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Will Tesco Keep Its Promises?

Jim Prevor’s Perishable Pundit, December 19, 2007

Our piece, Tesco Takes Heat For Not Supporting Underserved, pointed out that the Los Angeles Times has attacked Tesco for not fulfilling its promise to locate stores in the “food deserts” of Los Angeles — areas without supermarkets so that residents typically must pay the higher prices of local bodegas or convenience stores.

The piece brought several notes, including this one from an important grower/shipper:

The LA Times editorial you quoted included this reference:

The first Fresh & Easy locations opened last week in Glassell Park, Anaheim, Arcadia, Hemet, West Covina and Upland. The much-heralded store in South Los Angeles was not among them.

Tesco offers an explanation for the delay: That store will be part of a development at Adams Boulevard and Central Avenue that also will include affordable housing, and the residential portion of the project hasn’t yet secured all of its funding.

This begs the question of whether Adams and Central in Los Angeles is really underserved residential. It is 15 or 20 blocks from USC.

The Los Angeles produce market is on Central Ave and Olympic (about 10th Ave.), and Adams is about 15 blocks south. It’s kind of light industrial as I remember, and I can’t quite remember that exact location of the garment district, but there are ‘back to downtown’ gentrified buildings moving that way. The apartments might be ‘affordable’ because they are 650 sq ft.

Not more than 10 or 15 blocks west on the ‘Figueroa Corridor’, the Staples Center is on Olympic, the LA Convention center is on Washington (about 20th St), Adams kind of starts USC student housing area, Jefferson (about 33rd) starts the campus, and Exposition (about 40th), starts the Coliseum, the Rose Garden, the Museums, which are all part of Exposition Park.

It’s south central LA in the sense that if you get arrested in that area, you are booked at the south central division of LAPD. (They tell you that as part of freshman orientation at USC)

The truth is that there are no places in LA without supermarkets.

We also heard from a former Sunkist employee, who gave us some insight into his former employer here, and now has opined on this controversy:

The complaints from the LA Times signify less the tone-deafness of Tesco than another example of the LA Times just not getting it. Not a surprise for those of us who live in Los Angeles.

As a resident of metro LA for most of my life, and knowing the areas that Tesco is looking at and going into, they, in fact, represent a broad swath of incomes, ethnic and socio-economic demographics.

The use of the term “food deserts” in reference to South LA shows that the LA Times does not understand or care to understand basic economics. It also does not understand the changing demography of South Central LA.

This area is increasingly Hispanic, mostly recent immigrants who are not acculturated, and less and less African-American. The Hispanic populations in the urban parts of southern California that consist of recent immigrants are serviced primarily by small ethnically oriented stores that have lots of produce in them.

In addition, the food deserts that came into southern California were a result of the Watts riots in the 60’s and the flight of the middle income black families into other areas of greater LA.

This flight took the income that could support a supermarket such as a Vons (Safeway), Ralph’s (Kroger) and Albertsons out of the area. The 1992 riots was the final coup de grace for retailers in South Central. Should a retail business feel guilty for closing a space that cannot support its operating costs, let alone delivering a profit? Of course not. Here are some facts to put things in perspective:

  • Tesco (Fresh & Easy) HQ in LA is in El Segundo. Distance to Watts: 10 miles. A little bit less as the crow flies.
  • The LA Times building in downtown LA. Distance to Watts about 10 miles.
  • A one-way commute of 40+ miles is common in greater Los Angeles.
  • Ralph’s has a store in Compton — yes, that Compton.
  • Ralph’s also recently announced plans to go back in South Central LA.
  • Vons has a store in Gardena — just as bad, just without the “Gangsta Rap” street cred. So does Albertsons.
  • Census tracts are not the best way to measure consumer traffic, and the inherent message is that Fresh & Easy should be located next to liquor stores.
  • And what poverty rates are they studying against? I’m pretty sure the poverty rate for the USA is much lower than what one would consider the poverty rate for LA. $20K goes a lot further throughout the rest of the USA than LA County or even the state of California.
  • And lastly Fresh & Easy is geared to a specific niche: Multiple-person households that need quick-and-easy meal solutions. Perfect sense here in LA with the commuting we do. Think single Moms and two-income families with children. Or a Trader Joe’s household with small children located in urban and suburban settings.

Let’s let Tesco get a firm footing in the Southern California market before the LA Times starts mongering its usual pabulum and accepting its musings as the gospel.

— Delos Walton

We are a big believer that every retailer should decide where it wants to put its own stores. The story here is less that Tesco is doing anything wrong by locating its stores where it thinks best than it is a lesson for all business in press relations and managing expectations.

Nobody complains that Whole Foods or Bristol Farms isn’t opening stores in the hood. If Tesco had simply said it intends to open stores everywhere there are customers willing and able to support its concept and left it at that, it would get no more heat on the issue than does Von’s or Ralph’s.

In this case, however, it was Tesco that raised the issue. As the LA Times said:

When British grocery chain Tesco announced that it would expand into Southern California with its new line of Fresh & Easy Neighborhood Markets, shoppers and local officials took heart. They were particularly excited about the company’s stated commitment to doing business in underserved neighborhoods, including South Los Angeles — where affordable, fresh groceries have been hard to come by since the 1992 riots.

We think urban supermarkets, certainly in bad areas, almost have to be left to independents. Every urban store we have personal knowledge of succeeds because it breaks the law — not in a malicious way, but doing what it has to do to stay in business.

This May mean paying “protection” money, using a garbage carrier that has been “pre-selected” for it, perhaps locking the night crew in the store for restocking so the store isn’t robbed blind — in violation of fire codes, taking shoplifters down to the basement to “teach them a lesson” so they will not come back, etc.

Few chains can do these things because you can’t write a policy that says employees will do illegal things. Yet it is hard to stay in business in these milieus if you don’t. The few exceptions are typically very large stores that can afford a fortune in security charges — typically hiring actual policeman to be on site 24 hours a day. Because of holidays, vacations and sick time, a store typically has to be able to pay the salaries of around six full time police officers — to always have one at the store!

In this case the point was two-fold:

First, Tesco needlessly raised expectations by promising to open stores in under-served areas.

Second, having asked to be evaluated by that standard, it was completely predictable that advocacy groups, labor unions, the press, government agencies, etc. would be looking to that criteria. Clever issues management of the situation required Tesco to open a store in a “food desert” early on, Maybe as its first store — and bask in the reflected glory of its socially responsible nature.

Our assessment is that this is just the first of many areas in which we are likely to hear that Tesco didn’t deliver on its promises.

For example, Tesco hasn’t released any statistics, but it made a big deal that its employees will all have access to “comprehensive” health insurance. In all likelihood, this health insurance will either provide poor coverage or will be sufficiently expensive that most employees won’t buy it. After all, an employee who earns $10 an hour working 20 hours a week is only making around $800 a month — how much can that employee afford to pay for health insurance?

In all probability, for all the socially responsible talk, the percentage of employees covered by health insurance, pensions, etc., will compare very unfavorably to the employees at unionized operators such as Von’s and Ralph’s. This will all come out and Tesco will wind up looking worse than if it had never made such high falutin’ promises at all.

We appreciate the insight both of our correspondents delivered to the intricacies of the LA market.

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