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Pundit’s Mailbag —
Too Critical On Tesco?

In addition to the extensive reporting and analysis we have offered on Tesco and its Fresh & Easy venture in the United States and material written in sister publications (most recently a column entitled Merchandising Disconnect in PRODUCE BUSINESS), our analysis has been found sufficiently compelling that we are often consulted by investment bankers in London. Last month, for example, we participated in a conference call on behalf of Citi with important investors.

We have also been called on to help various newspapers present the situation for their readers. In the five major cities where Tesco’s sudden announcement of a “pause” has been important news, we helped the local community understand the situation by being quoted in at least one newspaper in each city.

In the UK, The Times of London asked for our input in a piece entitled As Another Analyst Confirms Low Sales, Fresh & Easy Brings In More Help.

The Los Angeles Times published our take on the situation as part of an article entitled, Fresh & Easy A Tough Sell For Shoppers.

In Nevada, the Las Vegas Review Journal shared our understanding with its readers in piece called Fresh & Easy A Tough Sell.

The Arizona Republic explained the situation to its readers by including quotes from us in an article entitled, Fresh & Easy Delays Openings.

The San Diego Unioncovered the issue with the help of our input in a piece published under the headline, Fresh & Easy Chain To Take Breather From Opening Stores.

Among the letters we received as a result of these comments is this letter from a retail consultant who came to our website and read our piece entitled, Fresh & Easy Vendors Uneasy:

After reading your comments about Tesco’s Fresh & Easy stores in the San Diego Union this morning, I went to your web site and read your latest comments on the company. I find it interesting when the “experts” find it expedient to criticize a company without looking at the entire picture.

The fact is Tesco has opened 61 stores in a very short period of time. If you know anything about retail you know this is quite an extraordinary accomplishment. It is also not uncommon when rolling out a number of stores for things to not go as planned. So it makes perfect sense to step back, re-evaluate what you are doing, fine-tine the process and operation and then move forward.

It is entirely possible that Tesco somehow failed to let their vendors know they would be slowing down or stopping the expansion along the way. And to even suggest they might pull the plug on the business at this point and not pay their vendors is nonsense. In my observations and knowledge of this company, they have always operated in an honorable, business-like manner.

With considerable experience rolling out new formats and opening new marketplaces, I can assure you Tesco has done some things very well. Have there been mistakes? Yes, it is not possible to undertake such a bold venture without making some mistakes.

I would like to suggest that you might want to step back and give them some time to see if this concept will work. Retail is a tough business, and anyone who is willing to invest the kind of resources and people such a venture requires should be given some latitude in making it work. Wouldn’t you agree?

Tesco is not a client of mine and I have no vested interest in their success. As an active and interested participant in the retail industry, I do hope they succeed.

— George Whalin, President and CEO
Retail Management Consultants
Carlsbad, California

We have never had the pleasure of meeting Mr. Whalin, but we bet he would have some good stories. His web site explains:

George Whalin’s experience in retail is extensive and first hand. He started his career on the sales floor and worked his way up. In the 1960s, he opened and managed the original Guitar Center on Sunset Boulevard in Hollywood, California. He sold instruments to the Beatles, Rolling Stones, Jackson Five, Grateful Dead, and many more well-known and not-so-well-known musicians….

It is an impressive tale and a very different one from the food industry background of the Pundit. Still, we think we do some beautiful music of our own right here on these pages. Let us try to play our symphony in response:

First, we do not “criticize” Tesco or any one else. We state what has occurred and analyze it. In our experience, the stronger an organization is, the more it welcomes such scrutiny. There are chains far bigger than Fresh & Easy, bigger even than Tesco, that have passed Pundit articles around, held meetings at which Pundit pieces were discussed and sometimes even asked the Pundit to visit their headquarters and view the assessment we made as an opportunity for self-improvement.

If we analyze a company’s operation, we are doing the company a favor; basically giving them consulting services for which we would normally charge a small fortune. And, in fact, we do a job that they could never accomplish, because their vendors will never be as honest with them as they are with us.

It is not important for them to think we are always right. That is a standard few paid consultants live up to. They can even think us foolish… it doesn’t matter.

Momma Pundit taught us a long time ago: “Wise men learn more from fools than fools from wise men.”

Second, as far as our not ‘looking at the entire picture’ — we have written over 75 articles on this Tesco/Fresh & Easy venture just here on the Pundit. Many more in sister publications, had our ideas scrutinized by a couple of dozen skeptical journalists from both trade and consumer publications and held up under the withering scrutiny of hedge funds and investment bankers who were paying us good money to assess the situation. We are not aware of anyone who has written more or thought harder on this subject. If we haven’t looked at ‘the entire picture’ we have no idea who has.

Third, without a doubt, opening a lot of stores in a short period of time is a difficult task. The ability to do so shows a certain type of competence. Yet competence comes in various varieties and this type may not be determinant.

For example, if in order to open a lot of stores in a short period of time, Fresh & Easy accepted secondary or sub-par locations that lose money, what was accomplished by rolling out stores quickly?

If by rolling out stores quickly, Fresh & Easy avoided real life consumer testing that might have told Tesco that the right size is 20,000 square feet rather than 10,000 square feet, what was accomplished by rolling out quickly?

Very possibly, the need to roll out so quickly showed an enormous weakness in the concept and a fear that the concept could be so easily copied that they had to jump-start the process. Wal-Mart didn’t sign leases for hundreds of supercenters before the first one was opened.

In some things, Tesco has shown great competence; in others, say out-of-stocks, it has not. But in the end, even great competence at execution will not make a success of a bad concept. So the question is whether or not the concept is right for Americans. Our take is that it may have a place, but not a $200,000-a-week place. Our take is that the concept might work in certain geographies — say Manhattan — but not in the quasi suburban locales Tesco selected to start with.

Fourth, although we doubt it, we don’t deny the possibility that Tesco had always intended to “pause” its roll out. Here is what we wrote:

Either Tesco is not telling the truth, which means it is prepared to lie to protect its interests, which, to a vendor, simply raises the question of what other things it has been told that may not be true.

Or, perhaps worse, Tesco did always intend to “pause” and yet never told the supplier base, which means it acted in a spirit of utter contempt for the costs it imposed on the supplier community.

These are the only two possibilities we are aware of… we are open to another if someone cares to make a suggestion.

Fifth, Mr. Whalin writes critically of our suggestion that Tesco guarantee the debts due to vendors of Fresh & Easy: “And to even suggest they might pull the plug on the business at this point and not pay their vendors is nonsense.”

However, by Mr. Whalin’s own admission, Fresh & Easy is not a client of his, so if something did happen it would not be his money on the line. It was not us, but vendors, particularly those not covered by the PACA, that are nervous about this.

We agree, even if Fresh & Easy is closed, Tesco will probably pay the debts — but why should we have to speculate? Tesco can remove all doubt by extending a corporate guarantee. The fact that the company doesn’t do so is likely because it prefers to keep its options open — and its vendors vulnerable.

Sixth, it goes without saying that a concept can be changed over time and might not work now but might work in the future. In fact, we have made some suggestions on how to make it work. We actually believe the right thing to do is to split the chain into an Aldi-like chain and a Trader Joe’s-like chain.

Like Mr. Whalin, we think the ‘pause’ is a good thing and we have said so — why keep rolling out a failure? Better to pause and fix it. Yet, so far, we are not seeing the willingness to make the radical changes that we think are essential to success. We are also mindful that the enormous distribution center and thick executive staff cannot be supported by the small number of small stores Fresh & Easy currently has and that the company is paying rent on stores it is not opening. Plus competitors are likely to zero in on the existing stores. so an extended pause is going to be very expensive.

Fresh & Easy has as much time as Tesco is willing to give it money to operate — the Pundit doesn’t take any time away from it.

Sixth, as we have written before, we too would like to see Fresh & Easy succeed. It would provide the industry with a new retail concept to be rolled out across the country and a major new buyer in an age of consolidation.

The Momma Pundit, though, had another adage: “If wishes were horses, then beggars would ride. If turnips were watches, I’d wear one by my side.”

That we wish Tesco success matters little; our reporting and analysis of the facts matters a great deal.

We thank Mr. Whalin for advancing the industry discussion on this important issue.

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