British Grocer Finds 'Fresh & Easy' Concept Not So Easy to Sell

ESCONDIDO, Calif. — Here in the heart of suburbia, where sprawling supermarkets and big-box stores rule, the little Fresh & Easy market is attracting fans like Deborah Forger.

A Miami transplant, Forger likes the store — which is about a fifth the size of a typical grocery — because of its manageable size, its fresh foods in small portions, and its unique selection.

Still, she wonders how long she'll be able to shop there.

"It's a great concept, but whether it will work here or not, I just don't know," Forger said recently as she loaded a few bags into her SUV. "I don't know if people are going to get it."

She's not the only one thinking that.

When English retailer Tesco PLC announced two years ago it was planning to enter the U.S. market, worried retailers braced for the next British invasion.

With its pint-size stores — about 10,000 square feet with only eight compact aisles — Fresh & Easy promised to change the way America shops for groceries and resurrect the idea of the neighborhood market. Tesco proclaimed it would quickly open stores all across the country.

But after an explosive start followed by an abrupt pause, doubts about the chain's future are starting to rise, not only from shoppers like Forger but industry observers as well.

After opening 61 stores in California, Arizona and Nevada in less than six months, Tesco this month announced it was suspending new store openings while it takes "a breather" and assesses its progress. Meanwhile, it's bringing in a new U.S. manager and is making other changes.

Tesco claims the halt was planned and is only temporary, but some have doubts.

"If this was a planned pause, they sure kept it pretty quiet" from suppliers and others, said Jim Hertel, managing partner of Willard Bishop, a retail consulting firm in Illinois.

Hertel said he thinks Tesco is backing off expansion plans after realizing it had tried to do too much too quickly with an unproven concept. He estimates revenues at Fresh & Easy stores are averaging about $50,000 a week, well below the $200,000 that Tesco had expected.

Jim Prevor, a Boca Raton, Fla. grocery analyst, has similar sales estimates — and concerns — about the chain.

"What (they) have is big problems of strategy and small problems of execution," Prevor said. The breather Tesco is taking, he said, "is an attempt to reassess the operation and try to find some solutions."

Tesco officials deny they're having any problems whatsoever. Last week, in reaction to rising concern by analysts and investors about Fresh & Easy, Tesco Chief Executive Sir Terry Leahy issued a videotaped interview in which he said the rollout of its first U.S. stores is going better than planned.

"I'm more than very encouraged," he said. "I'm delighted with our experience in the United States."

Leahy indicated the expansion will resume in "a few weeks" and said he still expects to have 200 Fresh & Easy stores in the United States by next February.

In a statement, Tesco said its Fresh & Easy stores are already making more on a per-square-foot basis than average American supermarkets, and the best-performing stores are hitting sales of $20 per square foot, which would match its expectations.

"They're performing ahead of budget, and more importantly, as far as the customer is concerned, they love it," Leahy said last week. "We're getting the best feedback we have ever had from any format that we've opened anywhere."

There's definitely a different, European feel to Fresh & Easy. Stores seem sterile inside and lack fancy displays and big signs. Checkout lanes are all self-service, but an attendant is on hand to help.

Many foods are fresh, but since there's no deli or meat market, those items are cooked and prepackaged at an off-site distribution center. The store here carries inexpensive, private-label goods such as an individual-sized, Fresh & Easy brand Jamaican jerk-style chicken pizza for $3.89, But it also sells six-packs of Bud Light for $4.79 and a dozen eggs for $2.28.

Though it's new to the United States, Tesco has plenty of experience in the grocery business. The third-biggest retailer in the world, it has more than 3,200 stores stretching from the United Kingdom to China and $93 billion in annual sales.

"I think it would be foolish for (any competitor) to discount them," said Prevor, the Florida grocery analyst. "If they put their mind and their money to anything and give it a lot of time, anything can happen.

Ultimately, how Fresh & Easy does could send ripples through the rest of the grocery industry.

Like Tesco, many big chains are building or considering smaller stores to appeal to consumers wanting more convenience and quicker shopping trips.

Florida grocer Publix Super Markets Inc., for example, opened a 30,000-square-foot store in midtown Atlanta's Atlantic Station development to appeal to urban shoppers. Most Publix stores are between 40,000 and 50,000 square feet.

Austin, Texas-based Whole Foods Market, whose typical stores are around 50,000 square feet, is building stores half that size in some markets and acquired stores even smaller than that through its merger with Wild Oats Markets last year.

"I would never say that no small-format stores are going to succeed, because many do," said analyst Hertel. "But I will say it's proving — at least for traditional big-box retailers — to be more difficult than anybody thought it would be."

On a recent weekday afternoon at the Fresh & Easy here in Escondido, north of San Diego, traffic at the store was steady, but many shoppers left after buying only a few or no items.

Sandwiched between an express tire shop and across from a 99¢ Only store, Fresh & Easy is somewhat hidden and not exactly easy to get to.

Adela Pierce said she shops at the store regularly, but gets most of her groceries at other stores.

The main reason she visits Fresh & Easy, she said, is tied to the fact that — like Tesco — she's from England.

"They carry English bacon," she said, "that you can't find anyplace else."

A QUICK TRIP TO FRESH & EASY

— 61 stores in California, Nevada and Arizona.

— Plans call for 200 stores by February.

— At 10,000 square feet, stores are about a fifth of the size of typical U.S. grocery stores.

— Many foods are fresh, but with deli and meat items are prepared and pre-packaged at a distribution center and delivered daily.

— Other goods include pre-packaged private label items and brand-name products at prices comparable to other grocery stores.

— Check-outs are all self-service, but an attendant is on hand to help.