Tesco’s journey to America has not been easy. There are signs, however, that some of the problems are getting corrected, although increased success creates problems of its own.
A very experienced retailer, who has been following Fresh & Easy carefully, sent us his notes:
An update on Fresh & Easy:
They are busier during my visits than in the past, and one associate said they are growing sales every week.
The only things I have seen that they are doing differently are:
- They are inserting an 8-page mailer into the newspapers with the other chain’s mailers. The Fresh & Easy mailer lasts two weeks versus the traditional one week.
- At the entrance to their stores, they have a copy of this mailer and a one-page piece that has 30 items that are grocery, dairy/deli, frozen foods, drinks, and household products.
- Some in-store large displays are reduced prices. I have seen a couple in the grocery sections.
- A four-week promotion on 10 russets @ $1.99 and 8# large navels @ $2.99. These were packed in the growers’ label, in traditional cases (corrugate and bins), and now a 24-oz grape tomato pack (no sign for pricing) by Andrews and Williamson in their label, container, and on a traditional pallet and not one of the Fresh & Easy slave pallets.
- Instead of people at the front end to help you through the checkout process, they now ask you if you would like them to check you out. In my opinion, it is a really good hybrid system.
As part of their shrink control, Fresh & Easy has done the following:
- Cut the meals section by 8’ and are stocking wines in that area.
- Cut their bakery section by 12’ and are stocking groceries in that area.
- Reducing produce, floral, and meats by 50% on the day they will go out of code and by 25% the day before.
Prior to this surge in business, they had gotten their out-of-stocks under control. Now in the afternoon, they have out-of-stocks in produce, deli, meat, dairy, frozen foods and on the items that they are promoting in their one-page in-store piece.
It looks like their automatic ordering system hasn’t caught up to their demand yet.
They gang stock their perishables when they are delivered. They put the pallets right on the floor and stock from them. They need to look at this and develop some rolling equipment to be more efficient in their stocking. This is also how they handle the rest of the store’s stocking.
In my opinion if they don’t quickly correct their out-of-stocks, they will lose their new-found customers.
I am continuing to purchase and try their Fresh & Easy labeled products in the deli, frozen, and grocery section, and I must say that over 90% of them are really good.
Their pricing in the entire store is really very good when compared up with their competitors, and they will continue to increase business as the consumers find this out.
Many thanks to our correspondent for his sharp assessment of the situation. Although we — as well as Willard Bishop and intelligence from store managers — had settled on an estimate of $50,000 per store per week as a rough guide to what Fresh & Easy stores were bringing in once they got past the Grand Opening period, it is important to note that this is not where we expected the stores to stay.
Stores go through a normal maturation period. We would expect to see sales increase 20% the first year and on a new concept that is gaining success, as much as 35%. This doesn’t happen in one day on the date a store turns a year old. It happens gradually during the course of the year.
So increased traffic is expected, but the question we have to analyze is whether the traffic is increasing faster than would be expected, causing Fresh & Easy to grow sales more extensively than previous experience would predict.
Another question is whether the traffic increase is profitable. We previously noted $5 coupons off $20 purchases. We also noted, both here and here, automatic discounting schemes of 25 to 50% to sell product before the date stamped on it.
These types of things may boost sales and traffic and reduce shrink, but they depend on secondary effects — the same people buying other items while they are in the store — to be the basis for building profitable business.
This letter is important because it is providing additional evidence that Fresh & Easy is now changing and in significant ways:
Some in-store large displays are sold at reduced prices. I have seen a couple in the grocery sections.
Some people like to use words such as EDLP-Plus, but in the end, this is really a move away from EDLP in order to compete with the High/Low supermarkets.
A four week promotion on 10 russets @ $1.99 and 8# large navels @ $2.99. These were packed in the growers’ label, in traditional cases (corrugate and bins), and now a 24-oz grape tomato pack (no sign for pricing) by Andrews and Williamson in their label, container, and on a traditional pallet and not one of the Fresh & Easy slave pallets.
It starts out by making “exceptions,” but this willingness to sell product under the growers’ labels has a logic of its own. If product can be bought and sold less expensively without expensively repacking it, why should 99% of the produce be repacked?
Further, if Fresh & Easy is going to sell under shippers’ brands, might that lead to a reconsideration of some suppliers? After all, if everything is private label, then quality, consistency and dependability are all that count, but if you are going to let shippers put their name on the product, consumer perception of that name starts to matter as well.
- Cut the meals section by 8’ and are stocking wines in that area.
- Cut their bakery section by 12’ and are stocking groceries in that area.
As our correspondent indicates, this change is probably motivated by an effort to reduce shrink. Another way of thinking of it, though, is that it is reconciliation to the kind of volume the stores actually are doing.
The willingness to change is especially important since Fresh & Easy just rolled out without a chance to test its concept.
Yet, every change creates its own problems.
As our correspondent says, even increased business challenges the ordering system to avoid out-of-stocks.
And reducing the space devoted to fresh products may reduce shrink, but it may also mean less assortment and that can start a downward cycle of its own.
In the very first piece we wrote in the Pundit about Tesco’s new venture in America, we wrote that one of the overarching obstacles to its success would be the likely path its fresh prepared offering would take:
“…the substantially lower population densities in the U.S. will make it difficult to sell at the volumes necessary to keep the fresh food, especially the fresh prepared food. It also will be difficult to keep it fresh, safe and appealing. Then the concept will face a dilemma: Keep stocking the fresh prepared foods in variety but experience unacceptable levels of shrink, or scale back the variety, which will make the stores unexceptional. It’s a Hobson’s choice, but could well be Tesco’s.”
With this news of Fresh & Easy cutting back on the space devoted to bakery and fresh meals, it seems that Tesco is making its own Hobson’s choice.
Many thanks to our correspondent for his perceptive letter.
