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Tesco Finally Opens Doors… British Press And Protesters Unimpressed

Jim Prevor’s Perishable Pundit, November 9, 2007

The build up to the Tesco opening in America is now over. The Times of London’s Los Angeles correspondent hasn’t exactly been enthusiastic. In fact, he titled his column Tesco in the US? It’ll never work:

…Now, to me, the idea of the British selling ready-meals to Californians makes as much sense as the Iranians selling Second World War text books to the Israelis. There’s a culture problem. A big one. I get the feeling that Sir Terry already knows this: nothing else could explain the almost military secrecy that has surrounded the Fresh & Easy project since its inception. You would think they were developing a tactical nuclear weapon, not a selection of microwavable dinners.

You can’t fault Tesco for not doing its homework…

Which makes Fresh & Easy’s debut “dinner made easy” promotion all the more inexplicable. This is what they are offering: “A 25oz beef lasagna, Caesar salad, ciabatta loaf, and bottle of wine, all for under $12.” Yes, Sir Terry is trying to sell the residents of the most diet-fixated, calorie-paranoid, carbohydrate-obsessed city on Earth a combination of red meat, pasta, bread, cheese and booze. A round of applause, please, for the Fresh & Easy marketing department. Incidentally, if someone offered you a beef lasagna and bread at an LA dinner party, you’d sue them. A three-cheese lentil and tofu lasagna you might get away with — but you’d still be unpopular.

The bigger problem here is that ready meals just don’t appeal to Californians — as much as Britons cannot understand it. You can see why by visiting a Gelson’s, a Whole Foods or a Bristol Farms. These LA superluxurymarkets hire their own chefs to prepare gourmet food daily and sell it piled high at deli counters so it looks like a king’s feast. Even boxed sushi is prepared in-house, by a resident sushi chef. Of course, Tesco hopes there’s a middle ground — a refrigerated, prepackaged niche somewhere above Wal-Mart and below Whole Foods. But I’m not at all convinced….

We are not convinced either. In the column, Tesco’s Prepared Foods Challenge that the Pundit wrote in Pundit sister publication, DELI BUSINESS, we pointed out that this product line is 1) Not in line with the way Americans shop, 2) Likely to produce high shrink levels, and 3) Very expensive to deliver.

Regardless of the suitability of the concept, Tesco had its troubles at the opening. Although its stores have generally been busy, it is hard to know who is a journalist, who is a competitor, who is a supplier, who is a tourist… and who is actually a customer. Britain’s The Independent reported on protesters:

…the company’s plans for a joyous celebration of spicy blue tortilla crackers and organic crunchy peanut butter were also marred by the — metaphorical — stench of a few rotten eggs.

Shoppers who lined up for more than an hour to be among the first to patronize Tesco’s new mid-sized Fresh & Easy stores — 200 of which will spring up across California and the American Southwest over the next few months — were greeted by a giant banner on Eagle Rock Boulevard reading: “Shame on Fresh & Easy!”

On their way in, they were handed leaflets by a group called the Alliance for Healthy and Responsible Grocery Stores — a coalition of community activists, church leaders and union organizers who do not trust Tesco’s promises of a living wage for its workers, of plentiful health and other benefits, of environmental sensitivity and a commitment to serve poor neighborhoods with little or no access to fresh, high quality food.

As the ribbon was cut at exactly 10am, and shoppers filed in with a very British sense of orderly queuing, many of them read a flyer detailing the alliance’s demands for a community benefits agreement making Tesco’s promises both real and explicit.

… The 30-40 activists leafleting outside are not to be underestimated, however. The alliance was responsible for keeping Wal-Mart, the world’s largest retailer, out of an inner-city neighborhood and now wants Tesco to put its money where its mouth is when it says it will serve the most blighted parts of the city like South LA.

“We’re not trying to boycott,” the Alliance’s spokesman, Greg Good, said. “But the world’s third largest retailer has at least a moral obligation to sit down with the local community. To say people shouldn’t worry and just trust them is a lot to ask.”

Part of the problem is that Tesco raised expectations so high. Promising, for example, to serve underserved neighborhoods — this promise as well as others to provide “good jobs” and “health insurance” — will eventually be subjected to verification and it will be shocking if the various advocacy groups are satisfied with Tesco’s behavior. The Independent continues:

A study by researchers at LA’s Occidental College over the summer found that of the first 98 Fresh & Easy sites announced by Tesco, just 10 were in low-income, high-poverty areas, and only one was in an area without a full-service grocery. The first six are all in relatively comfortable suburbs.

The Occidental researchers also found that Tesco intended to employ large numbers of part-time workers, raising questions about the company’s commitment to health and other benefits.

On Wednesday, about 100 alliance activists attempted to picket a company party at the Glassell Park store but were kept off the premises by security guards. A rabbi and the head of the county labor federation tried to deliver a message to the chief executive of Tesco’s US operation, Tim Mason, but were turned away. “That was disrespectful, and disappointing,” Mr. Good said.

Yesterday, they were joined by carpenters’ union members upset at the behavior of a Tesco subcontractor at a branch in Upland in the eastern LA suburbs. “Fresh & Easy has an obligation to the community to see that area labor standards are met,” the carpenters’ flyer said..

Maybe all this won’t matter. Many consumers surely buy what they want where they want to buy it — regardless of protestors. But Tesco has worked hard on reputational marketing, and those who live by the sword can easily die by the sword.

One thing that will either be a big win or a big problem is Tesco’s decision to rely on UK suppliers transplanting themselves to the USA. The Financial Times called its piece, Tesco stakes US success on its British Suppliers:

As Tesco, the UK supermarket group, officially opens its first Fresh & Easy stores in southern California today, it is bringing with it a group of British companies who are gambling that its US venture will prove a success.

Fresh & Easy’s own-label Big Kahuna Australian wine, for instance, is imported by Cornerstone, a new US subsidiary of Copestick Murray, a wine company based in Wiltshire, England.

Its fresh poultry and meat is prepared locally by 2 Sisters Food Group, part of a private company based in the English Midlands that supplies leading UK and European supermarkets.

Fresh & Easy’s own-label bags of sugar snap peas, washed salad, fresh fruit and fresh juices are prepared by Wild Rocket Foods, a US subsidiary of the Langmead Group, a Sussex lettuce grower that built a UK-wide business from its relationship with Tesco.

Tesco’s decision to bring in partners, rather than work with local suppliers, underlines how much of a radical shift its operating model is from the conventional US grocery business..

Yet some of Tesco’s plans seem contradictory. The Financial Times continues:

By selling only pre-packed salads, it will also cut down on overheads by reducing the need for energy-consuming cold cabinets that are regularly used for lettuce and salads by its US rivals.

Perhaps, but how does selling “only pre-packed salads” comport with a desire to be “fresh”? Here is how the Financial Times describes Tesco’s current product operation in America:

Nature’s Way has set up a US company, Wild Rocket Foods, and is working with Betteravia Farms, a grower with farms in California and Arizona that is part of the Bonipak group and with Jacobs Farm/Del Cabo, an organic producer that imports from a cooperative in Mexico’s Baja peninsula. In March, Wild Rocket announced it was abandoning a plan to build a facility next to Tesco’s distribution centre, citing unexpectedly high water-supply costs, but said it would use a site elsewhere in Riverside County.

The initial feedback is that the stores are pretty much what was promised — a Trader Joe’s-like offering but with more standard assortment items. The décor has put off some people — too institutional and cold — not warm and fresh.

The real question is how big is this market? Even with opening specials, we are not hearing about them out-pricing Wal-Mart and Trader Joe’s. At the same time, we are not hearing of them being fresher and more beautiful than Whole Foods. So Tesco seems to be aiming for a mid-market that is popularly believed to be shrinking.

In fact the new Whole Foods in Pasadena seems to be stealing some media thunder from Tesco’s debut.

Tesco has invested hundreds of millions in this concept; many produce vendors are deeply invested as well. Now we have to wait for the hullabaloo to die down so we can see how consumers will really react to the concept.

Of course, that May not tell us how Tesco will ultimately do — since a wild success will surely elicit a strong competitive response.

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