When Fresh & Easy began brazenly opening dozens of groceries throughout the Southwest five years ago, the food retailer made some major mistakes.
It opened stores in the wrong places, with the wrong product mix in austere, warehouselike settings.
But lately, the Fresh & Easy chain, headquartered in El Segundo, has been working to modify its stores so they make more sense to consumers.
Fresh & Easy spokesman Brendan Wonnacott said customers seem to appreciate the changes, which have included bringing in bakery departments, relaunching its assortment of fresh, packaged meals, and installing artwork on the walls and wood on the floors to make the stores more inviting.
But can these changes translate into profits for Fresh & Easy and its British parent, grocery behemoth Tesco Plc.? Or have they come too late?
Analysts say the chain still has a chance to succeed in the United States. Steve Stallman, president of Santa Clarita food retail consultancy Stallman Marketing, said the changes are a step in the right direction, but gaining customers after a bad first impression demands an aggressive marketing approach.
“They’re not doing anything bold enough to attempt to get a second impression, which is difficult enough even for the best marketers,” he said.
“I think their offerings are good now, but the marketing is mixed.”
Stallman said the mixed messages in the grocery chain’s marketing stem from an identity problem. In its first years, Fresh & Easy tried to be everything to everyone, but failed to do any one thing just right.
Today, the company is still paying for its early overconfidence. It has yet to break even, much less turn a profit, and has had to close 25 underperforming stores in the last two years.
In late July, the company laid off about 50 people at its headquarters, which Wonnacott said was part of the chain’s effort to move toward profitability.
“We’re prepared to make tough decisions, to make appropriate changes to get the business where we need it to be,” he said.
The layoffs came a month after Tesco shareholders loudly voiced their displeasure with the U.S. division’s performance and called for Tesco Chief Executive Philip Clarke’s resignation if things didn’t improve.
In January, the British company issued a profit warning to shareholders for the first time in more than 20 years.
In the first quarter ended May 26, Tesco reported that Fresh & Easy sales slowed to a 3.6 percent increase compared with a 12 percent increase in the fourth quarter last year.
But in the midst of all the contraction there is a glimmer of expansion: The chain plans to open stores in Los Angeles in coming months, including one on Melrose Avenue in Hollywood and an express-size store in Encino.
Today, Fresh & Easy operates 199 stores in three states, though early estimates expected the chain to have upwards of 500 by now. In April, the company said it plans to have 230 stores by February. Tesco has said the chain needs sales from 300 stores to break even.
Mark Lang, assistant professor of food marketing at St. Joseph’s University in Philadelphia, said grocery concepts such as Fresh & Easy’s that attempt to break the mold can take decades to catch on in the slow-moving, traditional food retailing industry.
“The concept could be right on, but the challenge is that you have to change people’s everyday entrenched behaviors; you have to change the way people think,” he said. “Over time, they’ll start to spread the word among their community. I know Tesco is smart enough to see this, and they’re willing to wait and subsidize it.”
Perhaps one of the biggest mistakes Fresh & Easy made when it opened in California, Nevada and Arizona was its strategy of moving into areas where grocery stores were lacking.
Lang said the problem was not that fresh, healthy food was unwelcome in those areas, but rather that these “food deserts” tend to be in low-income neighborhoods that had little use for Fresh & Easy’s brand of European chic.
“Their first best market would have been a slightly higher social economic consumer who is open to something new and different. But a lot of their retail network was not in those areas,” he said. “They took a modern, European, upscale kind of concept and put it in neighborhoods that didn’t get it. If you’re having trouble filling your basket incomewise, new and different isn’t on your radar.”
Wonnacott said Fresh & Easy has since been more careful in selecting locations to open stores, and has invested more time and money into connecting with each neighborhood.
“Over the past five years we’ve been making a name for ourselves in the neighborhoods we serve,” he said. “We host some neighborhood programs, such as fundraising for local schools.”
But while location is important, Wonnacott said it’s what’s inside the stores that matters most.
“The look and feel of the stores has definitely been the biggest bit of change we’ve made,” he said.
Fresh & Easy has addressed concerns about the austerity of its store interiors by installing wood-laminate floors and putting food-themed artwork on the walls. In some places, management has also reworked the stores’ layout. For example, closed-in entryways are now more open.
Another complaint the company addressed: product mix.
Wonnacott said the grocery chain has significantly increased the number and types of products it offers at stores.
“We started off with about 3,000 products, and now we’re up to about 7,000 products,” he said. “More than half of what we offer are Fresh & Easy brand products. We’re learned that people like to buy products where they can read and understand the ingredients list.”
Traditional American grocery chains, including Arcadia’s Vons Cos. Inc. and Compton’s Ralphs Grocery Co., carry about 39,000 products, 23 percent of which are private label.
But with a smaller store footprint and a higher proportion of private label products, Fresh & Easy is more akin to Trader Joe’s Co., based in Monrovia, which carries up to 80 percent private label products.
Last year, Fresh & Easy began introducing bakery departments to its stores based on customer demand. Then, earlier this summer, the company launched an expanded line of chef-prepared meals, including Mexican, Italian and Asian cuisine.
Stallman said the meals are the most promising thing about Fresh & Easy.
“They’ve really expanded this whole ready-to-eat entree line, which makes sense for them because it’s one of the things they do well,” he said. “Fresh & Easy has a smaller-type market, which gives them an inherent advantage in terms of how a consumer might think of them as not this large company mass-producing something; it’s something made just for me.”
But Lang said Fresh & Easy needs to take care not to change things too much.
“They need to protect what makes them unique,” he said. “You’re not going to appeal to everybody, but make sure you know the people who are your customers and make small adjustments for them. Just don’t race to the middle, to the common design. Small adjustments can have a big impact.”
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