A very quiet British invasion
A new chain of mid-size grocery stores -- each about the size of a Trader Joe’s -- is quietly being readied for a full-scale assault this fall on Southern California.
With little fanfare so far, Tesco, Britain’s largest retailer, is spending as much as $2 billion to launch Fresh & Easy Neighborhood Market, starting in the Southland, Las Vegas and Phoenix. Tesco, with more than $80 billion in annual sales, already operates in 13 countries and has about 370,000 employees.
The company already has about 100 stores in the works that might alter the supermarket landscape, possibly driving down prices and competing for workers, all at neighborhood locations away from huge shopping centers.
Traditional supermarkets have the most to lose, said Mohan Sodhi, a UCLA-trained management professor at City University in London, because the Fresh & Easy stores “will be closer to your home and easier to get into and out of.”
“The U.S. is known as a graveyard for U.K. companies who have gone there and failed,” he said. “But Tesco has gone against the grain to go into California.”
Competitors recognize the threat and are working to blunt the attack. “We don’t exactly know what they are going to do in their stores,” Michael Schlotman, chief financial officer of Ralphs parent Kroger Co., recently told investors. “But you can rest assured” that the chain is “strategizing on exactly what kind of a reaction we need.”
Preparations for the launch come as Southern California’s major supermarket companies are locked in negotiations over a new contract with the grocery workers union. The union hopes to organize Fresh & Easy workers, but Tesco says it’s too early to discuss its labor strategy.
It says it will offer competitive wages and benefits, including healthcare coverage and a retirement savings plan for employees who work at least 25 hours a week.
The first stores are expected to open in late October or early November. The company plans to offer a selection of foods, liquor and personal items and create about 2,500 jobs over the next year. But don’t expect the British firm to stock hometown favorites such as sausage rolls, creamed tapioca and Yorkshire pudding.
Offerings at Fresh & Easy will be “less processed” than most packaged food, said Simon Uwins, Tesco’s chief marketing officer. “We won’t use artificial colors, artificial flavors and added trans fats.” And the company won’t sell cigarettes.
Leases have been signed, vendors have been enlisted and liquor licenses have been applied for, but this has been a hush-hush operation for months.
Tesco has a prototype store hidden in a Hawthorne warehouse where it tests new ideas and products. But there’s no name on the building. It is tucked away in a gritty industrial area, and the windows are sealed with blinds and reflective material to make it impossible to see what’s going on inside.
A mammoth warehouse under construction in Riverside is perhaps the clearest indicator of just how vast this operation is.
A tiny paper sign, barely visible from the road alongside the I-215 freeway in Riverside, points the way to ground zero for Tesco. No other markings advertise what’s going on behind the chain-link fence at this address, but it’s impossible to miss.
On a parcel larger than Disneyland, the retailer is building an 820,000-square-foot distribution center that will feed hundreds of Fresh & Easy stores in central Los Angeles, San Diego, Phoenix and Las Vegas. This depot contains a freezer bigger than almost two football fields and a refrigerator twice that size.
The stores -- each with about 10,000 square feet of selling space -- will offer a carefully chosen selection of meats, produce, wine, packaged goods, dairy items and prepared meals “designed for people to do their regular shopping,” said Tesco’s Uwins.
The Fresh & Easy stores will stock about 3,000 products, a much smaller selection than what’s found in a traditional supermarket. A larger supermarket might offer 10 brands of soap, but Fresh & Easy will have just a couple.
Instead of large tables of apples and other produce, fruit and vegetables will be displayed in rows of smaller bins.
The heart of each store will be an area that Fresh & Easy is calling the “Kitchen Table.” It will function like a food information desk. Customers will be encouraged to stop and chat with employees trained to answer questions.
Prepared food, meals people can grab on their way home from work, will be a major part of the formula. “If we are successful we will get multiple trips each week,” Uwins said.
The company has also pledged to open locations in all parts of Southern California, including poorer areas often shunned by traditional grocers.
Tim Mason, chief executive of El Segundo-based Tesco USA, has remained mum about many details because he knows established rivals are watching carefully. But Tesco started planning its assault two years ago.
The company identified 60 families in target markets who were willing to talk about and demonstrate their shopping habits.
“We went shopping with them, we prepared meals for them, they kept logs for us,” Uwins said. “What they told us was that they want fresh but affordable food.”
The company then built its secret mock-up in Hawthorne of what the new concept would look like.
But the company has tried to keep the location secret and is quick to shoo away visitors who discover the site, out of fear that competitors would sneak a peak. “We want our customers to be the first to see what we are doing,” Uwins said.
The stores are being designed to use less electricity. Windows will be placed to provide more natural light. The air flow on the refrigeration units is being modified to reduce power consumption by 10%.
Outside signage and freezer lighting will rely on energy-efficient bulbs. Shipping and packing materials will be either recycled or reused. The Riverside distribution center will have 500,000 square feet of solar panels, costing $13 million.
Already, Vons owner Safeway Inc. is warning its employees that if Fresh & Easy takes off, it could mean “fewer hours in our stores and perhaps fewer employees, too.”
Steve Burd, Safeway’s CEO, said in a recent conference call with investors that he wasn’t surprised by the natural and ecological approach Tesco is employing in its effort to quickly gain market share in the West.
Safeway plans to push its own credentials. It is remaking many of its Vons stores in Southern California to fit its “Ingredients for Life” campaign. It has greatly increased its offerings of organic products and prepared foods, while adding hardwood floors and track lighting to make its markets more attractive.
“As things like organics and eating right and other things become more important to consumers,” Burd said, “we intend to be ready.”
Jeff Noddle, CEO of Albertsons parent Supervalu Inc., told investors he believed that Fresh & Easy will touch everyone in the food business. “I think they’re going to be as much competition for fast food and restaurants as they are for supermarkets and certainly for convenience stores.”