Fresh & Easy Does It

Karen Fletcher, category manager for wine and beer for the El Segundo, CA-based Fresh & Easy, and Roberto Munoz, the company’€™s neighborhood affairs and communications manager.

Wine marketers for years have been repeating the mantra, ‘€œOur wine is accessible and easy for customers to understand,’€ all the while having little or no impact on the wine buying experience. Sure, wine shops serving different niches have flourished, and wine merchandising has evolved somewhat, but when it comes to the supermarket experience, customers still weren’€™t getting much support or helpful guidance.

That is something like the way the American market appeared a few years ago to Tesco, the giant British retailer behind Fresh & Easy Neighborhood Markets. So when they developed plans for the small (10,000 square foot) market concept, company execs believed they could take advantage of what they saw as an underserved consumer base, that group of Americans that research shows generally drink wine the day they buy it.

As the stores started rolling out in the Southwest in late 2007, the concept focused on creating a convenient end-of-day shopping experience with lots of private label, ready-to-cook and ready-to-eat prepared items and an emphasis on healthy eating ‘€“ short on preservatives and additives, as well as a limited selection of items. (American supermarkets devote 20% of their SKUs at the most to private labels; Fresh & Easy surpasses 35%.)

Wine and beer, too, would be limited, with private label playing a significant role here as well. While plans for growth of the 140+ unit chain have realigned with the current economic conditions (see sidebar), the wine and beer programs are going full steam ahead.

Targeted Selection, Low Prices, High Quality

‘€œWe’€™re trying to convey that wine is a natural part of the meal and so there’€™s a simpler way to shop for it,’€ said Karen Fletcher, category manager of wine and beer for El Segundo, CA-based Fresh & Easy. The wine department follows the same principles as the food selection, with the main focus on a limited selection, low prices and high quality. ‘€œWe’€™ve tried to keep it easy and simple to shop; our research says consumers are easily overwhelmed by shopping for wine,’€ she said.

Fresh & Easy is often compared to Trader Joe’€™s, and there is a rough similarity in size and style, and in wine at least, there’€™s a telling statistic: its most successful wine label, Big Kahuna, is a $2 brand modeled after Trader Joe’€™s successful Charles Shaw (‘€œTwo Buck Chuck’€) label. [Trader Joe’€™s has sold more than 400 million cases of Two Buck Chuck since it was introduced, according to reports.]

Using Customer Research

In fact, it seems company execs make most of the decisions about selection and merchandising via customer research. Take for instance, the Fresh & Easy policy that each wine is stocked with three facings on shelves. Company research revealed that customers shopping in supermarkets had a hard time locating their favorite brands, especially notable since many consumers shop by label imagery, perhaps not even recognizing a wine’€™s brand name.

‘€œEven I can go into a supermarket and go, ‘€˜Wow, how do I choose something from this?’€™ because it’€™s not merchandised in a fashion that’€™s easy to shop, and you have to put a lot of time in there to find something,’€ said Fletcher. ‘€œIt can be overwhelming and off-putting and time consuming. Not everyone has time to spend browsing for a simple cabernet to serve with a spaghetti Bolognese the same night.’€

The 170 or so wine labels Fresh & Easy carries are arranged by varietal rather than country ‘€“ again, a focus-grouped format used in all stores. Constant research satisfies Fresh & Easy execs that a limited selection in an easy shopping format gains customer confidence and encourages more adventurousness, not less, as the recent successful launch of a Washington State Cabernet Franc, not a typical supermarket wine, established.

The shelves carry notes about most wines, but that’€™s it – customers who have repeatedly said they seek less clutter in their stores get their way. ‘€œWine in this business is dealt with the same as produce ‘€“ if they don’€™t want clutter there, we won’€™t give it to them,’€ says Fletcher.

House Wines

About 50 of the wines at Fresh & Easy are house brands exclusive to the company, like Bodegas Palacio’€™s Reflexion Rioja Reserva 2003, a $9.99 wine that pulled in 90 points from Robert Parker’€™s ‘€œThe Wine Advocate’€ in 2008, and Boro Hills, a $10 chardonnay from New Zealand. The private label brands have been doing well enough that the company doubled their number from 25 last summer. So far, private labels contribute 50% of the company’€™s wine sales. (Wine and beer overall contribute under 10% of sales per store.)

Fletcher says the back label notes on their exclusive brands have helped pave the way for the program’€™s success, like this one for the 2008 Small Wonder Russian River Valley Chardonnay: ‘€œAromas of Bartlett pear, lemon and a hint of vanilla provide the prelude to a crisp, juicy and mouth filling flavor. The smooth finish is long, elegant and balanced ‘€¦ Serve chilled 40-50F, alongside double cream Brie, Halibut with browned butter or soufflé made with three cheeses.’€ Never mind that halibut and soufflé are probably not among the leading dishes served that night by Fresh & Easy shoppers; the descriptions clearly help give customers some reassurance about the quality of the wine.

Overall, the private label wines are winningly packaged, and indistinguishable in any way from higher-priced competitors in terms of imagery or presentation, except for the modest ‘€œspecially selected for Fresh & Easy’€ tag. Many of the wines are packaged with screw caps, not surprising given Tesco’€™s support for the format in the UK. Fletcher would offer more in that format for consistency of quality, but the American market isn’€™t quite ready for many more, she says.

Fletcher says the company pored over market statistics on spreadsheets before deciding what wines to bring on and where to focus their private label activities. Execs believe the program, more common in UK supermarkets than in the US, gives them more control over wine quality and makes them less vulnerable to distributor decisions. Making long-term deals with suppliers like the Winery Exchange, which manages private label programs for beer, wine and spirits for a number of supermarkets, allows Fresh & Easy a reliable supply.

Also Leading National Brands

While selection is limited, on pricing customers get a choice: for instance they can pick leading national brand Santa Margherita pinot grigio for about $20, Bella Sera pinot grigio for a little less, or the house brand, likely to be around $5. ‘€œWe don’€™t force the customer down a route to have to buy private label or national brands; we try to give the customer a choice,’€ Fletcher said. The majority of all brands are priced below $10, and many significant national brands also figure large in their plans; Woodbridge and Mondavi are well represented, for instance.

Table wines top out at $20; Veuve Cliquot NV is the most expensive bottle overall at about $40. Fresh & Easy also sell their own brand premier cru sparkler, Rene Florancy Champagne, for 26.99 ‘€“ the bubbly won a double gold at the 2009 San Francisco International Wine Competition. (The chain has been aggressive about enhancing the reputation of their private label fare, entering brands in many competitions in the past year or so, and they’€™ve taken home plenty of medals.)

The selection is mostly New World, though Italy and France are well represented and Spanish wines here, like at the higher end of the market, are gaining popularity.

Evolving Beer Sets

When it comes to wine and beer, the company continues to make news. They’€™ve just launched a third own-brand beer, Dutch Republic 1581 from Holland at a bargain price of around $6 six-pack bottles. Fresh & Easy stores already feature their own Steel Kettle Whistle and Latin-style Taurino Cerveza, but stores also carry around 50 other types of domestic and imported beers, in a variety of packages, everything from Bud Light to Sierra Nevada and Pyramid – about 10% of the selection is currently craft, a condition that could change.

‘€œThe beer set is definitely evolving because customers want different beers like they want difference in everything else, and craft is one of those things we need to keep working on,’€ Fletcher said, noting that beer choices change significantly depending on micro-trends within a market area.

So far, tastings and loyalty programs aren’€™t part of the mix as the company focuses on fine-tuning the format and opening more stores. And while every unit offers the same wine and beer selection, Fletcher doesn’€™t consider that ideal, as the neighborhoods include economically challenged as well as upscale areas, and wine and beer sales differ store to store.

Marketing has been limited, too, to flyers in weekly newspapers, email lists and local outreach, and the first rustlings of a larger ad campaign. Tesco has slowed the rollout to northern California, but stores keep opening, with Fresno the latest market to get the Fresh & Easy treatment. Whether the overall concept can weather the fiercely competitive U.S. food market and the global recession is still unknown, but if Fresh & Easy can get the other departments to deliver as well as the wine and beer program, they may thrive.

The Fresh & Easy Business Plan

When United Kingdom supermarket giant Tesco started rolling out Fresh & Easy Neighborhood Markets in October 2007, the plan was bold and adventurous. More than 300 some stores were planned to be up and running by now, with an ultimate goal of 10,000 units across the U.S. Predictions ensued that Fresh & Easy would be a $10 billion operation by 2015. That those plans hit a wall is not a surprise, given the world economic condition, though the company has continued to open stores in southern California, Nevada and in the Phoenix area of Arizona, and has now reached about 140 stores altogether. Tesco has also put an expansion into northern California on hold but has continued to acquire sites in central to northern California.

There have been many tweaks along the way for Fresh & Easy Neighborhood Markets as the concept is fine tuned for the American consumer. Tesco initially saw Fresh & Easy as filling a shopping gap between ubiquitous 3,000-4,000 square-foot convenience stores and the enormous supermarkets and supercenters that had become so popular, especially in the growing Southwestern United States.

Development for the concept started about five years ago, according to Roberto Muñoz, neighborhood affairs and communications manager for Fresh & Easy, when a small team from Tesco came over to investigate the U.S. market. ‘€œThe model was not to build a supercenter to attract many people, but to build in neighborhood and pull from within a couple of miles. We spent a lot of time talking with customers, went shopping with them, poked around their pantries and cooked dinners with them and asked what they were looking for.’€

Stores were envisioned in all sorts of neighborhoods ‘€“ in Southern California, which included dramatically different areas like Pasadena, Compton and Manhattan Beach, all premised on the idea of offering ‘€œincredible quality food at prices everybody can afford,’€ said Munoz.

But after stores began to open, initial feedback led the company to believe they’€™d made the 10,000 square foot stores too bland and sterile, so units were refreshed with more banners, re-designed grocery end caps, more messaging about fresh foods, more colorful checkout areas and wall messages about the company’€™s philosophy. They’€™ve increased frozen food space, moved all beer to the refrigerated section and added more than 1,000 new products in 2009, according to Muñoz.

Recently, an ad campaign spread the idea that Fresh & Easy delivered low prices, foods with limited additives and preservatives in their private label products, an expanded date coding program, and local sourcing, re-use and recycling whenever possible. As part of Fresh & Easy’€™s commitment to be a good neighbor, the company awards a neighborhood charity with a $1,000 donation at each store opening. But that hasn’€™t prevented an ongoing dispute with regional unions over the company’€™s employment practices.

Fresh & Easy keeps prices low by simplifying operations, making all of their prepared foods daily in centralized locations and delivering them to stores. Brand selection is limited, with sometimes only a national brand and the Fresh & Easy brand. By minimizing choices while maintaining quality, they’€™re able to pass savings on.

Tesco, the largest retailer in Britain and one of the top supermarket operators in the world, is still publicly bullish on the concept, and has committed to invest up to $2.5 billion over the first five years into Fresh & Easy. On the face of it, U.S. chain is doing better, having generated stronger year end sales in 2009 than 2008, up by about 35 percent. But Tesco is said to have lost $226 million on the U.S. operation in 2008 and expects to lose about $260 million on $550 million in sales when the 2009 books are closed. The company has had to curtail its expansion plans, but remains committed to the U.S. market in public statements, though UK financial observers continue to be hard on Tesco over the entire Fresh & Easy enterprise.

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