Food for Thought

Tesco’s Fresh & Easy Neighborhood Market, which generated more pre-opening publicity than just about any other concept in the history of the supermarket segment, has met with encouraging consumer response and fairly good grades when compared with both convenience stores and supermarkets. But the chain will need to re-evaluate product variety, pricing and even store hours to become a financial success, according to a customer survey.

SIRS, a Fort Mitchell, Ky.-based marketing and research firm, interviewed about 300 primary food shoppers at the first Fresh & Easy store, in Hemet, Calif., about 10 weeks after it was opened. (As of late February, Tesco has about 55 Fresh & Easy stores in Southern California, Arizona and Nevada.)

The survey results are “going to surprise a lot of traditional retail food people,” says SIRS CEO Chris Ohlinger, whose firm also interviewed eight supermarket executives who had visited the stores. “They all felt it would not be a threat because it was a convenience store. Unfortunately for them, over 50 percent of consumers view Fresh & Easy as an actual supermarket.”

Tesco officials have said they plan to invest more than $2 billion in the concept over the next five years.

However, “Fresh & Easy is in the process of really redefining how people shop and the people who are shopping the store like it. The concept really dominates when compared with other convenience stores and is in the ballpark when it competes against traditional supermarkets,” says Ohlinger, citing consumer comments.

Fresh & Easy rates strongly in several major measures — convenience, overall as a place to shop, perishables and people. And, while it doesn’t excel in price, it does perform well in terms of total value; respondents cited the time-saving factor of a 10,000-sq.-ft. store.

Fresh & Easy also received high scores in the area of trust — even though customers were not that familiar with the name or even that of its parent company. “It’s amazing because they have a lot of private label and this can be a difficult sell in terms of trust,” Ohlinger says. “Frankly, trust is something very few retailers have as a strength.”

Quality vs. variety
Shoppers also gave Fresh & Easy solid marks for meat and produce — even giving it an advantage over other food stores, according to the SIRS survey. “This was surprising since they have quality but not variety,” Ohlinger says. “They also received credit for the quality of their take-out heat-and-serve products, even though there wasn’t a large selection.”

One of Fresh & Easy’s weaknesses is inconvenient store hours (8 a.m. to 9 p.m.), which don’t fit the lifestyles of people in the area. “Think of it this way,” Ohlinger says. “McDonald’s sells more salads between 6 a.m. and 8 a.m. than at any time during the day; people pick it up on their way to work. So if you’re not open until 8:00 a.m., it can hurt.”

Consumers also weren’t enamored with the store’s HBC presentation, a limited selection of both national brands and private label. Another perceived weakness is the modest size of the produce and meat departments.

While official sales data for the stores was not expected to be released until later this month — and most analysts feel it would be prudent to wait until April 2009 before rendering judgment — some industry observers are already weighing in. Piper Jaffray analyst Mike Dennis was quoted in London’s Evening Standard as saying that, with average weekly sales of $170,000, the stores are falling short of Tesco’s target of $200,000 and that the concept needs to be reset.

“The overall indication seems to be negative,” Dennis says. “This begs the question of how bad it could be for Fresh & Easy stores across California, Arizona, Nevada and what it would mean to Tesco’s long-term growth and international strategy in the U.S.”

A Tesco spokesman responded that it was “ridiculous” to make judgments so soon after the first store opened, a point that Ohlinger concedes. “If consumer acceptance holds up, there’s a good chance that they may be redefining food shopping not based on demographics but on situational targeting,” he says.

“Think about the evolution of club stores and supercenters,” he says. “They segmented people based on who wanted one-stop shopping and low prices. When Whole Foods came out, it segmented out consumers who wanted a healthier lifestyle.

“Fresh & Easy is more of a situational segmentation for people who are on the go,” Ohlinger says. “They don’t need to make a long stop at the food store but they do have needs for that night or for the office — the need to pick up good quality food in a hurry. It transcends demographics since all groups seem to like the store.”

The concept, Ohlinger says, is “positioned well, but vulnerable. Store hours are relatively short, they are missing the health and beauty aids connection and their price reputation is not very well communicated or well perceived by customers. If they lose their perishables position, they could be in real trouble.”

Awareness may still be an issue, he says. “A lot of people in the trade area still didn’t know they existed and any new concept can take several years before it is well accepted and makes money.”

Borrowing from Wal-Mart?
Tesco may be borrowing a development strategy straight out of Wal-Mart’s Supercenter playbook. “Wal-Mart opened several [Supercenters] then learned how to operate them properly,” Ohlinger says. “I think that’s what we’re seeing with Tesco. Their first entries are not going to be their best entries, but they are tapping into a legitimate market and changing how people shop. It just takes people a while to learn how to change their shopping patterns.”

Are retail executives now starting to change their mind about Tesco’s concept? “We haven’t asked them yet,” Ohlinger says, “but I suspect not because they can’t measure the effect of one Fresh & Easy on one of their stores much like you couldn’t measure the effect of one McDonald’s restaurant opening next to your supermarket 40 years ago.”