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Fresh & Easy Must Go ‘Cold Turkey’ To Overcome Crack-cocaine-like Addiction To Discount Coupons

We’ve covered Tesco’s journey to America extensively and our most recent piece — Tesco Puts Up ‘Tens of Millions’ And Purchases British Transplants Wild Rocket And 2 Sisters Foods — Was A Secret Promise Made To Make The British Suppliers Whole? Did This Constitute Fraud Against Its Own Shareholders? — raised implications regarding Tesco’s behavior in taking over two British “transplants” that might justify investigation by the Serious Fraud Office.

Yet, for the US vendors, Tesco’s decision to acquire Wild Rocket Foods actually makes selling Fresh & Easy a more viable prospect.

As we mentioned in this piece, there were severe payment problems with Wild Rocket, and many vendors just didn’t want to tolerate the extended payment terms Wild Rocket was utilizing.

Now, presumably, vendors will get paid more quickly and thus more vendors will be interested in selling Fresh & Easy. Much to the chagrin of those vendors who signed on to do the work of “Category Champions,” Fresh & Easy had already abandoned its initial premises in vendor relations and started buying opportunistically.

This broader range of willing suppliers is the primary upside of ending a produce-procurement relationship that has poisoned relationships with the trade and led many good vendors to simply wash their hands of any relationship with Wild Rocket. We know of many vendors that Tesco didn’t want to lose and who Tesco executives sat down with to try and dissuade the vendors from stopping sales. In the end the conversations all went the same way: Tesco may be great, but Wild Rocket is actually my customer, not Tesco. If Tesco isn’t prepared to guarantee Wild Rocket’s performance on things like payment terms, we don’t want to continue.

Of course, being able to buy from more people is a great thing, but success will still depend on what they choose to buy and how they choose to price and market it. One of America’s most recognized experts on produce retailing has followed the situation closely and sent this note about Fresh & Easy:

Fresh & Easy has a big problem because it still has a customer base addicted to discount coupons. Staff members have told me that the executive team is aware of the problem and they would like to get off the expensive $3 and $5 coupons but when they try, when they stop giving away the discount coupons, their business drops 10-15%.

In my experience a retailer loses a great deal of “consumer respect” when it advertises a seemingly great price on a produce item and then provides a product that is less then their usual quality for the ad. This is especially true when they almost rub it in the face of the consumer by also offering their normal quality at a higher retail.

A good example is that they recently had 1# strawberries on ad at 99 cents. It was a branded berry for the ad, mediocre quality and size; they also had on display their typical Fresh & Easy brand berry, which was a nice size and very good quality at $1.99.

They do this quite often with grapes and, recently, with cherries. The cherries on the ad were in a bag, a small size and really bad quality; in contrast their regular cherries were in a clamshell and very good quality. The difference in retail was $1.30 a pound.

There are two issues here:

The discount coupons are like crack cocaine. If Tesco wants the Fresh & Easy concept to succeed, it has to bite the bullet and drop them. To compensate for the sales drop, it will need to spend a lot more money both on traditional advertising, promoting the concept, and on providing better value in the stores. It will also probably have to accept a full year cycle of unfavorable comparables until it has a new base to build from. We are not certain Tesco headquarters — or the City in London — have the stomach for that.

But the coupon-driven customers are probably what is making Fresh & Easy sell all this cheaper, low quality produce. It is creating a schizophrenic store in which both the high-end and low-end customers find much to be unhappy about.

Good old Sam Walton used to believe in selling branded products because he wanted to be the cheapest, and he felt consumers could judge that best in an environment of easily comparable product.

Bruce Peterson, when he took on the task of building a produce operation for Wal-Mart, tried to follow the concept and piggyback on the brand equity that branded produce operations have. He wanted a consumer — who hadn’t previously associates Wal-Mart with fresh produce — to see that the store sold Chiquita bananas and that they were less expensive than at other shopping venues.

The Fresh & Easy tactic smells of bait-and-switch; convince the consumers that you offer beautiful large cherries in clamshells, attract the customers in with an ad for discount cherries, and then let them see they are not discounted, they are different cherries, lousy cherries, and hope the consumers will buy your full profit item.

Maybe people with lots of free time will tolerate this treatment. But good customers, the ones who spend more freely to get what they want, when they want it, will only be attracted to a store once with this kind of shenanigan.

It is a conduct so profoundly disrespectful of consumers that it can only reduce the goodwill in which a retailer is held. It is the kind of short-term marketing that turns consumers off to big business generally and, in this case, to Fresh & Easy.

Will management in the UK give the new produce team the free rein to absorb some negative comparables while they cut out these short term games and treat consumers with respect?

Will the UK management tell Tim Mason to get off the crack cocaine of discount coupons even if it means another year of bad comparables?

If there is any hope of success, it depends on not managing this operation to get this Quarter’s numbers up.

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