Pictured above is the Fresh & Easy grocery market set to open on July 2 in a shopping center in Manhattan Beach, California. The photograph of the Fresh & Easy store was taken from in front of a Trader Joe's, which is nearly next door to the Fresh & Easy in the shopping center. The two stores even share the same parking lot. (Photo: copyright, 2008 Natural~Specialty Foods Memo.)
Tesco plans to open between 30 -to- 37 new Fresh & Easy Neighborhood Market grocery stores over a 90-day period beginning on July 2 when it opens its first new store, in Manhattan Beach, California, since taking a three month new store opening pause which began in Early April, based on information the retailer published in this press release yesterday.
Tesco currently has 61 of its small-format (10,000 -to- 13,000 square foot) combination basic grocery and fresh foods grocery markets open in Southern California, the Phoenix, Arizona Metropolitan region, and in the Las Vegas, Nevada Metropolitan market area.
In the press release, Tesco announced it will hire an additional 750 new employees over the next 90-days for the new Fresh & Easy Neighborhood Market stores it plans to open during this time period. Most of those new employees will be at store-level.
Additionally, in the press release, Tesco says it employs an average of 25 workers per-store
[Note: In most its previous press releases, Tesco's Fresh & Easy Neighborhood Market has said it employs and average of 20 workers per-store. We assume the average is 20 -to- 25, and the retailer has decided to use 25 rather than 20 now. If not, it would then appear Fresh & Easy Neighborhood Market has either revised the average, or has recently increased the number of employees it has on a per-store basis. You will see below why we mention this. It's not to knit-pick.]
Based on this data in the press release--hiring 750 employees over the next 90 days; the majority of which we know to be store-level hires from our sources--it's a good estimation that Tesco will be opening about 30 -to- 37 new Fresh & Easy stores beginning on July 2 and for the 90-day period following that.
Here's the math: 25 employees per-store on average; hiring 750 new employees over the next 90 days; equals 30 new stores during that three month period. At 20 employees average per-store, it works out to about 37 new stores. Therefore, we estimate Tesco will open between 30 -to- 37 new Fresh & Easy grocery stores over the next 90-days beginning on July 2.
We've been reporting Tesco would resume its rapid new store opening pace with Fresh & Easy at roughly the same frenetic clip it's been opening the stores at since November, 2007, which has been the opening of a new Fresh & Easy grocery store about every two and one-half -to- three days.
Numerous publications have written during the current three month new store opening pause it was likely Tesco would open fewer stores once the break ended. However, we've stated all along that would not be the case.
Rather, we've said, as the data from yesterday's press release and our analysis indicates, Tesco would start its rapid-fire new store opening machine back up once the three month pause ended and resume opening new Fresh & Easy stores once again on the average of about one new store every two and one-half -to- three days, which opening 30 -to- 37 new stores over the next 90 days in fact equates to. In other words, the new store pipeline is full and ready to be opened.
With a current store count of 61 Fresh & Easy stores, opening about 30 -to- 37 new stores over the next three months will give Tesco 91 or slightly more Fresh & Easy stores by early fall, 2008, with about three more months to go in the year still remaining to open more.
Initially, Tesco said it planned to have 200 Fresh & Easy stores open and operating in the Western USA by the end of 2008. Earlier this year the company revised that number downward, saying it would have more like 150 stores opened by the end of 2008.
In large part, Tesco revised that number down from 200 to 150 stores because initially it planned to start opening the about 50 Fresh & Easy stores that will open in the new markets of Bakersfield, Fresno, the Sacramento Metropolitan region and the San Francisco Bay Area, this year. However, the retailer has said those stores won't start opening until early 2009.
Even if Tesco has 100 Fresh & Easy stores open by say October 1, that would still leave 50 new stores to be opened between October 1 and December 31, in order to achieve the 150 stores open by the end of 2008 estimate.
In our analysis that's not likely to happen for a couple reasons.
First, it would mean opening a new store nearly every day, which we don't think Fresh & Easy plans to do; one every three days is hectic enough.
Second, October -to- December is the holiday shopping season--Thanksgiving and Christmas--which is the busiest time of the year in food and grocery retailing, making it difficult if not near- impossible to open that many, or close to that many, stores during the season.
We do believe it possible Tesco could open an additional 30 new stores during those remaining months of 2008 however, which would give the retailer in the neighborhood of 130 stores opened by the end of the year, which is close enough to 150 for even the most ambitious food retailer or pickiest analyst.
As we've written before, we can't recall another grocery retailer in modern food retailing history that's embarked on as rapid of a new store opening blitz as Tesco has with its Fresh & Easy Neighborhood Market USA venture, especially in a concentrated market region like the Western U.S. In fact, in only three Western USA states--California, Arizona and Nevada thus far--for that matter, limiting the geographic region even more.
Of course, doing so is key to Tesco's Fresh & Easy retail marketing and positioning strategy for the small-format Fresh & Easy grocery stores. It's what we call a "critical mass" store opening and location strategy: opening up as many stores within two miles or so of each other in selected markets as fast as possible with the goal of becoming in a sense the de facto neighborhood grocer in those cities and neighborhoods.
The question is: Has the three month new store opening pause given Tesco's Fresh & Easy Neighborhood Market enough time to improve and optimize its marketing, merchandising and operations in its stores so as to better compete for primary shoppers along with creating the means to generate needed new consumer trial?
Our analysis is no it hasn't. However, Tesco is viewing Fresh & Easy as a work in progress. Therefore "getting it right" right now isn't as important as getting more stores open "right now" is for the retailer. Remember, "critical mass" is crucial to Fresh & Easy's overall strategy.
Of course so are sales, margins and profits, as they must be to any food retailing chain. But the logic within Tesco in the main is those will come later.
Also what will have to come later in our analysis is a re-evaluation of many of the Fresh & Easy Neighborhood Market store locations in all three current market regions--Southern California, Las Vegas and Phoenix, Arizona Metro market.
Most of these Fresh & Easy stores are located in retail store buildings formerly owned and operated by supermarket chains like Albertsons and Ralph's, and in former Rite Aid drug stores, as well as in various former big box retail stores of various retail types.
These various stores were closed by their respective retail operators for various reasons; among them being sales underperformance in the locations.
Fresh & Easy, being a different format than say the Albertsons and Ralphs stores could eventually perform well in these locations. Additionally, in those former non food retailing locations, a food retailer might succeed where a non-food retailer failed. However, we know many cases in which Fresh & Easy stores in these locations aren't currently performing very well, particularly in the Las Vegas market, but in the other two markets as well.
That's not Tesco's primary concern at present however. Rather, "critical mass" is the focus, which is why starting once again on July 2, with the opening of the new Fresh & Easy grocery store in Manhattan Beach in Southern, California, followed by one new Fresh & Easy grocery market opening about every three days for the 90-days following that, Tesco will once again be on a Fresh & Easy Neighborhood Market new store opening tear.