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Fresh & Easy 3: The Final Chapter

Today’s Hartbeat represents the final installment in our ongoing Fresh & Easy chronicles.

Unlike George Lucas, we’re not going to lie to you and show up several years later with a trio of tales that preceded the Fresh & Easy saga.

To that end, it would be nice if what began some two and a half years ago could be crafted into a Hollywood-style ending for this final entry in our trilogy. Alas, there just wasn’t enough plot material left to work with.

Act I: The curtains open on Tesco’s Fresh & Easy

Our first volley on the subject of Fresh & Easy’s arrival in the US marketplace came from our report published in February 2008, “Hartman on Tesco’s Fresh & Easy Neighborhood Market: how Fresh? Does Easy Matter?”

Our view was far from optimistic.

There we noted that that Fresh & Easy felt like a stranger in a strange land; as if it were dropped down from the heavens above as a prefab solution to a hypothesized set of consumer “needs.” Far from the category killer many had suggested, Fresh & Easy seemed, er, flat. Or, as one particularly insightful consumer summed it up, “I just don’t get this place.” The bottom line was that we predicted then—in February of 2008—that Fresh & Easy was headed for serious trouble in the US.

Our belief has never wavered.

In the ensuing years since that report’s publication, there’s been a vigorous public dialogue in analysts’ circles and other forums as to whether or not Fresh & Easy was succeeding. What was interesting in those debates was that any discussion of actual consumer reactions to the store consisted primarily of the observation that there were surprisingly few customers to be found in the aisles. Meanwhile most of the analyst discussions focused on one or two “marketing propositions” that Fresh & Easy was allegedly failing or succeeding on:

    “Say what you will, their mix of private label with premium brand seems like sure fire hit to us…”

    “You have to love what they’re doing with fresh, prepared and RTE options…”

    “So far Fresh & Easy doesn’t appear to be keeping a firm hand on pricing margins...”

Missing in many of these discussions was any real consumer-centric perspective as what was compelling, special or unique about Fresh and Easy. In other words, if Fresh & Easy is working, then who is going there and why? And if not, why aren’t they shopping there?

And so the arguing, disputation and kvetching continued unabated, as analysts chimed in from afar. Meanwhile the Greek chorus from the Fresh & Easy camp remained predictably upbeat.

Act II: In which the main character begins to acknowledge the error of their ways, but tragically cannot find the inner strength to change

After the initial chorus of arguments and debates dwindled, it was now incumbent upon the folks at Fresh & Easy to acknowledge that, by whatever metric, the brand was not quite living up to its promise.

Our second commentary in March of 2009, Tesco’s Fresh & Easy Finally Comes Clean, analyzed this discussion and commentary in great detail.

While finally admitting publicly that, indeed, Tesco had stumbled with its Fresh & Easy rollout in the U.S., most of the comments were relegated to price as an abstract marketing proposition. Specifically, Tim Mason, head of Tesco’s U.S. business, noted in The Sunday Times:

    "We may have assumed that certain elements of the Fresh & Easy brand would do the work for us, and we would not have to go down and dirty on price. That may have been a mistake."

And in classic problem-solving form, the folks from Tesco had already claimed to have isolated the source of this error, apparently a failing of market research:

    Marketing director Simon Uwins said: “We went into people’s houses, talked to them about food and food shopping. We went into their kitchens and poked round pantries.”

Unfortunately, Mason now admits, they did not poke around their garages, where they would have found huge freezer chests bulging with stockpiled meat bought on special offer.

Apparently the answer was going to be all about price, and they would have known if they had just opened up some doors and headed down into their consumers’ garages and basements.

We found the decision to focus on price particularly bizarre because from the beginning, Fresh & Easy always promised aggressively low everyday prices. To that end, our initial research actually highlighted price competitiveness as one of the few areas to receive high marks from consumers given the typical shopping occasions encompassed by Fresh & Easy.

And for that matter, why on earth would the folks at Tesco ever believe that Fresh & Easy should be competing for consumers who purchase meat by the freezer load?

It was intuitively clear then what is painfully obvious now. Namely, those in charge of Fresh & Easy had no clue about what was happening with consumers in the US.

Act III: In which our hero takes a fall.

Flash forward another 16 months and today we find that Tesco management’s continued refusal to acknowledge the most basic truths has caused investors to feel the need to intervene. Marketing Daily published the following summary:

    Shareholder activists challenged the company's executive compensation plan, precisely because of the fat salary it will pay Tim Mason, CEO of Fresh & Easy. While the board's recommendations did ultimately pass with 53% of the vote, 38% of the votes were against the proposal, leading the Financial Times to call it one of the five biggest shareholder rebellions in more than a decade. "The extraordinary opposition vote reflects investor outrage over the excessive pay awarded to Tim Mason, Tesco's second-highest paid executive, despite the dismal performance of the U.S. Fresh and Easy business he oversees," Michael Garland, director of value strategies for the CtW Investment Group, a U.S. group representing union-sponsored pension funds, says in a statement.

As Tesco management remains tight-lipped, the shareholders themselves feel the need to comment on this issue. Only their collective voice is less a hushed commentary than a boisterous, desperate plea for some recognition that this model is not working.

First the Hartman Group, then the analysts & media, and now the shareholders. One wonders what it will take to right the sinking ship.

As it happens, there may be solutions already in the works.

For as the same Marketing Daily summary mentioned above notes:

    While some analysts are calling for Tesco to cut its losses now and exit the U.S., Prevor says there continues to be plenty of speculation that the retail giant will find a bigger way to both cloak the extent of its missteps with Fresh & Easy and still expand in the U.S. -- either through acquisition, joint ventures, or even franchising.

    "There have been plenty of rumors about executives flying back and forth to Minneapolis, home to Supervalu, which is struggling, and it also owns Save-a-lot, another small-format store," he says. (Save-a-lot, a limited assortment chain that competes with Aldi, he says, is heavily owned by franchisees.)

Whether Tesco moves forward by joint venture, M&A or “cloaking its missteps” remains to be seen, but the implications in any outcome is that Fresh & Easy clearly wasn’t resonating with US shoppers.

The Encore: In which the smoke settles and path to redemption appears clearer

Lest this appear a woeful tragedy, we believe there is surely hope left for the proposition, if not the brand itself.

Our own research demonstrates that there really is a white space for small format stores—especially when they maintain a more narrow focus on specific shopper desires. But as we’ve said repeatedly, this is not a one-way street. Initial retail trial and success depends not on innovation workshops or supply chain efficiencies, but on an ongoing relationship with shoppers in their indigenous lands—on their home turf and with mutually agreed upon rules.

And while you may get the impression we believe the Fresh & Easy management team are similar to the orchestra that provided beautiful background music to the sinking Titanic, that is simply not the case.

For we believe there are always strategic solutions to any challenge or situation, no matter how dire they may be. But the first step is to quit trying to cloak your troubles while avoiding the most obvious of truths. It simply doesn’t work.

In a word, tragedy.

Finally, we invite readers to examine our previous white paper, “Hartman on Tesco’s Fresh & Easy Neighborhood Market: How Fresh? Does Easy Matter?” a lesson as to the potential pitfalls that await those who carelessly expand into other cultures with the mistaken belief that you can manage afar, from the top down.

Never forget. If you are going to venture to a far off land and attempt to enamor yourself with the native peoples and customs, you’ll need to play by their rules.

This piece of advice may strike some as ironic when you consider that we are merely speaking of a successful British company trying to do mainstream business in America within an era of globalization.

And yet, the evidence once again points to the limits of colonization, whether we’re talking about the 17th century Dutch or 21st century Brits.


Consumer Package Goods Culture


As leaders in the study of American food culture, The Hartman Group has been tracking how Americans shop for food since the 1990s. From one-stop shopping to multichannel shopping to online markets and click-and-collect, we continue to track consumers’ evolving perceptions, needs, habits and relationships with food retailers. New to the 2017 report is a special section on the expansion of the discount grocery channel, the emerging fresh-format channel and smaller-footprint retail formats.


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