The financial community in London is beginning to realize that Tesco’s U.S. venture is fraught with risk and uncertainty.
The Telegraph in London published a piece entitled, Have Tesco’s US stores failed to win the West? It is an intriguing piece because reporters James Quinn and Mark Kleinman caught what many journalists missed — Tesco has made a decision:
Tesco has decided against releasing comprehensive sales figures for its fledgling US business until next year amid scepticism that it can mount a serious challenge to Wal-Mart’s dominance of the world’s biggest food retailing market.
In other words, accounting conventions dictate when companies must release separate financials; they don’t prohibit public companies from doing so at an earlier date.
Sometimes one learns more from what public companies elect not to say than what they actually say. When Tesco was disclosing Christmas sales numbers, it elected to characterize not the sales of its Fresh & Easy operation, but its response from customers as “very encouraging.”
Quinn and Kleinman recognized that this is not the kind of characterization that will get anyone at Tesco in trouble even if the actual sales are bad. If the facts justified it, Tesco executives could have said something specific, such as that sales are way exceeding plan and, as a result, the amount of capital necessary to grow the chain will be less than expected.
The reporters also became aware of some of the questions regarding the performance of Fresh & Easy that we have been discussing here at the Pundit:
One of America’s most influential commentators on the grocery market has unveiled a list of criticisms of Fresh & Easy, Tesco’s US operation, in his blog, accusing the business of failing to know what its customers want, mismanaging stock and not living up to its green credentials.
Jim Prevor, a food writer and publisher who edits two magazines about fresh produce and whose blog, perishablepundit.com, is read by thousands of Americans, said: “My assessment is that from the customer count and the dollars being spent, it is not possible to make the enterprise profitable.”
The damning verdict comes less than three months after the grocery chain opened for business on the US West Coast. In its January trading update issued earlier this month, Tesco said that “interest” in Fresh & Easy had been “encouraging” but declined to give any guidance on the stores’ early sales performance. Retail industry speculation suggests that the business may be undershooting internal sales estimates, but Tesco has said that sales figures for the first 18 months are “meaningless” while Fresh & Easy is established.
Prevor, who claims to have had conversations with and e-mails from more than 200 suppliers and contacts as well as other retailers, and has also conducted several site visits to Fresh & Easy shops, told The Sunday Telegraph this weekend that Tesco had failed to appreciate what US shoppers wanted from their local grocery store.
“The vast majority of comments [about Fresh & Easy] contain a line similar to this: ‘It may just be the time of day or day of the week or perhaps just this particular store — but there were practically no customers in the store,” said a post on Prevor’s website this weekend.
“The concept is sterile-looking,” he said. “Americans have fairly strong brand preferences, and unfortunately the nature of this concept is heavily skewed to Fresh & Easy’s own label. So something designed to be convenient becomes quite inconvenient.”
He also alleged that most stores had been “plagued by a high level” of out-of-stock items and suggested that the concept’s environmental credentials appeared to be skewed because, for example, pieces of fruit and vegetables are sold individually wrapped in plastic.
Prevor also speculated that Tesco could be incurring higher rent costs than necessary because of the relatively small size of the stores, which occupy 10,000 square feet of floor space each. In a number of its 33 locations, Fresh & Easy has had to rent larger stores, with space lying empty as a result.
Seeing the contradiction between Tesco’s characterization of the consumer response as “very encouraging” and our assessment that sales are light, the reporters turned back to Tesco to get a response:
Tesco this weekend rejected Prevor’s criticisms and said it was committed to opening a further 90 stores across California, Nevada and Arizona. “We have taken the West Coast by storm, and been extremely encouraged by the response from customers,” said a spokesman for Britain’s biggest retailer, pointing out that the concept is based on offering customers something different from what already exists in the marketplace.
Of course, none of this answers the question the reporters posed. That they are committed to opening another 90 stores in California, Nevada and Arizona was never questioned by anyone. They have built a big distribution center, signed lots of leases, and they are going to work very hard to fix the concept and the execution.
Saying that Tesco has “…taken the West Coast by storm” is just fluff and has no verifiable meaning. The most obvious thing you can say about this response is that Tesco did not choose to issue sales numbers for the stores to reassure its shareholders that management’s efforts are working well.
Other reporters in the United Kingdom have also begun picking up on the story. For example, London’s Evening Standard published a piece, written by Rosamund Urwin entitled, Tesco hits back at US sceptic. Urwin caught on to our discussion at the Pundit as well:
…its Fresh & Easy stores, launched across the Pond in November, came under fire from one of the America’s most revered commentators on the food industry. Jim Prevor, who writes the blog perishablepundit.com and edits two magazines on the grocery industry, delivered a damning verdict on the chain, saying the stores are routinely almost empty.
He concludes that sales are not strong and ‘Tesco has yet to prove the viability of the Fresh & Easy concept’.
Urwin also received feedback from Tesco:
‘While it is still early days, we are pleased with how things are going, and the customer reaction is particularly encouraging,’ said a Tesco Spokesman.
Once again, more smoke than fire in that response. Does it mean that the concept is generating good responses on consumer surveys and lousy sales? Who knows?
It is also notable that Tesco refuses to have executives on the record saying anything. Note that both the Telegraph and the Evening Standard had to rely on unattributed sources in their stories.
In any case, Tesco’s denials have even less credibility today than they did the day these articles were written in the United Kingdom.
Since these articles were written, we published another piece entitled Pundit Analysis Buttressed: Tesco’s Fresh & Easy Sales Only 25 Percent of Plan, Says Willard Bishop Report
Willard Bishop is one of the top consultancies in the industry. We ran an interview last year with the title Pundit’s Pulse Of The Industry — Willard Bishop Consulting’s Bill Bishop and their expertise is relied on by major retailers, vendors, associations, etc.
Even if someone doesn’t like our intelligence network here at the Pundit, they can’t be dismissive when a report by as credible a source as Willard Bishop includes this line:
Current performance doesn’t appear to meet initial sales projections of $200,000/store/week. Our very rough estimate is that a typical store is achieving about $50,000/week, or only 25% of initial projections.
Obviously, Tesco is not obligated to release these numbers, but you can tell a lot about an organization by how it deals with a critique. Healthy organizations develop a culture accepting of criticisms and use the input as part of their own process of continuous improvement.
This open and accepting attitude allows organizations to thrive by reaching out of their comfort zone for help. So Tesco’s response to the questions posed by the Telegraph and the Evening Standard about the Pundit’s assessment tells us more about Tesco’s defensive posture than it does about the substance of any issue.
Thomson Financial in London noted the Telegraph story and also wrote a version that was picked up by countless news outlets, such as Forbes. All this led us to spend quite a few hours helping investment bankers in the City — London’s version of Wall Street — to understand the situation better. This interest by the financial community in Tesco’s performance in the US will not go away.
Tesco is a rich company. If it has to lose some money before it gets its venture in America right, it can do that. If, however, Tesco doesn’t step up to the plate and frankly discuss the problems this division is experiencing, it will find first that it will be harder, take longer and cost more to fix the problems and, second, that Tesco will lose not only money, but credibility with investors. No company can afford that loss.
Way back in 2005, Supervalu announced Sunflower Market with a flourish:
…Sunflower Market is SUPERVALU’s response to the rapidly growing market for natural and organic foods in the U.S. According to SUPERVALU’s consumer research, 96 percent of consumers use fresh organic produce at least occasionally. Research also indicates that while 66 percent of the U.S. population seeks organic products that offer nutritional, appetizing solutions for themselves and their families, the cost of organic foods is the most common obstacle for consumers.
…”At Sunflower Market, we will offer customers the convenience of a full shopping experience, with access to natural and organic products in all categories,” said John Hooley, president of corporate retail for SUPERVALU. “We’ve developed a unique merchandising approach that will highlight our perishables, which include an extensive produce offering, natural, case-ready meats and fresh bakery and deli items. Simply put, our goal is to provide customers with great tasting, wholesome foods at affordable prices.”…
Now Supervalu is closing the banner with a whimper:
A foray into the pricey world of organic food has ended badly for Supervalu Inc., the Eden Prairie supermarket giant, which announced that it’s closing its Sunflower Market organic and natural food stores….
The five locations …were to be the first of a national rollout of a smaller organics food store meant to compete in the supermarket niche where Whole Foods and Wild Oats have found customers….
The chain, the first of which opened in Indianapolis in January 2006, billed itself as a cheaper alternative to places like Whole Foods, which has seen some consumer pushback for its high prices. …
The Sunflower stores, at 13,000 square feet, were far smaller than a typical Cub Foods, which can run nearly 90,000 square feet. They carried 8,000 to 12,000 items, about one-fourth the volume of a typical supermarket. Supervalu once had hoped to open 50 Sunflower Markets within five years.
When it looked like the deal between Wild Oats and Whole Foods would collapse, a lot of folks on the Wild Oats side were secretly hoping that Supervalu would ride to the rescue. With small format stores and a heavy emphasis on organic, it seemed like a possible match. In one fell swoop, Supervalu could have picked up a broad store base and the intellectual capital to run this type of operation.
Of course, it didn’t happen, and one reason it didn’t happen is because Supervalu was focused on providing low-priced organics. We mentioned the chain here when it was expanding into Columbus and the differentiating factor was purely price.
Among other things, retailers of all types tell us they find shrink on organic product to be significantly higher than conventional, so it is not clear that “bargain basement” organics makes sense.
Now the chain is closing for a lot of reasons, most of which have nothing to do with Sunflower. Since the launch, Supervalu has acquired most of the old Albertsons stores, as we mentioned here in a piece about the first anniversary of the combination. We thought there were grounds for optimism but did caution that “…we suspect that the hard part is just beginning.”
That has certainly been true, and if the stores weren’t almost instantaneously stupendous successes, the executives at Supervalu have other fish to fry. They can’t be focused on five small stores.
Yet Supervalu didn’t close Sunflower because it was making too much money, so there may be a lesson for the industry here. Let us think about the characteristics of this concept:
- Small Footprint
- A Focus on Organic and Natural
- Affordable Organics for the Average Joe.
There is only one prominent chain that talks that way: Tesco’s Fresh & Easy concept.
When Tesco described its concept, most people in the trade assumed it would be somewhat upscale, certainly higher education-biased — Why? Because organic and green are issues that in America, we associate with more educated and more affluent people. Yet Tesco said, no, that the unique edge of its concept would be to make these types of items available not only to the middle class but to the inner-city poor living in food deserts where no supermarket exists.
Sunflower tried some non-traditional locations, as in its Indianapolis store, but quickly moved to a more conventional site in Columbus, Ohio near the University.
Competitors tell us they estimated the sales of the Sunflower stores at no more than about $75,000 a week.
As we mentioned here, Willard Bishop has a new report estimating that the typical Fresh & Easy is only selling $50,000 a week. The Sunflower stores are a tad larger but, still, this holds out the hope that they might get the Fresh & Easy stores up to $75,000 a week. The problem is that Tesco expects $200,000 per store, per week.
Supervalu is a very sophisticated organization, with lots of diverse experience in the American market. If Supervalu saw any likelihood of getting these Sunflower stores up to $200,000 a week, they would jump on it.
That they are closing, instead, is not good news for Tesco.
The industry is caught in a dilemma that if not resolved really will hold back sales. Recently, the Pundit happened to be in a supermarket where they were selling some heirloom tomatoes.
The tomatoes were the Southern Selects product distributed by Southern Specialties.
The merchandising was a little odd, with just a single flat carton put on top of a case where the store sells glazes and other non-produce items. There was no signage, no price, no usage information.
We bought them because we were interested, and so the Pundit office will get to try a Gold Medal Variety, a Cherokee Purple Variety and a Red Brandywine Variety. On its Southern Selects website, the company has some information:
Southern Selects True Family Heirloom Tomatoes are grown from seeds handed down from, generation to generation for up to 200 years. These seeds produce fruit that looks and tastes like those tomatoes grown years ago. We grow and market three different varieties of heirloom tomatoes. Each variety is chosen for its unique flavor and appearance.
This Amish variety, originating in the 1880’s, was the first to achieve cult status. Years ago, these seeds were saved by families in the Brandywine River region of Pennsylvania. In tomato tastings the Red Brandywine has been voted one of the top three favorites. It is legendary for its exceptionally rich, succulent tomato flavor. The fruit is reddish-pink with a light, creamy flesh.
This pre-1890 Tennessee beefsteak heirloom originated from the Cherokee Indian tribe. The tomato is sweet and rich in flavor with slightly ridged shoulders and a dusky-rose-purple appearance. Its color is so dark it is often referred to as a “black “ tomato.
This gold-red bicolor heirloom beefsteak from the Black Forest region of Germany arrived in the U.S. in the late 1800’s. The round deep gold fruits feature red streaks on the blossom end and throughout the inside. When sliced, the red marbling through the golden tomato takes on the appearance of stained glass. They have an outstanding sweet flavor that is low in acid.
Selection: Choose tomatoes with firm flesh and bright shiny skin. Southern Selects Heirloom Tomatoes have a full, deep color when ripe.
Handling & Preparation: Quickly rinse Southern Selects Heirloom Tomatoes under cool water. Try these delicious tomatoes as the main ingredient in salads or as an accompaniment to any entrée. Southern Selects Heirloom Tomatoes are grown for their rich, tomatoey flavor.
Storage: Store Southern Selects Heirloom Tomatoes at room temperature.
Nutrition Info: Tomatoes are high in vitamins A and C and potassium. Southern Selects Heirloom Tomatoes are low calorie, low fat, and cholesterol free. They are a healthy addition to any meal.
It is also true that if one wants to research the subject on the Internet, there is a lot of interesting information available. For example, The Culinary Institute of America produced this video featuring Paul Wigsten, produce buyer for The Culinary Institute of America, who also owns a farm in the Hudson valley. He discusses heirloom tomatoes and cuts open the Cherokee Purple variety so one can see inside. He also provides references for Salsa recipes that one can use the tomatoes in.
Take a look at the video:
This is all great, but the problem is that it is an unreasonable expectation to think that more than a small percentage of our customers are going to do such research.
We have to have ways to not just offer product in the produce department, but actually sell it.
A few years back, there was an explosion of innovation in the produce department with companies such as Tanimura & Antle, Mann Packing, a D’Arrigo/RLB joint venture and others developing soups, pastas and other items. Most of these items failed, and to a large extent the failure was a matter of retailers being unwilling to devote the space and the time needed to cultivate consumer acceptance for these items.
These heirloom tomatoes might be able to attract a large audience — but not with one lonely case sitting on a shelf filled with glazes. Not without some information about why a consumer should buy them.
Now one might say this is the producer’s problem — and it is, of course. But it really is the whole industry’s problem. If we are interested in Fruits & Veggies — More Matters! and, more generally, in increasing consumption, we have to remember that we cannot increase consumption in general without increasing it in particular.
In other words, we need to boost the sales of specific items and have new items to grow consumption.
So the trade cannot be indifferent to the way these types of products are treated.
We bought these tomatoes at an important chain store. We are sure if the retailer asked Southern Specialties for pamphlets or signage, a deal could be made. But the economics of the industry dictate that a lot of the marketing of these innovative products has to be done at retail.
First, with these products and certainly brands of product not likely to be universally distributed, consumer marketing is going to be difficult. Second, in a situation like these heirloom tomatoes, the shipper has no patent on the variety. How much can he spend promoting them when the retailer may throw him out because someone else is a quarter cheaper?
So we have to look for new and better ways to promote to and educate consumers.
We wonder if the basic design of the produce department doesn’t need to be reexamined in light of new technology. Bill Gates has a house in which the artwork shows up on digital screens that can be changed at will. Maybe we should have a department designed to incorporate digital screens and Internet connections so relevant information can be displayed and changed as appropriate.
We had run a piece about a floral department experience we had here, and we wondered if, in an age of pagers and Blackberries, interrupting everyone’s shopping experience to blast a request over the public address system that the produce manager should go to floral was the only way it could be done.
Other than adding fresh-cut cases, the bones of the produce department look pretty much the same as it did 50 years ago. Maybe we need to start looking a lot harder at technology and what we can do with it.
Obviously technology is not the whole answer; with or without high-tech screens, retailers still have to commit space and time to a product.
What concerns us about what we saw with this lonely tray of heirloom tomatoes is that some category manager, sitting at headquarters, expert at spreadsheets, is going to run the numbers and say this product isn’t working and discontinue it. He won’t know or care where it was merchandised, the lack of support material, the lack of sampling and demos and recipes.
Multiply this one product by 100 similarly neglected, and you have an answer for why our consumption goals may not be met.
Our piece, Books About Getting Kids To Eat Veggies Sell Like Hotcakes While Authors Quarrel, discussed the dispute between Jerry Seinfeld’s wife, Jessica Seinfeld, author of “Deceptively Delicious,” and Missy Chase Levine, author of “The Sneaky Chef.”
Both books and others, such as “Sneaky Veggies: How to Get Vegetables Under the Radar & Into Your Family,” promote the practice of increasing children’s consumption of healthy foods — especially fruits and vegetables — by hiding healthy foods in foods children enjoy. Slipping a bit of pureed spinach in brownies, for example, or adding some pureed cauliflower in mashed potatoes.
We mentioned that some might see such subterfuge in a negative light but also saw an opportunity for the industry — taking the best seller status of Seinfeld’s book as an indication that a lot of parents are worried about getting fruits and vegetables into their kids:
The industry could do more to piggyback on this trend. We have seen zero in-store merchandising on this hot area of consumer interest.
Maybe some in the industry are uncomfortable with the suggestion that to get children to eat some of our products, a little stealth is required. But parents do what they must — so some industry tools to help them will probably be winners.
Now, however, Raymond Sokolov, an esteemed journalist famous for being the first to note nouvelle cuisine in France and to publicize the arrival of restaurants serving cuisines from Szechuan and Hunan in the United States, has weighed in on the matter. He was the Food Editor and a restaurant critic for the New York Times, has written many books and cookbooks, and he was the founding editor of The Wall Street Journal’s “Leisure and Arts” page. He even wrote a column for decades in Natural History magazine that helped revive interest in American regional cuisines. He has written about virtually every type of food; he even wrote a piece on cannibalism.
He is a friend of the produce trade having recently written A Canon of Vegetables: 101 Classic Recipes, which the publisher describes this way:
Raymond Sokolov applies to vegetables the original concept of his book The Cook’s Canon: 101 Classic Recipes Everyone Should Know, fusing imaginative recipes with a wealth of food lore. His more than forty years’ experience as a cookbook author and food historian provides a wealth of background for vegetable recipes from around the world, from traditional American (succotash) to Chinese (Sichuan dry-fried green beans) as well as French (spinach gratin with Mornay sauce) and Italian (pasta e fagioli alla pordenonese).
All the recipes are high points of the culinary imagination, great dishes in which vegetables are the featured ingredient. This is not a vegetarian cookbook. Many of the recipes include meat, but keep the vegetables at center stage.
For each vegetable discussed and each recipe, Sokolov provides historical and cultural background, with wit and insight, based on his wide reading in food history and his training as a classicist.
You can catch his recipes for Asparagus Risotto and Tapioca Cream with Peaches here.
So Raymond Sokolov is big stuff. He now writes the “Eating Out” column for The Wall Street Journal and has written a piece entitled, Playing With Their Food, in which he both actually taste tests some of the recipes Jessica Seinfeld and Missy Chase Lapine put in their books and questions the whole concept:
Neither book offers more than anecdotal evidence that picky eating is a major social problem even in homes like theirs — affluent, nutritionally aware, and with a guilt-ridden parent as meal maker. But the books’ popularity is a kind of proof that picky eating at family meals does trouble book buyers.
So we’re not going to try to cast doubt on the basic premise of these rival evangelists for fraud in feeding… We just want to tell you what their food tastes like and why the authors’ reliance on packaged convenience foods and sweets is a poor way to educate youthful palates and lure them away from cookies and muffins.
First, how do their veggie-larded dishes taste?
The short answer is: “Eew, gross.”
Or maybe “Yuck” would say it better.
Or, to put it in a more adult way, our well-meaning authors do not seem to care about the quality of what they put on the table so long as it contains a covert dose of vegetable.
Mr. Sokolov is less worried about children suffering from some kind of nutritional deficiency as a result of a shortage of fruits and vegetables in their diets than he is about developing adults who will appreciate good food:
It may well be that industrially packaged macaroni and cheese inoculated with white-bean purée (Lapine) or home-boiled macaroni with reduced fat cheddar and some cauliflower purée (Seinfeld) will give your grade-schoolers a healthful, adequate meal, but such low-end distortions of a classic dish do not help the girl or boy at the receiving end evolve into a grown-up eater.
I tried Ms. Lapine’s mac and cheese with a supermarket house brand that used precut lengths of tubular pasta and powdered cheese. Ms. Lapine accepts any such boxed product. The one I picked at random ended up dead and muffled in flavor. The very processed cheese bore little resemblance to normal cheddar’s pleasant sharpness.
Ms. Seinfeld’s low-fat, pregrated cheese was at least as insipid. Neither author’s recipe calls for baking, so a child raised on this stuff would never know the joy of crusty, traditional mac and cheese. But such kids have been put through a kind of sinister culinary special ed.
In fact, these books promote gastronomic regression. With their occult purees, they re-introduce their targets’ tastebuds to baby food. Indeed, Ms. Lapine actually recommends commercial baby food as a choice for parents too pressed to boil and mash a sweet potato. And even if you don’t recoil at this infantilizing stratagem, you may wonder how the wee Lapines and Seinfelds are going to acquire their moms’ passion for the life-sustaining value of vegetables, if all bright-colored plant food in their homes is spirited secretly into meals and never discussed in a positive and straightforward way.
These women treat vegetables the way Victorian mothers treated sex, with silence. They also avoid another important lesson through tricky indirection. One of their tactics for infiltrating food with veggies is to mix vegetables into desserts and other sweetened foods. But does concealing zucchini puree in oatmeal raisin cookies (Seinfeld) or “purple purée,” spinach and blueberries, in chocolate cookies do anything to wean sweet-toothed little ones from sugar? Even if allegedly less harmful brown sugar is substituted for white?
Of Ms. Seinfeld’s 12 breakfast recipes, 10 contain some kind of sweetener. Twenty-five, or one-third, of her recipes are desserts.
In general, Sokolov sees the whole trend as a solution to a problem that doesn’t exist and suggests that being straightforward with children is more likely to produce healthy eaters than all this hiding of healthy foods:
So what do I recommend? Culinary transparency. No sneaking around. Serve as much real food as your schedule permits, and use each dish as a gentle advertisement for adult taste. With many children, this approach will work right away. Pork and beans is an honest and unfrightening alternative to nursery food that’s been anonymously vaccinated with white-bean purée. Mashed potatoes mixed with cauliflower or celery-root purée is grown-up food but it is also childproof white. Children old enough to help out in the kitchen can be taught how it is made and why the different tastes and consistencies make for a pleasingly diverse food life.
For the recalcitrant, hysterically neophobic child, the wise course is probably just plain nursery food. Spaghetti with ketchup, peanut butter and jelly on Kleenex bread. Even this diet won’t, by itself, make most kids clinically obese.
The same child may well love to snack on raw carrot sticks and Russian dressing. Mine did. Eventually, almost all tyrannically negative table-monsters grow up and eat salad. Some even turn into vegans. Now that’s a real problem.
This genre of books has gotten so hot not because children are now suddenly nutritionally deficient but because parents have changed. An administrator at the private school attended by one of the Jr. Pundits, where admission is quite competitive, told us that she fielded a call from a woman who said this: “I am thinking of having a child and would like to know what month of birth would be ideal to secure entrance to the school?” There is a kind of hypersensitivity today that makes upscale parents feel obligated to give their children every advantage — including, we suppose, cauliflower.
We also suspect that modern parents are just less inclined to issue an order. If the Pundit’s kids want macaroni and cheese, they have been trained that they must also have a vegetable. We often, very overtly, mix peas in the macaroni and cheese. Yet we doubt we would have the fortitude to simply say eat what is on your plate or go to bed hungry.
There is something unsettling about parents who, after all, are supposed to be in charge, feeling the need to hide what they are doing. We don’t mind putting spinach puree in brownies, but we don’t think it should be a secret. And we suspect that overtly exposing children to produce — time and again — is a better strategy. One day, they will probably want “grown-up food.”
Still, any parent who has ever had to deal with children who, say, love pizza, yet refuse an entire freshly baked pizza on the grounds that they can see a tiny spot of oregano, understands the frustration that could lead a parent to use the Seinfeld strategy.
In the end, though, Sokolov is really reminding us that the responsibility of parenting is teaching. It is one thing to sneak a potentially life-saving antibiotic or other medicine in apple sauce — there the parent’s responsibility is to just get the medicine in the child. But to sneak the proper foods into a child avoids the hard work of education. In this busy world with so many parents both working and so many single parents, it is an obvious temptation, but frank discussion and getting the children involved in shopping and food preparation is probably a more helpful course if we hope to raise wise children who do the right thing.