Commentary

Fresh & Easy Finally Gets It Right, And Exits

If you’ve ever had a bad day at the office, you probably will empathize with Tesco CEO Philip Clarke who, when asked by a radio interviewer yesterday about the company’s disastrous 199-outlet foray into the American market, replied “I’d rather not talk about it.”

The Guardian’s Andrew Simms takes that demurral as a launching pad for dissecting the failure not only of Tesco’s U.S. expedition but also of what he says looks like a “fundamentally flawed” business model. He compares it, on the one hand, to the sprawl of the British Empire in its heyday and, on the other, to the comeuppance of another overly ambitious martial civilization.

“Having already withdrawn from Japan and shifted to a more cautious gear in China, admitting defeat over North America is reminiscent of another empire -- Rome,” Simms writes. “Once it had passed its peak, it suddenly looked vulnerable.”

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Maybe the AP’s Danica Kirka was listening to a different broadcast because she distinctly heard Clarke give something of an explanation for the losses on the American front.

“It's never easy to walk away from something,” Clarke told the BBC, Kirka reports. “The world is so different now from 2004 and 2005 when the research was originally taken. Who was shopping on a smartphone back then?”

In any case, Tesco formally threw in the tea towel on its U.S. venture yesterday after booking a loss of $1.8 billion. It hopes to sell the chain, with stores in Arizona, California and Nevada, intact. Good luck with that, say analysts such as Planet Retail’s David Gray, according to the Los Angeles Times’ Tiffany Hsu.

“Instead, [Gray] said, potential buyers such as Aldi Sud, Family Dollar Stores Inc. and Dollar General Corp., as well as possibly some drugstore companies, may try to snap up chunks of the chain,” Tsu writes. “Fresh & Easy's small size -- about 10,000 square feet per store -- may make it unappealing to big-box warehouse retailers such as Wal-Mart, whose average super center is 182,000 square feet.”

Allyson Stewart-Allen, head of International Marketing Partners, told the BBC’s “Today” program that “Fresh & Easy just didn't look like an aspirational product. Americans don't want to be told they're on a tight budget, and Fresh & Easy's concept was all about people on budgets.”

It was also “very confusing,” she says. “You had champagne next to ready meals next to merchandising. It was a very confused proposition for Americans who couldn't work out what exactly they were.”

The Independent’s Simon English blames it all on Sir Terry Leahy, the former Tesco CEO, whose “final, hubristic act as boss of the supermarket was to lead a charge into the U.S., presumably on the assumption it is a nation desperately short of food, where folk just don't eat enough.”

Masses of research supported “the line spun by Tesco to UK hacks and analysts,” English continues, that “U.S. supermarkets [were] no good.” Balderdash, he asserts, by and large they are better -- and a little chain called Wal-Mart seems to have a handle on the market.

(If you need further proof of Leahy’s hubris, consider this tidbit from The Telegraph's Rachel Cooper: “I actually bribed my children to sort of inform on my wife Alison if she popped into [rival supermarket] Waitrose when she picked up the kids from school,” Leahy said in a radio interview in February.) 

And if you are looking to draw larger lessons from Tesco’s demise in America in the face of ever-expanding grocery aisles and the heavily marketed items that fill them, the Guardian’s Simms suggests that “we have entered a period of great economic questioning” about overconsumption that is “largely detached from consequences.”

“Pictures of smiling people and happily grazing animals on packaging bear as much relation to reality as did the joyous workers and natural abundance in Stalin-era paintings of Soviet realism,” he writes.

That may be, but as Shore Capital analyst Clive Black tells the Sun’s Steve Hawkes, Tesco “didn’t do their ‘homework’ on what Americans wanted. Americans have got big cars, big freezers, often big bellies and Tesco tried to make a go of something akin to a Tesco Metro convenience store,” he maintains.

Which is why I personally think Stewart-Allen’s theory about aspiration makes more sense than Simm’s theory about a looming austerity. Whatever you do, don’t take those happily grazing animals off our food packaging -- or off our dining room tables, for that matter.

6 comments about "Fresh & Easy Finally Gets It Right, And Exits".
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  1. Jonathan Tavss from Scarlet Strategic, April 18, 2013 at 11:21 a.m.

    I think it had a lot more to do with branding, design and store locations than what Americans do or do not want. Admittedly, my exposure is limited to their locations in the Los Angeles market, but it quickly became very clear how Fresh & Easy was positioned counter-intuitively and ineffectively.

    The first store I visited was a huge space on heavily trafficked tourist destination Hollywood Boulevard. It was large, dark and depressing. Another location was also in midtown on a heavily trafficked car artery with no abundance of parking spaces. And the last one I was in a week ago was probably the best model of what they should have been doing all along - a small, bright and colorful store in a heavy pedestrian area near USC.

    Beyond their questionable locations and early dreary decor, they should have positioned themselves as the perfect last minute spot to pick up quality prepared meals and sundry items on the way to work or on the way home for dinner. They couldn't/shouldn't have felt they could compete with the established big markets.

    The article compares them to a Wal-Mart, but Tesco should have positioned Fresh & Healthy as more akin to a refined and healthier 7-11 - like their own Tesco Metros back in the UK. That healthy option would have been the right aspirational touch - especially in Southern California.

    Fresh & Easy might have worked if they had stronger positioning. It seems they were even unclear on who they were meant to be. Because of that, their marketing never worked. It's a shame, because if you look at their location near USC, they could have focused on smaller spaces in higher foot-traffic (or more easily accessible) areas to create something akin to the Marks & Spencer Simply Food product in the UK.

    The promise of getting in and out of a market in five minutes with inexpensive essentials and healthy prepared meals would have been something that might have made it a success.

  2. Paula Lynn from Who Else Unlimited, April 18, 2013 at 11:55 a.m.

    Logic would tell you the ivory tower guys at Tesco should be only ever hired again as shelve stockers and cashiers at minimum wage, not to mention give their bonuses and salaried back to investors. As those investors move on, it's not just what didn't happen correctly, it's to make sure other businesses are not jeopardized by such horrid management. Hello Shore Capital, that means you too.

  3. Steve Climons from Crossover Creative, April 18, 2013 at 1:03 p.m.

    I think Jonathan is right on the positioning in being a healthier 7-11. The bubbas may not have liked it initially but just like anything else eventually they would try it either because of girlfriends or doctor's orders.
    On the other hand in the right spots and smaller size the traditional yuppie or single parent female would have been good targets.

  4. William Levin from No Worries Fundraising, April 20, 2013 at 3:41 p.m.

    I went into a Fresh and Easy in the Sacramento area when the stores began to open here. I was disappointed. The items were all prepackaged and I couldn't tell if the produce was really fresh or not. I had my calculator with me and did some comparison shopping. When it was all said and done the items at the Fresh and Easy were considerably more expensive than at a typical supermarket in the area. Tesco also made a commitment to build additional stores in the Sacramento area and went so far as to secure special consideration from the City of Sacramento to build stores in economically impacted areas of the city. As of this date the new stores are NOT under construction or remodeling of existing storefronts. Bottom line is there isn't a market for Fresh and Easy in America without a major remodel of the typical store. We have Trader Joe's, Whole Foods, Nugget Markets as well as Safeway, Raley's and Bel- Air markets in the region now.

  5. George Sloan from Customer Strategy Consulting, April 22, 2013 at 2:35 a.m.

    We have a Fresh & Easy near us in Los Angeles. Just north of the 10 Fwy heading towards Beverly Hills. We have shopped there since it opened, and it used to be empty most times, now it seems to be busy most of the time. As an ethnographer, my 2 cents worth would be on four fronts.
    First, they had problems managing the self-service aspect of the store - I regularly saw outright theft going on. Staff were never really monitoring the area and customers were often confused with the self-checkout model. Self-service check-out is only just beginning to catch on, but consumers still struggle with it. Ralphs in the area has a self service lane that has a cashier there helping with over 50% of the shoppers using that lane. Vons has not yet introduced self-checkout in the area, although I have seen it during the day in one of their Pavilions stores near Hollywood.
    Second, F&E never really understood the audience they were appealing to. The location is right next to a lower income neighborhood - their product is not a low income appeal product. To my mind their appeal is more to a convenience shopper, who would also shop Whole Foods, or maybe Trader Joes. The store is a mile or so north of a Target that just introduced a grocery section in the last couple of years. There are no Walmarts anywhere in the area within 10 miles or more. They should have positioned the store in a different demographic area, where people are willing to spend more for the convenience factor. Their convenience food does look good, but we never bought it.
    Third, the whole prepackaged concept is a British concept and not something I see here in US grocery stores. Being a Brit, I grew up with it. My wife did not and hates it. Buying tomatoes, as an example, in a package is not something consumers here are used to seeing, or buying. And the type of packaging is not one that allows touching the goods to feel if it is the level of freshness you are looking for.
    Lastly, the preponderance of product offered is their own label product - a tough sell if you don't know who Tesco's is. Store brand labels are often seen as generic labels in the US - a low price equivalent. That does not fit with the higher prices they generally charge. Although once tried, their quality and taste is as good as many of the name brands.
    As an aside, one item my wife and I got used to in the store were the daily baked goods from Il Fornaio, such as croissants, priced at a very reasonable $1. The Whole Foods equivalent are $1.99, and of equal quality. Unfortunately, F&E must have realized they weren't making any money on these and stopped selling them. Such a shame! I think as someone said, they never really understood their consumer. Doing their research was all very well and good, but look where it got them based on faulty assumptions. Ask Coca-Cola about faulty assumptions when they introduced New Coke!

  6. Thom Forbes from T.H. Forbes Co., April 22, 2013 at 5:22 a.m.

    Thanks, one and all, for such informative reporting and commentary on Fresh & Easy.

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