the ‘Fresh’ and the ‘Quick & Easy’ promises. Initially I was put off by the absence of ‘humans’ at the checkout but after my first experience I found it worked much better than either Ralphs or Walmart–the sensitivity of the weight sensors was set right, the moving belt permitted rapid checkout without the need to fit your purchase into the plastic bags BEFORE the weight sensor went TILT and shut you down–like Ralphs and Walmart. And the roving baggers usually had my purchases bagged before I’d finished my credit card payment. So I suggest that all the other grocers with self-checkout take a trip to F&E to learn’… Read more »
Steven Johnson
Guest
10 years 10 months ago

Consumers prefer fresh prepared food that is perceived “better for you” and portable. Fresh & Easy is focused on that! This ready-to-eat and ready-to-heat niche is the grocerant niche and it is booming within the grocery sector, convenience sector, drug store sector and restaurant sector.

Fresh & Easy is quickly positioning itself to become the volume leader in the US. The Fresh & Easy success platform is built on pricing, packaging, and portability; it is both fresh and easy!

Craig Sundstrom
Guest
10 years 10 months ago

In the past few weeks, there has been a growing discussion about how BP’s “Britishness” fits into things, and I think in a slightly different way F&E brings up the issue as well: does Tesco’s (foreign) heritage give it a unique viewpoint (aka “out of the box thinking”) that allows it to separate the needlessly underserved markets from the truly hopeless ones, or does it simply blind it to what would be obvious to even the most naive domestic operators? There’s no simple answer, since historically there have been examples of each; but I guess we’ll (slowly) find out.

George Whalin
Guest
George Whalin
10 years 10 months ago
As a Fresh & Easy fan I have been very impressed with how they have responded and adapted their business to an American audience. After visiting several of their first stores soon after opening, it was apparent they would need to make some changes in their offers and approach to the business. They have done a great job of making such changes. As for growth opportunities, they certainly lie in under-served communities as they have already done. As more and more consumers become aware of Fresh & Easy stores, growth will most certainly come from other communities as well. And as they grow their distribution system they will be able to serve the needs of even more stores. When they first opened here in the US it was interesting to read all of the negative comments about their stores and the predictions they wouldn’t last. Such predictions are proving to be dead wrong. After all, Tesco management has done well in a number of countries around the world and there’s absolutely no reason they won’t… Read more »
Victor Willis
Guest
Victor Willis
10 years 10 months ago

I’ve not been in a Fresh & Easy but I’ve been in many Tesco stores in England and Europe. Tesco is in this for the long haul and despite multiple stumbles, many of the obituaries written here seem premature. The F&E pros–store location, positive PR from siting some stores in urban desserts, strong private label program and an energy efficient format–seem to be more than offset by a poor merchandising strategy which in turn fuels a downward spiral of aggressive and unprofitable promotions to drive traffic. Tesco have deep pockets and it seems certain they’ll continue to tweak the concept until they get it right.

Marc de Speville
Guest
Marc de Speville
10 years 10 months ago
This is clearly a topic that generates a lot of interest–rightly so. As others have alluded above, the problem with asking experienced industry professionals about a such a novel format/concept as F&E is that all their experience doing or seeing things done in a certain way may actually be a hindrance to judging its potential. Better perhaps to ask…customers. With that in mind I recently commissioned a PR firm that had never heard of F&E to do an analysis of external perceptions (which as expected were mixed to negative), and compare that to what customers are saying. Even adjusted for the natural bias of in-store surveys, the results were extremely positive–you probably wouldn’t believe how positive, especially compared to TJ’s. In fact, I didn’t believe it myself initially so I had them do another round of surveys in a bunch of different stores. Same result. What’s more the appeal is pretty broadly spread across all income and age groups. It also tallies with feedback from the online shopping review sites such as Yelp, which (based… Read more »
John Crossman
Guest
John Crossman
10 years 10 months ago

I find this concept interesting. For many years, in many cities across the US, downtown, lower income consumers paid more for groceries than those living in the suburbs. Many of the current grocers in these areas are “mom & pop” grocers that charge higher prices. Many of their customers don’t own cars and thus are stuck with no other choice. If a new grocer can break into these markets and offer competitive pricing, they may be able to make it work. They should be able to get local government to work them and market rents should be lower.

James Tracey
Guest
James Tracey
10 years 10 months ago

I agree with Spev, we need to let the customers speak. I’ve got plenty of friends who shop there and they love it! The main problem with the franchise was that they promised too many stores too quickly. Any new concept takes time. I think we should give F&E a chance and let the customers vote with their wallets.

Michael Baker
Guest
Michael Baker
10 years 10 months ago

Fresh & Easy was a clear case of cultural arrogance. Tesco came into the US expecting to take everyone to the cleaners and it has demonstrably failed. The concept is terrible and unsuited to the US. Drab stores, and as many as I go into I still haven’t been in one that had more than a few customers.

In centres where they co-locate with a Trader Joe’s, the reason F&E isn’t making it becomes even more obvious. The only thing I can say for F&E is that service is not too bad because even with one person looking after the shop, that’s still a healthy staff-to-customer ratio.

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