DESPITE the sniping and sniffiness of competitors and critics, Tesco’s new
American chain Fresh & Easy does have its supporters.
Jobless Steven Lowe has been coming to the Compton branch of Fresh & Easy
in Los Angeles since it was opened by Prince Andrew in February. He now
shops nowhere else.
“I really hope it’s a success,” he said as he wandered round the store last
week. “I would hate to turn up one day and find it closed.
“Some people round here may think the store a little expensive, but I think
it’s worth paying a little extra for food that’s a little more special.
“I come here because I can get food like pancetta. Today I got yellowfin tuna.
Now, I can buy tuna over the road at Food4Less, but it won’t be yellowfin.”
Unfortunately for Britain’s biggest retailer there are too few people like
Lowe. At lunchtime last Wednesday a hush had descended on the Compton store.
The atmosphere was more churchlike than businesslike and only a handful of
shoppers strolled the aisles.
America has long been a graveyard for the ambitious global-expansion plans of
British retailers. Now, on both sides of the Atlantic, there are growing
fears that Tesco’s experiment is doomed to fail. When its results are
published next week, the retailer will be under pressure to come clean about
the success or otherwise of its American adventure.
The supermarket’s announcement that it is taking a three-month pause after a
frenetic opening programme of 61 stores in five months has been seized on by
critics as evidence that Britain’s biggest retailer will be forced into an
embarrassing retreat. Analysts at Panmure Gordon last week slashed their
sales forecasts for Fresh & Easy and predicted the division would lose
£65m in 2009 - more than double their previous estimate.
Even before Fresh & Easy opened its doors last autumn it was clear there
was trouble ahead for Tesco.
A motley collection of competitors, suppliers, neighbourhood groups and labour
unions joined forces to start a whispering campaign designed to derail its
high-profile entry into California.
A judge ruled that Fresh & Easy’s huge Riverside distribution warehouse
did not have the correct environmental approval and could be shut down.
Even Democratic presidential hopeful Barack Obama weighed in with a letter to
Tim Mason, Fresh & Easy boss and Tesco US president, urging him to work
with concerned local community leaders to strike a so-called
community-benefits agreement - a written pledge of promises about the
rewards its opening would bring to local areas.
The United Food and Commercial Workers International Union stepped up its
campaign against nonunion-recognising Tesco, dubbing the chain “Fresh &
Queasy” and questioning the freshness of its produce - claims that Tesco
vehemently rejects.
And on the blogs, the Fresh & Easy format has been criticised as “boring,
sterile and depressing”. One blogger said the produce was not attractively
wrapped and came in crates resembling office removal boxes.
Branded suppliers, frustrated by the fact that more than half of Fresh &
Easy’s 3,500 products are own-label, have wasted little time spreading
rumours that the chain is on its knees.
Mike Dennis, retail analyst at Piper Jaffray, a renowned Tesco sceptic, made a
name for himself earlier this year by printing an unsourced report
suggesting that Fresh & Easy was missing its internal sales targets by
as much as 70%.
James Anstead, retail analyst at Citi-group, also piled on the pressure,
demanding separate sales figures for the American division when Tesco
publishes its full-year results. Anstead has accused the chain of being
disingenuous after it emerged that Tesco included its fledgling American
figures within its UK numbers during the six-week Christmas trading period.
Jim Prevor, an influential commentator on the American grocery market, has
regularly criticised Fresh & Easy on his website, Perishablepundit.com,
insisting the concept is flawed and needs to be rethought.
In short, Tesco’s entry to America may be fresh, but it is proving anything
but easy.
Tesco has already made changes. It now takes American Express cards and it has
drafted in Jeff Adams, an American who formerly headed its Thai business, to
strengthen the management team.
It is clear, though, that plenty of work still needs to be done.
Perhaps deliberately, Fresh & Easy has, to date, done very little
advertising, and customers still talk about “discovering” the chain or
“stumbling across it”.
Promisingly, the few customers to be found in Fresh & Easy seem to love
it. The Hollywood Boulevard store, right next to Grauman’s Chinese Theatre,
draws a yuppie following who previously shopped in expensive convenience
stores.
Last Wednesday, however, in mid-afternoon, the store was eerily quiet. An
aspiring actor was dispensing slices of watermelon from the kitchen counter.
Young people on the fringes of the movie business were dropping by to pick
up something for dinner at home while they watched American Idol on
television. The handful of customers that had made the trip, though, were
unremittingly positive about the concept.
“This place is truly awesome. I hope it doesn’t go away,” said CBS television
set-builder Brandon Edgar, 29, who lives in an apartment a few blocks away.
“We’ve only just discovered it and it’s much better than the local Ralphs
supermarket. I don’t know why it’s so quiet - maybe the store needs to
advertise more or give out coupons. The stuff is good and the prices are
lower than we’re used to paying. We enjoy our trips here.”
Edgar’s girlfriend, Liz Lake, a 24-year-old massage therapist, said: “I
appreciate the fact that so many of the goods are eco-friendly and organic.
It’s a cool place. We’ve only just discovered it, but we keep coming back.”
Tesco insiders are perplexed by some of the criticism aimed at how the
business has been introduced to America. They point out that when they
rolled out Tesco Express in Britain they had a pause in the opening
programme and they maintain it is natural to revisit and tweak a new format
in a new market. They insist that plans are still on track to have between
150 and 200 American outlets by February 2009.
It is hardly the first time that competitors and the City have tried to write
off Tesco’s international expansion ambitions - the chain faced similar
sniping from doubters when it opened in Ireland and Hungary. Both markets
are now thriving.
One analyst was scathing about the critics. “This is scare-mongering. It’s
vested interest and it’s wrong,” said Andrew Kasoulis, retail analyst at
Credit Suisse. “Actions and eventually facts and figures will speak louder
than words and idle gossip. This is a long-term sport. To have a view based
on a few weeks trading in a fledgling business based on no facts at all is
amateur, frankly.”
Clive Black of Shore Capital agreed. “The American business is a pimple on an
elephant’s backside in terms of Tesco’s overall sales.
“And trading for the first six months is not far short of irrelevant. [Chief
executive] Sir Terry Leahy said from the start that he had found a gap in
the market, but he didn’t know if there was a market in the gap - but it’s
not wise to bet against Tesco.”
