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Tough sell for Fresh & Easy

The grocer may be missing sales targets by 70%, analysts say. It halts store openings.

April 01, 2008|Jerry Hirsch | Times Staff Writer

Fresh isn't turning out to be all that easy.

With much fanfare, British retailer Tesco this fall billed its Fresh & Easy Neighborhood Market chain of small grocery stores as a fresher, more convenient alternative to large supermarkets when it opened its first stores in Southern California.

Nearly six months later, it looks as though many shoppers aren't buying it. The chain remains optimistic but says it is suspending the opening of U.S. stores for three months.

At the same time, financial analysts believe the Brits may be missing their sales targets by as much as 70%, but the company maintains a stiff upper lip.

"We are encouraged. Every week we see more customers and higher sales," said Simon Uwins, Fresh & Easy's marketing chief. He declined to discuss specific sales figures.

But many customers, competitors, grocery experts and financial analysts say they are not convinced that the much-ballyhooed British invasion of Southern California has been a success -- at least so far.

Fresh & Easy plans to open two stores in the coming weeks, bringing its total to 61 in the Southwest, with 31 in Southern California. But then the chain plans to put a halt on store openings until July.

"We need a time to settle the business and kick the tires," Uwins said.

Shoppers vary widely in their impressions. Some customers like the selection, the prices and the convenient locations. Others say they can't find the products and brands they want and they see no reason to change their shopping habits.

At the store in east Long Beach recently, there were almost as many Fresh & Easy employees as there were shoppers. Meanwhile, at two other nearby supermarkets, customers waited at check stands two to three deep with stuffed shopping carts. The Fresh & Easy competes head-on with Stater Bros. and Albertsons, all located at the intersection of Palo Verde Avenue and Spring Street.

"I know there is a Fresh & Easy across the street, but I like the prices at Stater Bros. and the selection works for our family," said Bill Mattingly of Long Beach as he finished shopping at the Stater Bros.

Ernie Herrera, a Stater Bros. customer from Norwalk, said he wanted to check out a Fresh & Easy, "but I haven't been able to find one." He was unaware that there was a store in plain view from the back of his truck where he was loading groceries.

Despite the sparse store traffic, Fresh & Easy has gained a loyal, if small, following.

"I come almost every other day," said Lisa Pollinger of Rossmoor, who spent about $25 on assorted groceries at the Spring Street store. "I like the packaging and the sizes and the quality of the meat and produce."

Susan Savage of Long Beach said the store was clean and easier to navigate than a traditional grocery store. "It is just less confusing."

Fresh & Easy could become a success, said Willard Bishop, a retail strategy and marketing consultant in Barrington, Ill., but it's going to take some work. The management must be patient and work to better understand and fix what's gone wrong, he said. He estimated that the stores were doing $60,000 to $70,000 a week in sales, instead of the $200,000 investors had expected.

Since the chain opened Nov. 1, Fresh & Easy has suffered from supply problems, it's battled with labor unions and neighborhood groups, and it has developed a reputation for arrogance in dealing with its vendors.

And a judge recently ruled that a massive Riverside County warehouse that is the hub of Tesco's multi-state distribution network did not have the correct environmental approvals and could be shut down barring a successful appeal or mitigation agreement.

The entire venture, about $700 million of investment, is "miles off target," said a report by Mike Dennis, a senior analyst at the London office of investment firm Piper Jaffray & Co.

The stores are averaging a 70% decline from expectations, Dennis wrote in a report to investors.

Even before learning of the suspension of openings, Dennis believed the chain had to be anxious about its early performance. "Tesco must be concerned that the Fresh & Easy concept is not right and that they need to quickly find out what the issues are," he wrote.

The grocer has already made a couple of changes to its business plan, such as taking American Express cards and adding to its selection of prepared foods. It named Jeff Adams, an American who formerly headed Tesco's stores in Thailand, to an undisclosed executive position to strengthen the management team as it considers more expansion.

Dennis believes Adams will be the No. 2 executive at the chain and will be responsible for figuring out what's gone astray and how to fix it.

Tesco, the world's third-largest retailer, has spent years researching how to crack the U.S. market and has committed to spending $2 billion over five years to make it work.

The company's Fresh & Easy stores are about the size of a typical Trader Joe's grocery. Each store carries about 3,500 products, with about half sold under the Fresh & Easy house label.

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