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Execution Researchers
Acknowledge Limitations:
“We’re Not US Food Retail Analysts…”

We’ve studied many reports on many retailers including Fresh & Easy. If a report tries to predict future profitability, the speed of store rollouts, etc. as this report does it is essential to assess the prospects for competitive reaction. Yet the report acknowledges a lack of expertise in this area: ‘We’re not US food retail analysts…’ and makes no mention at all of well known competitive responses such as the development of small footprint stores by Wal-Mart and Safeway. The use, as we mentioned here, of loyalty card data to target Fresh & Easy consumers for special offers is also ignored as is renovation and new store location activity.

Instead, apparently knowing little of the market, the researchers rely on consumer perception of competitive response. Yet dominant market leaders are unlikely to mention Fresh & Easy by name. They just will send consumers discount coupons for organics or crusty bread or whatever they think Fresh & Easy is strong in. So consumers are unlikely to note a competitive response and, in fact, have not:

“The main obstacle to Tesco’s US success as we see it is the competition. So far only 11% of consumers have noticed a competitive response to F&E’s market entry, with no one competitor standing out as having made a big response. However as competitors start to lose sales we doubt they will remain passive for long. In F&E’s favour is its wide consumer appeal, meaning that it will attract market share from a broad variety of sources.

To understand the competitive dynamic better, we asked customers where they intended to shop less as a result of spending more at F&E. The chart below shows that Albertsons has the most to lose, with 21% of interviewees saying they would spend less there, followed by the local supermarket chains: Vons (in Los Angeles and Las Vegas); Ralphs (in Los Angeles) and Smith’s (in Las Vegas). F&E is not as developed in Phoenix, Arizona, yet, but local retailer Fry’s will also suffer. Wal-Mart and Trader Joe’s are not immune either.”

Beyond the obvious that if a new competitor takes big market share the local chains will suffer, the only way one can really make heads or tails of this assessment would be to know the exact locations of the stores surveyed and then plot out the competitors. Some of it may just be semantics. Albertsons, for example, is called Albertsons in Los Angeles, Phoenix and Las Vegas. Kroger, however, is called Ralphs in Los Angeles and Fry’s in Phoenix and Smith’s in Las Vegas.

The report gives no hints that the authors of the report have any such knowledge. So they never think to explain that, although the study says Albertsons has the most to lose, this assessment is only by banner. According to this research, Kroger really has the most to lose, with 31% of the Fresh & Easy shoppers saying they will spend less at a Kroger banner to shop at Fresh & Easy.

This is not an insignificant omission. Clients of an investment bank who read a research report may be doing it to assess competitors. Perhaps they are considering acquiring a stake in Kroger? To not clarify issues such as banner ownership leaves a lot of loose ends for clients to figure out themselves.

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