Small-Format Food Retailing Memo: Tesco Fresh & Easy CEO 'Delirously Happy' About Chain's Performance to Date

The photograph above of Tesco Fresh & Easy Neighborhood Market CEO Tim Mason is from a profile piece, "Tesco's American dream is still in sight," published in yesterday's The Times (United Kingdom). The Times' caption to the photograph is: 'Not usually a man for taking the back seat, Tim Mason has led Tesco's drive into America and insists that he is 'deliriously happy' with the progress so far.'

Tesco Fresh & Easy Neighborhood Market USA CEO Tim Mason (pictured above) told The Times (United Kingdom) newspaper in a follow-up interview (yesterday) to the November 12 interview published in the paper in which the head of Tesco's Southern California-based small-format convenience grocery and fresh foods chain told the publication the grocer is postponing its launch into the Northern California market, that he's "deliriously happy" with Fresh & Easy's progress and performance to date.

This is the first time we can recall hearing the CEO of a U.S. supermarket chain (U.S or foreign-owned), and a struggling one at that, use such effusive language about the performance of the chain he runs in our nearly 30 years participating in and observing the U.S. food and grocery retailing industry.

The Blog Fresh & Easy Buzz, which covers Tesco's Fresh & Easy Neighborhood Market and the retail food and grocery industry, has a report on the interview with Tim Mason and an analysis of Tesco's Fresh & Easy small-format, convenience-oriented grocery and fresh foods chain.

You can read the story and analysis from Fresh & Easy Buzz at the link below:

Sunday, November 16, 2008: Tesco Fresh & Easy CEO Tim Mason Says He's 'Deliriously Happy' With the Chain's Progress Thus Far; We Prefer Andy Grove's 'Only the Paranoid Survive'

Fresh & Easy Buzz also has a story today about Sacramento, California's Oak Park Neighborhood Association, a group of residents who live in the city's Oak Park neighborhood and who appealed the design of the Fresh & Easy grocery market Tesco is proposing for that neighborhood to the Sacramento Design Review Board after the board approved the company's standard store design without comment.

Tesco has basically two designs for its Fresh & Easy stores that it uses in all of the markets, and new proposed markets, it is in. The first is the design it puts into vacant buildings, which the majority of the grocer's stores in Southern California, Nevada and Arizona are to date. The second design is its Fresh & Easy built from the ground up prototype design. These are new store construction projects rather than remodels of vacant buildings. The proposed Oak Park Neighborhood Fresh & Easy in Sacramento is a new, built from the ground up store.

With the exception of a few minor exterior graphic and signage differences, Tesco doesn't customize or localize the Fresh & Easy stores. The stores in Southern California, Nevada and Arizona essentially look the same outside and inside. There are some differences with the exteriors of the stores in remodeled vacant buildings based on what those buildings looked like on the outside before the remodeling. Those are accidental exterior differences though, not intentionally designed ones.

Based on the presentation by members of the Oak Park Neighborhood Association at the store design appeal hearing on October 15, 2008, the city's design review board incorporated a number of changes into the conditions of the store's design; changes Tesco must make when it builds the store in Sacramento's Oak park neighborhood.

According to the story in Fresh & Easy Buzz, despite the mandated changes, and the fact the grocer is postponing it launch into Northern California which includes Sacramento, Tesco and the developer have purchased the vacant lot where the proposed Fresh & Easy market is to be built for $1.1 million dollars. In other words it appears the grocery chain is going forward with the store. When construction will start is a whole different question.

The owner of the parcel was Kevin Johnson, the former NBA basketball all-star and native of Sacramento. Johnson retired from the NBA a few years ago and returned home to Sacramento, launching a career as a real estate investor and developer. He also founded a non-profit community-based development organization called HOPE. HOPE is headquartered in Sacramento's Oak Park neighborhood, the historically low-income neighborhood in the city where Kevin Johnson lived throughout his childhood, and where the Tesco Fresh & Easy Neighborhood Market grocery store is set to be built on land Johnson, who is now the mayor-elect of Sacramento, sold to the company for a cool million.

Read the story from Fresh & Easy Buzz at the link below:

Monday, November 17, 2008: Sacramento City Design Board Agrees With Oak Park Group on Design Changes For Proposed Fresh & Easy Store; Escrow Closed on $1.1 Million Parcel

Retail Memo: Former NBA All-Star Kevin Johnson Behind One of the Seven Tesco Fresh & Easy Grocery Markets Coming to Sacramento, California

Former NBA basketball star, and Sacramento, California native, Kevin Johnson is the driving force behind bringing one of the 19 Tesco Fresh & Easy Neighborhood Markets we recently reported are coming to the region, to the city of Sacramento's Oak Park neighborhood.

And, that's not all: Yesterday, the former ex-Phoenix Suns' guard announced he is running for Mayor of Sacramento, challenging current, three-term incumbent Mayor Heather Fargo, who last week joined Tesco Fresh & Easy Neighborhood Market CEO Tim Mason at a press conference in front of a future Fresh & Easy grocery store in Sacramento, to announce the retailer's plans to enter the Sacramento market with 19 stores, seven of which will be in the capital city.

Johnson made his announcement in a press conference at the Guild Theatre in Sacramento's low-income Oak Park neighborhood, where the 42 year-old basketball star was raised.

Echoing U.S. Democratic Presidential candidate Barack Obama's call for "change," Johnson said: "We need a change in the city. As I went out the last month and talked to people around the city, folks have said to me they believe city government is non-responsive, tired, uninspired and bureaucratic. they want something different in Sacramento. (They're) clamoring for change."

It is in this very Oak Park neighborhood, Johnson's boyhood home, where he is bringing a Fresh & Easy grocery store. Since retiring from the NBA and moving back home to Sacramento, the former NBA star has been a real estate developer, including establishing a non-profit community development corporation called St. Hope.

Johnson devotes a great deal of his time to his St. Hope non-profit organization. Among its projects has been transforming the failing Sacramento High School into a successful Charter School.

The St. Hope community development organization also has developed the '40 Acres Art Gallery and Cultural Center' in the low-income Oak Park neighborhood. The cultural center includes residential lofts, a bookstore and a Starbucks cafe.

Oak Park is one of the city's oldest neighborhoods. It's been seeing a renaissance in recent years, as projects such as those by Johnson's organization, as well as those by private developers, are revitalizing it. The neighborhood also has become popular in recent years because it's one of the most affordable in the city in terms of housing. Numerous young professionals have moved into the neighborhood, buying old houses and remodeling them, which is changing the area's demographics somewhat, although it's still low-income.

Johnson owns about 37 properties in the Oak Park neighborhood. He recently had to issue a public apology regarding the condition of a number of these properties, when the Sacramento Bee, which is the region's major daily newspaper, ran a story reporting that half of his properties had been sighted by the city for code violations over a 10-year period. The violations included vacant lots being fallow, along with garbage being allowed to fill the empty lots.

Johnson responded quickly to the Bee article however, and has moved to clean up all the lots in the neighborhood, according to the Sacramento planning department, which enforces the city's residential and commercial property codes.

Johnson's latest project is bringing one of the 19 Sacramento area Fresh & Easy grocery markets to the commercial core in the Oak Park neighborhood, on a piece of property he owns there. The neighborhood is underserved by grocery stores, especially those that offer a selection of everyday groceries at reasonable prices, along with fresh foods like produce and meats. Johnson --in partnership with Tesco's Fresh & Easy--aims to address this lack of a grocery store in the place where he was raised.

One of Tesco's strategies with its U.S. Fresh & Easy small-format, convenience-oriented grocery stores is to locate stores in what it calls "food deserts," neighborhoods that currently are underserved by grocery stores. Oak Park fits that strategy--and with the NBA All Star, and perhaps future Sacramento mayor--behind the project the location could be gold for Fresh & Easy.

When neighborhood residents and community groups heard the news about a month ago that Johnson was bringing a Fresh & Easy Neighborhood Market to the neighborhood, the response was almost universally positive. Neighborhood groups had been trying to bring a grocery store that fits the bill of offering basic groceries along with lots of fresh foods to the neighborhood for a number of years. The Oak Park grocery market is scheduled to open in 2009, probably about mid-year.

If Johnson is elected mayor, Tesco's U.S. Fresh & Easy Neighborhood Market venture just might have an important friend at Sacramento City Hall.

Retail Memo: News & Analysis: Tesco Confirms 19 Fresh & Easy Grocery Markets for the Sacramento Metro and Suburban Region in Northern California

Tesco's Fresh & Easy Neighborhood Market confirmed today it plans to open 19 stores in the Sacramento Metropolitan region of Northern California, as well as in nearby Vacaville and Galt.

Seven of the small-format grocery stores, which average 10,000 square feet -to- 13,000 square feet, will be in the city of Sacramento. Nine of the markets will be in the nearby suburbs. (See the graphic below.) Two of the Fresh & Easy stores will be in Vacaville, which is about 25 minutes from Sacramento, and one store will be in Galt, which is less than 15 miles from Sacramento, and is about midway between the capital city and Stockton, where Tesco plans to locate its Northern/Central California distribution center.

On Monday, January 28 we reported that Tesco had applied for liquor licenses for four Fresh & Easy grocery stores in the city of Sacramento (2 stores) and two stores in the nearby suburb of Folsom. We discovered this fact via liquor license applications, which are public data. As a result, we were one of the first publications to report that Tesco would enter the Sacramento region in Northern California, along with signing leases for 18 stores to date in the nearby San Francisco

Tesco's confirmation of the 19 Sacramento/Vacaville-area grocery markets, along with the confirmation it will begin opening the first of its initial 18 Fresh & Easy stores in the San Francisco Bay Area at the end of this year or in early 2009, brings to a total of 35 the number of Fresh & Easy Neighborhood Market small-format grocery stores the retailer has thus far confirmed for Northern California.

Vacaville is located about 20 miles from Sacramento, off Interstate I-80, which is the primary route from Sacramento to the San Francisco Bay Area. Vacaville is about an hour drive from San Francisco and a little over 30 minutes to the East Bay Area cities of Berkeley and Oakland. Interstate 80 rings the Bay from the Bay Bridge east, out to Fairfield (where Fresh & Easy is locating a store), then on to Vacaville, the University city of Davis, and into Sacramento.

Locating a critical mass of stores in the Sacramento Metropolitan region, then out to Vacaville and Farfield, then into the Bay Area, is the same strategy Tesco is using in Southern California. This "critical mass" strategy emulates retailers like Starbucks and Walgreen's Drugs, small format retailers which locate a critical mass of stores in city's and neighborhoods so as to position their stores as a "neighborhood" retailer.

Additionally, we can report that Tesco is looking for additional new store locations in both the Sacramento and Bay Area regions. In fact, the British grocer already has a number of other location leases locked-up (in addition to those announced) and is in negotiations for more store sites in both the Sacramento and Bay Area regions. We hope to be able to report some of those locations soon here.

As we reported first in December and again in the January 28 piece, Tesco also plans to open a new distribution center in Stockton, California to serve its Bay Area and Sacramento region Fresh & Easy stores. Stockton is located in the Northern San Joaquin Valley, about 30 miles from Sacramento, and about 60 miles from San Francisco. The location is generally no more than one hour's drive-and in many cases less--to all of the 35 confirmed Northern and Central California store locations to date. Tesco's Fresh & Easy Neighborhood Market has not yet confirmed the Stockton distribution center. Additionally, Stockton is about a 15 minute drive from Galt, where one of the 19 Sacramento-area stores will be opened.

Sacramento's Mayor joins F&E CEO Mason for AM presser

Tesco's Fresh & Easy Neighborhood Market CEO Tim Mason made the Sacramento region new store announcement with a splash this morning. He was joined by Sacramento Mayor Heather Fargo and City Councilman Ray Tretheway in front of an empty commercial building located at Northgate Blvd. and San Juan Blvd. in the city of Sacramento. The grocer will remodel the empty building into a Fresh & Easy grocery market.

By having the city's mayor at his side, Mason signaled Fresh & Easy wasn't just another grocery retailer opening a new store in town, but rather is a grocer that's making a major commitment to the city and region by opening an initial 19 stores in the region next year, with more to come.

Having Mason at her side also was good for the Mayor. Sacramento, like all of California is being battered by the sub-prime housing crisis, increasing unemployment and a host of other economic ills. Being able to announce a new business venture like Fresh & Easy moving into her city at this time will score her some major political points with voters.

The retailer also made another smart move by choosing the empty Tower Records building on Watt Avenue in Sacramento as one of its future Fresh & Easy grocery store locations. Tower Records, which later grew into a national chain, which went bankrupted in 2006, was founded in Sacramento in the 1960's--and the Watt Avenue location was its flagship store.

When the Watt Avenue Tower store closed, there literally was a period of mourning in Sacramento for the local independent record store that went on to be a huge mega-chain, then fell on hard times and was shut down.

Tesco's Fresh & Easy should gain considerable goodwill from the community for leasing, remodeling and opening one of its grocery markets in the Tower building, which is what it's called. The building has been empty for over two years.

[Note to Fresh & Easy Management]: It would be wise, and good business, to preserve aspects of the former Tower Records building when you remodel it into a Fresh & Easy market. Perhaps you should call it "Tower Fresh & Easy," or some version of that. Remember, everything is local in America, especially in Sacramento. And, in the case of an iconic building like the Tower Records' site, retaining some aspects of the building's history and culture (a plaque on the front of the new Fresh & Easy store with the history of the building would be a nice touch) will not only go a long way towards creating excellent community relations--but customers as well.]

The timing and style of the announcement was particulary good for Fresh & Easy since analysts like us and others have been writing about how the retailer's current 55 stores in Southern California, Arizona and Nevada are not performing up to expectations. [You can read our most recent analysis on Fresh & Easy store performance in posts made on Tuesday and yesterday on the blog.]

Of course, marketing an PR are only part of being a successful grocer. As we've suggested in our pieces this week, Tesco's Fresh & Easy has major operations challenges to solve and improve in addition to opening dozens of new stores and creating good PR events.

The retailer shouldn't be counted out though. Doing doing so is foolish. Tesco is the world's number three retailer, and it's track record at home in the UK and elsewhere in the world is impressive.

Tesco also has lots of cash. That's helpful to any start up. What we believe Tesco hasn't learned yet though is: it can't do retailing in the U.S. in the same way it does retailing in the UK and Europe.

Fresh & Easy is missing a key American element: localism. This missing element can't be fixed as easily as the operational problems we've pointed out in our analysis. However, its just as important--maybe even more so. And, it's essential.

Competitive environment: Welcome to Sacramento

Nowhere does Tesco need to grasp the importance of tailoring its Fresh & Easy stores better to the local environment and neighborhoods than in Sacramento and its metropolitan and surrounding region.

Sacramento has been one of the fastest-growing cities in California throughout the last decade. The Sacramento Metropolitan region has a population of nearly 2 million people. The city of Sacramento has a current population of about 600,000. In addition to being California's capital city--which means lots of well-educated state government workers--Sacramento has a mixed economy. Agriculture and agribusiness remain huge in the region, as does light manufacturing, warehousing and transportation.

The fastest growing sector in the Sacramento region's economy is in the service sector, both in state government, associated non-profit organizations like law and lobbying firms, and in the private sector. This includes the health professions, law, finance and retail. In the last 15 years the city has been transformed from being a central city in a primarily agricultural region (with the exception of state government), to the urban city center of a booming metropolitan and somewhat cosmopolitan area.

Grocery retailing in Sacramento and the surrounding region has a decidedly local flair. The region's number one (in market share and store count) grocer is Raley's, which is based in the nearby city of West Sacramento. Raley's is a prvately-held, family-owned supermarket chain that's been in business in the Sacramento region for 73 years. The locally headquartered grocery chain has 120 stores and does about $3 billion a year in sales.

The Sacramento-based food retailer operates four store banners: Raley's, Bel-Air Markets, Nob Hill Foods and Food Source. Raley's stores are 55,000 square foot -to- 80,000 square foot superstores. The stores are fairly upscale and offer lots of prepared and other fresh foods, along with tons of grocery products (including lots of organics) and a huge selection of non-foods. Most of the new Raley's banner stores are closer to the 80,000 square foot size. The Raley's banner is the chain's original retail brand.

The Bel-Air banner is an upscale supermarket format. The stores average 40,000 square feet (older stores) -to- 60,000 square feet (newer stores). They're similar to the Raley's stores--lots of upscale fresh foods, but fewer nonfoods do to their size (but still plenty). Bel-Air was an acquisition for Raley's. The Bel-Air chain at one time was Raley's chief competitior in the region. In the 1980's, Raley's acquired the grocery chain from the Wong family, who founded and operated the chain for over 50 years.

Nob Hill Foods also is an acquisition for Raley's. Like Bel-Air, Nob Hill was a long-time family-owned chain. It was based in the South Bay Area city of Gilroy, where two generations of the Bonfonte family operated it for about 60 years. Raley's acquired Nob Hill Foods in the 1990's and consolidated its headquarters in its West Sacramento facility.

Food Source is Raley's discount warehouse-type store format. The grocer created the banner in the 1980's as a way to get into the growing no frills, discount warehouse store category in the region at the time. It's the grocer's smallest banner in terms of the number of stores, but does significant sales volume in its niche.

Citizen Raley's

Raley's also is a leading corporate citizen in the Sacramento region. Sacramento's semi-pro baseball team, the River Cats--which in a big city like Sacramento without a professional baseball team serves as a very popular popular equivalent--plays it games at Raley Field, a state of the art baseball stadium in the city built in large part by the grocer.

The grocer is the number one donor to programs that feed the hungry and homeless in the region. Last year it gave over $15 million dollars to food pantry's and other programs which provide food assistance to families and individuals in need.

In fact, Raley's has its hand in nearly every charitable venture in the region--from Boy Scouts and Girl Scouts, to educational scholarship assistance, environmental causes and literally many dozens more. Additionally, the Raley-Teel family, majority-owners of the Raley's grocery chain, also has its own charitable foundation, which gives additional millions each year to local non-profit groups and supports other charitable causes locally.

The other two major grocers in the Sacramento region--Safeway Stores, Inc. (number two market share) and Save Mart, Inc. (number three market share) are fairly local guys as well. Safeway, which has about 21% of the region's grocery sales market share, has its corporate headquarters in the East Bay Area city of Pleasanton, which is only about 70 miles from Sacramento. Save Mart, which entered the Sacramento region market for the first time last year when it bought Albertsons' Northern California Division from an investment banking firm, is headquartered just 60 miles away in the Central Valley City of Modesto.

Between the three grocery chains--Raley's, Safeway and Save Mart--they control about 85% of the total grocery sales market share in the Sacramento market region. The remaining 15% share is split between Food-4-Less, a multi-store deep-disount warehouse format grocer, numerous independents, Longs Drugs, a couple Trader Joe's stores, and the one Whole Foods Market, Inc. store in the region, which is located in Sacramento. (Note: Whole Foods' is looking to add at least one, and maybe two stores in the region in the next two years.)

Union supermarket chains vs. non-union Fresh & Easy

Raleys, Safeway Stores and Save Mart also are union supermarket chains. On average, the three chains pay their full-time store-level retail clerks about $21.00 hour. Full-time means the clerks' have one full year of full-time hourly experience as a union grocery clerk. Part-timer pay ranges from about $12.00 hour -to- the $21.00 hour amount. The $12.00 hour is an entry-level wage for some positions, and it goes up in increments about every three months per the agreed upon contract between the grocery chains and the union. Nearly all store level workers with six months' to a year's experience make between $15.00 and $21.00 hour.

The union contract also provides store workers with one of the best medical insurance plans in the U.S. It is comprehensive, has lower than average employee contributions, doctors office co-pays and prescription drug out-of-pocket costs for the workers. The plan also offers very affordable dental, vision and mental health plans for reasonable employee contributions.

The union supermarkets also provide a career path for workers who choose to make a career out of the retail grocery industry and work at store-level for 25 -to- 30 years and then retire. The joint employer-union pension plan pays out about $3,500 -to- $4,000 month to union clerks who retire after 25 -to- 30 years in the industry. This is in addition to collecting monthly Social Security pension payments.

Employers make the largest contribution to the worker pension plan. Employees contribute a small percentage out of their paychecks every two weeks as well. Additionally, all three of these union grocery chains--Safeway, Raley's and Save Mart--offer some form of additional retirement plans on their own to workers. Safeway offers a discount stock-purchase plan, while Raley's and Save Mart offer profit-sharing-type programs, since both are privately-held companies. Save Mart has 255 stores throughout Northern and Central Califronia, and annual sales of about $6.5 billion.

Tesco's Fresh & Easy Neighborhood Market currently pays store-level workers $10.00 hour. There currently is no established higher hourly wage for current workers when they achieve one year's experience like at the union supermarket chains.

The 10,000 square foot -to- 13,000 square foot grocery stores employee about 20 workers per-store, according to the company. All of the store employees, with the exception of a couple managers, work part time. Those part-timers who want to can work up to 20 hours a week, which qualifies them for a health insurance plan.

However, we've compared a Fresh & Easy store employee's health plan to the union food retail chains' plan, and the union plan wins across the board: it's more comprehensive, has less of an employee contribution, provides for lower employee co-payments, and offers a number of other benefits.

According to a Tesco Fresh & Easy spokesman, the retailer also offers bonuses of up to 10% to store-level workers if they meet certain performance criteria. The bonus is once a year. Fresh & Easy doesn't currently offer store-level employees a retirement plan. They also don't get discounts at present on Tesco plc. stock, like Safeway employees do with Safeway stock.

Trader Joe's, which has only a couple stores in the region, Whole Foods (it has one store), and Wal-Mart, which only has a handful of Supercenters in the Sacramento area, also are non-union shops like Tesco's Fresh & Easy Neighborhood Market.

Sacramento shoppers are historically 'local-loyal'

Sacramento region shoppers have long been super-loyal to Raley's. Just ask Safeway Stores, Inc. Despite the fact that its a chain based nearby, has more than 10 times the number of stores and does at least $40 billion more in annual sales than Raley's, its never been able to overtake the local grocer in market share in the region, despite trying hard to do so for at least four decades.

Tesco's Fresh & Easy Neighborhood Market would be wise to learn as much as it can about the "local nature" of grocery retailing in the Sacramento region. Over the last 40 years, Safeway left the market twice, under two different ownership structures, because of Raley's domination. It was only again in the 1980's--and particularly in the 1990's with its Lifestyle format stores--that Safeway began to make some inroads in the market.

Fresh & Easy senior management can expect a strong response by Raley's, Safeway and Save Mart when it enters the Sacramento market next year. For example, in terms of retail pricing, all three--but especially Raley's and Save Mart--won't hesitate to lower prices if Fresh & Easy comes in with its discount pricing structure on basic grocery items like it has in Southern California, Arizona and Nevada, which it will do in Sacramento because doing so is key to its format and positioning. As the ancient Chinese saying states: 'May you live in interesting times

Related Stories From Our Archives:

>Retail Memo: "Tesco's Fresh & Easy Neighborhood Market @ 50 (Stores): Analysis, Observation and A Few Suggestions for Some Ways Forward. >Retail Memo: "New Details and Analysis About Safeway's Small Format Summer Bay Area Surprise for Tesco's Fresh & Easy Neighborhood Market." >Retail Memo: "Wal-Mart Heating-Up the Competition Against Tesco in the UK (As Well as At Home in the USA).

>Retail Memo: "Wal-Mart's New Small-Format 'Marketside' Grocery Store Logo Unveiled." >Retail Memo: "Tesco Fresh & Easy Insight: A New Store Blooms in Compton, CA; F&E's Chicagoland March; A Sacramento Neighborhood and F&E Get Hiched." >Retail Memo: "Raley's Attempts to Come Full-Circle With New Private-Label Natural and Organics Products' Brand." >Tesco Fresh & Easy Neighborhood Market Update: "New Nielson Study Analyzes the Chain's Affect on Competitors."

>Breaking News: "Tesco's Fresh & Easy Confirms it Will Open 18 Stores in San Francisco Bay Area." >Retail Memo: "Designing the 'Perfect' Small-Format Grocery Store in A 'Near-Perfect' Place." >Retail Memo: "Wal-Mart and Safeway Stores Could 'Box' Tesco in With New Small-Format Stores." >Tesco Fresh & Easy Neighborhood Market Update: "Fresh & Easy and the UFCW Union." >Retail Memo: "The Small-Format Revolution Continues to Heat Up."

>Mid-Week Marketing Memo: "Three Reasons Why Tesco's Fresh & Easy Neighborhood Market's Venture Could be a Huge Success--and Three Reasons it Could be A Historic Food Retailing Failure." >Monday Morning Java: "Safeway Small-Format Stores on the Way." >Tesco Fresh & Easy Update-Northern California: "Tesco Inks Deals for Three New Fresh & Easy Store Locations in Northern California's San Francisco Bay Area, Distribution Center in Stockton."

>Tuesday Talking Points Memo: "Eastward Bound for Fresh & Easy." >Tesco Fresh & Easy Update: Oakland: "Oakland May be the Central Front in Tesco's Fresh & Easy Neighborhood Market's Northern California Invasion in 2008." >Breaking News: "First Fresh & Easy Market Opens A Week Early." [Click here to read one or more of these pieces from our archives.]

Retail Memo: Tesco Fresh & Easy Insight: A New Store Blooms in Compton, CA.; F&E's Chicagoland March; a Sacramento Neighborhood and F&E Get Hitched

Prince Andrew, Duke of York, addresses a crowd at this morning's grand opening of the Fresh & Easy grocery market in Compton, California.

A New Fresh & Easy neighborhood grocery market opens in a struggling Southern California city trying to chart a new future--and offers shoppers a 'Royal' welcome on grand-opening day.

Making good on its promise to not only open its small-format, neighborhood grocery stores in middle-class and upper-income suburban communities but in low-income "food deserts" as well, Tesco's Fresh & Easy Neighborhood Market opened its 43rd grocery store this morning in the hard-scramble, low-income Southern California city of Compton.

The residents of the Southern Los Angeles County city of Compton (which is infamous for being the birthplace of the Crips and the Bloods street gangs) who attended this morning's Fresh & Easy store grand opening were not only surprised by the store's bright decor and extensive product selection, featuring shelves full of everyday grocery items right next to specialty and organic groceries, fresh meats and produce, scores of fresh, prepared foods items and more, they also were shocked to be greated by another British import: British Royal Family member Prince Andrew was at the 10,000 square foot grocery store to meet, greet and welcome shoppers on opening day.

Prince Andrew, Duke of York, who in his youth the British press called "Randy Andy" for his amorous appetite, is now the United Kingdom's (UK) Special Representative for Trade and investment. He attended the Fresh & Easy store grand opening in that official capacity to praise Britain's Tesco for opening a store in the lower-income neighborhood, and to tout his country's retailing talent.

"Congratulations number 43 (the 43rd Fresh & Easy), and good luck with the rest. This is just one small example of what the UK can do in the retail industry," Prince Andrew said in making a brief speech as part of this morning's grand opening ceremonies."

Under the leadership of mayor Eric Perrodin, the city of Compton is working hard to overcome its reputation as the home to gangs and poverty, and to in the mayor's words, "Birth a new Compton." In fact, as part of the store's grand opening ceremony, the mayor presented Prince Andrew with a "Birthing a New Compton" T-shirt and baseball cap, which are marketing tools used in the city's effort to redevelop and improve the community.

The new Compton Fresh & Easy store is a big part of that effort by the mayor, other city officials, business people and communtiy residents. Like many other lower-income cities, Compton has had a difficult time getting grocers, especially those who sell lots of fresh and nutritious foods, to build stores in the community. The city is what Tesco identified in its research, prior to launching the Fresh & Easy format, as "food deserts" in the USA, those mostly urban, inner-city regions (but also in suburbs and rural areas) which have a dearth of grocery stores that offer a selection of basic groceries, along with lots of fresh foods at reasonable prices.

Compton city officials worked hard and closely with Tesco executives to make the brand new store, built from the ground-up, a reality. The store took only one year to build because the city made it a top priority, Kofi Sefa-Boakye, the city's redevelopment agency director said at the grand opening. He praised Fresh & Easy executives and said the store is going to be a big asset to the city and its redevelopment efforts. He added the store would bring in about $200,000 annually in property tax payments to the city's coffers, in addition to providing a sorely-needed grocery store for the community, along with providing new jobs.

The store will employee 22 workers, all part time except for store management, at a starting salary of $10 hour. Fresh & Easy CEO Tim Mason told us all store employees will work a minimum of 20 hours a week so they can qualify for the company's health plan. Employees pay into the health plan as well, and have co-payments for medical office visits and prescription drugs.

Mayor Perrodin, who was first elected in 2001 and made making a "new" Compton his chief campaign goal at the time, said the city had only one full-service grocery store before today, when the new Fresh & Easy opened its doors at 10am. Since the city has a population of nearly 100,000 people, that's a sad and amazing fact. Most Compton residents drive or take public transportation to other nearby cities to do their grocery shopping, a fact Fresh & Easy was well aware of and which was important in the grocer's decision to build a store in the city.

There was a huge crowd at the store this morning waiting for CEO Mason, Prince Andrew, Mayor Perrodin and others to cut the grand opening ribbon so they could go inside and get a look at their new 10,000 square foot grocery store. In fact, if today's crowd is any indication, the store should do a thriving business, despite the fact that many Fresh & Easy stores opened in other parts of Southern California are seeing rather meger store counts thus far.

More than one shopper remarked how happy they were to see the store open. A mother of four said her family of will be regular customers of the new grocery market. Another customer said he makes a 25 minute drive twice a week from his house to shop at a supermarket in a nearby city. "The Fresh & Easy is five minutes from my house," he said. "I'll shop here at least three or four times a week, and maybe more."

Grocery stores, especially those offering a quality selection of fresh and other food and grocery products at reasonable prices, are becoming key to cities throughout America in their redevelopment efforts. There's a trend towards increased urban housing in the U.S., and a desire on the part of a growing number of people of all ages to live in cities again after decades of suburban flight. However, these same people are used to high-quality supermarkets, and they want the same food shopping choices available to them in the city.

In the case of impoverished or lower-income cities like Compton and others, the simple fact is food retailers have in the main either closed existing stores in these cities, especially in the inner-city, or refused to build new stores in them for a variety of reasons--some valid, others not. This is where we think Fresh & Easy's real opportunity is.

Despite the fact they have lower-incomes, inner-city residents tend to spend a higher percentage of their income on food and groceries. Additionally, given the opportunity, they also will purchase fresh prepared foods, organic products and other specialty groceries. The problem is: They haven't had much opportunity to do so in the form of conveniently available grocery stores in their neighborhoods that offer such quality and variety.

Although thus far the vast majority of Tesco's Fresh & Easy grocery markets are in middle and upper-income suburbs, we suggest the grocer focus more on their "food desert" strategy. There's a huge, untapped market in cities throughout the U.S. for neighborhood grocery stores that offer a good selection of reasonably-priced everyday grocery items and more specialty-oriented offerings.

There also are numerous rural communties of ample size in need of neighborhood-style grocery stores. Residents in these rural cities often drive 20 miles or more to shop at bog-box stores. Given an alternative like Fresh & Easy, which sells basic grocery products as well as specialty items, we think many of these residents would flock to such stores located in their cities. We think the "food desert" strategy can, in the long run, be equally--or even more profitable--for Tesco in the U.S. than the middle/upper-income suburban strategy.

(Read an analysis we wrote on December 12, 2007, "Three reasons why Tesco's Fresh & Easy Neighborhood Market's venture could be a huge success--and three reasons it could be a historic food retailing failure.")

Is Tesco's Fresh & Easy Neighborhood Market preparing to march on to Chicago from it's Western U.S. base? We believe so, but not for a while.

On November 27, 2007 we were one of the first publications to report that Tesco's Fresh & Easy Neighborhood Market was looking beyond the Western U.S. states of California, Arizona and Nevada, to Chicago, New York and Florida, as new markets for its Fresh & Easy small-format, convenience-oriented grocery stores. (Read our November 27, 2007 piece, "Eastward-Bound for Fresh & Easy," here.

In that piece, we particularly focused on Fresh & Easy's search for a location for a Midwestern region distribution center in the Chicago, Illinois area, as well as its scouting of various locations in and around Chicago for retail store sights.

Today's Chicago Sun-Times newspaper, the city's major daily, is confirming what we and others wrote about three months ago, and adding some new information of its own. Most specifically, today's Sun-Times story says a knowledgeable source told the paper a specific potential Fresh & Easy store site is in the Chicago suburb of Arlington Heights.

Since one of our sources for the November, 2007 piece is a very knowledgeable Chicago-area commercial real estate broker, we tend to feel rather certain Fresh & Easy is looking to the Chicago region, along with New York and Florida, as its next step beyond the Western U.S. Further, we believe Chicago will be first, then perhaps New York and Florida after. We base this on our source's information regarding the talks Fresh & Easy has had (not with him) about the possible distribution center locations in the Chicago region.

Additionally, there have been some quality reports in the British papers, in addition to today's report in the Sun-Times, that mirror what we're being told. We don't see Fresh & Easy starting to build anything in Chicago until mid-to-late 2009 however. The retailer still has many new stores to open in Southern California, Arizona and Nevada this year and into 2009.

It's also going into Northern California beginning later this year, and into 2009. The grocer has 18 store leases already signed in the San Francisco Bay Area, with many more on the way in the coming months. Based on information from our sources, we think the retailer would like to have about 40 -to- 50 stores open and operating in Northern California by the end of 2009.

There's also the matter of sales and store traffic count, which based on our observations, conversations with numerous store-level workers, suppliers and others, aren't all that great to date in the 43 Fresh & Easy stores which have been open. With such a rapid new store-opening clip--about three stores a week since early November--Tesco needs to take some time soon to step-back a bit and do some evaluating and make some changes before the growth-pace outstrips their ability to do so in our view.

A long-struggling Sacramento, California neighborhood has made dramatic quality-of-life improvements, with more on the way--and Tesco's Fresh & Easy Neighborhood Market will become part of the solution when it opens a new store in the neighborhood next year.

The Oak Park neighborhood in Sacramento, California's Midtown district is in the process of being transformed from a once rundown, "undesireable" neighborhood in the city, to one in which its residents and others in this city of 500,000 are calling an "up-and-comer."

Midtown is one of Sacramento's oldest districts. It's near the city's downtown core and not far from the California state capital building. It's streets are lined with fifty-plus year-old large shade trees, and there are many victorian-style homes in the area.

The Oak Park neighborhood, which is in Midtown, was once a thriving place, especially in the Sacramento of the 1950's and early 1960's. However, it eventually became rundown: the crime rate soared, drugs came to the neighborhood, and businesses, along with working and upper-class families left for the suburbs.

Beginning in the mid-1990's however things started to change thanks to a dedicated group of residents, small business people and a few supporters on the Sacramento City Council and in the City Manager's office. A group called the Oak Park Neighborhood Association, comprised of residents and small business owners, was formed and the group began to lobby city hall for attention. The group also reached out to real estate agents and others, encouraging them to market the neighborhood as a desireable residential location in the city.

The timing was good from a residential point of view in Sacramento. Housing prices were skyrocketing in the city's more "desireable" neighborhoods. Oak Park was a relative bargain. Then, many people discovered the neighborhood's gorgeous but rundown victorian houses and jumped at the chance to buy these houses and renovate them. This activity, along with the opening of a few new, small businesses started a slow but sure turnaround for the neighborhood.

This revitalization of Oak Park has picked up steam in the last couple years, although much remains to be done, especially in the view of the neighborhood association which got the ball rolling in the mid-1990's.

At the top of the group's agenda has been launcnching a major effort over the last few years to get retail businesses to locate stores in the neighborhood so that residents don't have to drive across the city to shop. Chief among their goals has been to get a high-quality grocery store into an empty building in the core of the neighborhood called the Made-Rite property.

Last night at a meeting of the Oak Park Neighborhood Association it was announced that the goal of the activists had been achieved: a 10,000 square foot Fresh & Easy Neighborhood Market store will go into the empty Made-Rite property building and serve as a local neighborhood grocery store for residents in the growing and prospering neighborhood. The store is scheduled to be open in early 2009, a member of the association told us.

While Sacramento's Oak Park neighborhood isn't quite a "food desert" on the order of Compton, California, which we discussed in our lead story above, it is a neighborhood underserved by food stores and one on the road to rivitalization.

The Fresh & Easy store will become an integral part of Oak Park's experiment in better urban living. A new urban loft residential development called 4th Avenue Lofts is currently being constructed in the neighborhood, the classic Guild Theatre has been renovated, new retail stores are opening, as are restaurants and even an upscale wine bar. The older, tree-lined neighborhood is becoming one of the city's most desireable places to live, especially among young professionals, artists and even suburbanites who are moving back into the city.

Having the Fresh & Easy store come in though is key to what the neighborhood association wants the area to become, a member of the group told us. What Oak Park's residents want is a neighborhood of their own, with a mix of people of all ethnicities and income levels, lots of local shopping choices, a lively street life, and a better quality of life than has previously been the case.

The residents of Oak Park have achieved much of what they want already--and have more to look forward to coming up. Tesco's Fresh & Easy has an opportunity to be a major part of this ongoing quality-of-life improvement--and to gain the loyalty of the neighborhood in the process.