Here in the United States, the analysis of Tesco’s Fresh & Easy division has focused a great deal on operations — where are the stores located, why are out-of-stocks so high, how are consumers reacting to self-checkout and the Fresh & Easy brand, etc.
In the United Kingdom, on the other hand, much of the analysis is performed by investment bankers interested in the value of Tesco’s stock. Mostly this is spreadsheet work and putting estimates into models to ascertain valuations, which all rest on certain fundamental assumptions. These assumptions typically were whispered into the ears of the analysts by Tesco itself.
For example, we ran a Special Issue analyzing some research produced by a London-based institutional stockbrokerage known as Execution Limited. Much of our piece was a critique of the data collection methods utilized, but the report was filled with interesting background on the things Tesco was claiming for its concept. For example, this line told us how Fresh & Easy should be benchmarked:
Last November Tesco told us that F&E aimed to be as good as Walgreens for convenience, as good as Wal-Mart for price, as good as Whole Foods for freshness and as good as Trader Joe’s for differentiated products.
Convenience, freshness and differentiated products are subjective matters very difficult to research. Price, however, is pretty straightforward.
Although hundreds of commentators have given opinions on Fresh & Easy’s pricing, the comments all seemed anecdotal. We were unaware of any published efforts to systematically assess the price competitiveness of Fresh & Easy.
PRODUCE BUSINESS, the Pundit sister publication, rose to the challenge. In its May 2008 edition, PRODUCE BUSINESS took its rolling, multi-year, research project that studies the price competitiveness of different retailers vis-à-vis Wal-Mart and decided to look at Los Angeles, which provided a perfect opportunity to include Tesco’s Fresh & Easy concept in the comparison.
The methodology used was simple. PRODUCE BUSINESS went into a Fresh & Easy — it used the one in Arcadia — and wrote down the price of every item in the produce department.
We eliminated those items that could not be fairly compared — proprietary fresh-cut blends for example — and then visited four neighboring stores: a Vons (Safeway), a Wal-Mart Supercenter, a Ralphs (Kroger) and a Stater Bros. store.
Fresh & Easy typically sells packaged produce by the piece or pieces and most of its competitors sell bulk, so PRODUCE BUSINESS had to equalize weight to make them comparable. In some cases we actually purchased items, weighed them and calculated the price based on weight.
The comeuppance: Fresh & Easy isn’t even in Wal-Mart’s league when it comes to price on fresh produce.
It is not the most expensive in the market, however. That “honor” goes to Ralphs, which comes in at a whopping 24.92% over Wal-Mart’s prices. On the other end, Stater Bros. is the closest to Wal-Mart coming in at 7.70% over Wal-Mart in produce pricing.
Even Vons beat out Fresh & Easy, coming in at 13.57% over Wal-Mart. Other than Ralphs, Fresh & Easy was the priciest in the market, coming in at 15.09% over Wal-Mart’s produce pricing.
Fresh & Easy actually did worse than the raw data implies. Many of its competitors were selling well known brands, such as Dole, Chiquita, Del Monte, Sunkist, etc., and Fresh & Easy offered almost exclusively its own brand and no well known consumer brands.
It is difficult to firmly set a value here, but we generally found Fresh & Easy selling smaller sizes. Its bananas, for example, were smaller and under the Bonita brand. These products typically sell for lower prices on the wholesale market than do the larger bananas under the Del Monte or Chiquita brands being sold in the other retailers.
This leads us to think that Fresh & Easy would actually need to be lower priced than Wal-Mart for consumers to see it as an equivalent value.
Although the study focused on pricing, a side effect of the methodology is that we gather information on assortment, and Fresh & Easy offered the most restricted assortment of all the stores studied. The SKU count comparison in the produce department provided a striking difference between the stores:
Vons: 942
Ralphs: 777
State Bros.: 655
Wal-Mart: 479
Fresh & Easy: 215
Although a big chunk of the difference is accounted for by dried fruit, nuts and other dry items, the assortment numbers do say this. If the consumers don’t value Fresh & Easy for its prices, they are unlikely to do so for its assortment.
It is a fascinating and important study. So often, we seek out complicated explanations when simple ones will suffice. Perhaps Fresh & Easy isn’t doing well because it isn’t offering consumers that good a deal.
You can read the article and see the complete price comparison charts here.
If you would like to subscribe to PRODUCE BUSINESS, we will include a back copy of this issue containing the price comparison in LA. You can subscribe right here.
