Southland debut could be difficult for Fresh & Easy
Britain’s largest retailer may not find much of a welcome mat Thursday when it opens its first stores in Southern California.
The first six of what could become hundreds of Tesco’s Fresh & Easy Neighborhood Markets face a rocky reception in the Southland.
Community organizations plan to protest the lack of stores in poor neighborhoods. A labor-oriented group says it will distribute leaflets discouraging shoppers. And the newcomer’s large, well-entrenched competitors say they are ready for the challenge.
“We have a business to protect and we have a strategy that will protect it,” said Steven Burd, chief executive of Safeway Inc. which owns the Vons and Pavilions chains.
Fresh & Easy is a $2-billion concept that could either revolutionize grocery shopping in California with its Trader Joe’s-sized stores -- heavily dependent on house-brand goods and prepared foods -- or flame out like previous British forays into the U.S. supermarket industry.
The new effort combines a belief that consumers think shopping at big stores is inconvenient and that the region’s roughly 2,000 supermarkets and ethnic grocers don’t offer enough fresh, healthful food.
“We have talked to people across California from all different types of households and what we heard back was very consistent,” said Simon Uwins, Fresh & Easy’s marketing chief. “People wanted fresh wholesome food available in their neighborhood at affordable prices.”
This is no ordinary new business coming to town. Tesco is the world’s third-largest retailer, with an international reputation for market research, product development and distribution.
“I am not going to sell these guys short. They have succeeded all over the world,” said Michael Besancon, president of Whole Foods Market Inc.’s Southern Pacific region.
Tesco plans is to create a network of hundreds of 10,000-square-foot stores throughout California and into Nevada and Arizona, all supplied from a massive distribution center in Riverside County. It aims to open 200 stores by February 2009.
The stores will be open 8 a.m. to 10 p.m. daily. Each will carry only 3,500 products, barely 10% of what’s found in a traditional grocery store. Most goods will be in small packages -- a roll of paper towels, a container of chicken tortilla soup, a flat of six Roma tomatoes. About half the products will carry the Fresh & Easy house label and about 10% will be prepared food, just a microwave stop from the dinner table.
Fresh & Easy won’t accept coupons. It won’t have a loyalty or club card program. It won’t have a union workforce. And for now its only advertising will be a direct-mail flier sent to nearby homes every two weeks.
Some shoppers got an early peek at Fresh & Easy’s Hemet store earlier this week ahead of Thursday’s official start.
“The unique characteristic of people here is how many different stores they shop in to get food every week,” Uwins said. “We are trying to put that all back together in one easy package that is convenient.”
The industry is divided on whether Tesco has that right.
“Tesco is very good at understanding consumers around the world and engineering their retail propositions to provide what shoppers want,” said Ben Miller, an analyst with London-based IGD, an international food and grocery research firm.
Others aren’t so sure.
Hundreds of small stores with limited selection better fits “the European model of grocery shopping, where people have small cupboards and refrigerators,” Besancon said.
If it turns out to be a groundbreaking concept, Whole Foods and the other big chains can all quickly roll out small-store formats that would compete with Fresh & Easy for both real estate and shoppers, Besancon said.
Fresh & Easy will also have to overcome other partialities of American shoppers. They like big shopping carts, extra-large value packs and lots of choice.
Shoppers “typically don’t like a limited selection unless the price is really good,” said Andrew Wolf, an analyst at BB&T; Capital Markets in Richmond, Va.
And Fresh & Easy will have to improve upon what Tesco does in one overseas market, said Tom Brodek, who returned to his Studio City home last week after living in Ireland for six months working on a TV series.
Brodek said there were four Tesco markets nearby and “they are, without a doubt, the messiest supermarkets I have ever been in. Unstocked shelves, messy aisles, poorly organized shelves and a feeling that no one really cares about the customer.”
Tesco is trying to appeal to California consumers by marketing Fresh & Easy as an environmentally and socially responsible business whose stores will become part of the fabric of their neighborhoods.
But labor and community groups say much of Fresh & Easy’s marketing is just spin.
That’s why Elliott Petty, a retail policy analyst at the Los Angeles Alliance for a New Economy, will be handing out leaflets -- “informing people about Tesco’s track record of broken promises” -- outside the Glassell Park store this afternoon and Thursday.
Although his group, a coalition of community, religious and labor organizations, is stopping short of calling for a boycott, “we want to make consumers uncomfortable shopping there,” Petty said.
The alliance is joined by Community Services Unlimited, which provides food and nutrition education in South Los Angeles, in protesting the lack of Fresh & Easy stores in poor neighborhoods even though Tim Mason, chief executive of Tesco’s U.S. operations, has stated that the company would open stores in underserved areas.
But a study by Occidental College’s Urban & Environmental Policy Institute found that Tesco was doing little to fulfill a pledge to open outlets in low-income neighborhoods that had poor access to grocery stores.
The study specifically identified “the much publicized Adams and Central ‘food desert’ location” and “other sites in traditionally underserved central, south and east Los Angeles neighborhoods” as being left out of Tesco’s plans.
Moreover, three-quarters of Fresh & Easy locations in Los Angeles County were found to be in areas where the median income was higher than the county average, the study said.
Uwins said Fresh & Easy eventually would locate in underserved neighborhoods, but it was taking time to get the real estate deals done and the buildings launched.
In a report to investors earlier this month, investment bank Credit Suisse also raised questions about whether Tesco would be a player in low-income neighborhoods.
The report noted that the median annual household income in the area around the Manhattan Beach store was $101,000 and that Fresh & Easy’s neighbors would include a Trader Joe’s and such upscale brands as the REI sporting goods chain and an Il Fornia Italian restaurant.
“Are the food deserts Fresh & Easy is attempting to target really isolated? Judging by the proximity of traditional supermarkets, we’re not sure,” analyst Michael Exstein wrote.
But Credit Suisse is upbeat on the prospects for Fresh & Easy. The investment bank said the chain could become profitable in its third year of operation and estimated that it would have more than $2.5 billion in annual sales by 2010.
For Safeway’s Burd, the predictions elicit a sense of deja vu.
First there was the Internet grocers. “They imploded,” Burd told investors recently. “And then Costco was going to affect us. And then Wal-Mart was going to affect us and then Trader Joe’s and Whole Foods.”
But Safeway’s Vons stores, as well as its big rivals Ralphs, Albertsons and Stater Bros., are still financially sound, even though Burd said he “can’t recall how many times in the last 15 years someone” was going to affect their fortunes.
