Every little helps: fresh&easy brings 21st century retailing to the US

JUDIE LANNON:

I understand you and your team have studied American shopping patterns very extensively. When you first saw the research and analysis what were the things that surprised you most?

TIM MASON:

Probably the most surprising thing to me was the number of different stores that an American family uses to shop. They shop in up to 20 different stores – many more than the equivalent would in the UK. They will use different types of shop for their food, for their cleaning products and for their personal care products. What I discovered is that you just can't get everything that you want in one place. For instance, they will use Trader Joe's, which is a very innovative shop, for new and unusual products; they'll use Whole Foods for their added-value fresh products; and they'll use a mainline supermarket for basic commodities.

The main retail brands in Britain have much higher levels of loyalty and genuinely do fulfil the notion of a one-stop shop. That's less of the case here. People will wait for flyers and coupons and indeed, people who have time but not money, will actually take their shopping list and walk to two or three big players and then decide what to buy.

JL: That does surprise me as the supermarkets in the US are so huge.

TM: Yes they are, but the quality in the main supermarkets is all rather homogeneous. Obviously, Whole Foods' fresh-food counters are significantly better than a standard super-market's fresh food counters so if you're in a supermarket and you want a good-quality pre-cooked piece of chicken or fish and salad for supper, you know that there's a retailer out there who does it significantly better. The trouble is that the retailer who does it significantly better does not sell Coca-Cola, razor blades or washing powder. So if you need razor blades and supper, you're faced with the prospect of going to two stores on the way home.

JL: It also surprises me that US supermarkets haven't developed different price/quality ranges in one store as most British ones have.

TM: The fact is that Tesco, in particular, has done a very good job of covering a broad section of the market. Rich people with no time can buy convenience products of a very high quality and people who have time but not money can buy amazingly good-value basic items.

Whereas here it is more obvious that there is always an alternative out there that is different and better. You know that if you just stayed in your car for another five minutes there's a store down the road that is just a bit better for that particular thing.

Also I think that Americans like to shop and they may be making food shopping more interesting for themselves by going to a lot of different places.

JL: If you put the idea that women like to shop together with the fact that there are such a large  number of available shops, isn't it just possible that they don't really want a one-stop shop?

TM: I think the answer to your question is that they do not want a one-stop shop at the cost of price or quality or usefulness. They do get irritated about the fact that they can't get everything in one place. Of course, you can get every commodity from a standard supermarket, it's just that other stores have better-quality versions of the same thing.

JL: So I assume this is the gap you are planning to fill. What then is the proposition you are putting to people?

TM: The core proposition is that fresh&easy is offering 'specialty standard foods', not actually specialty foods but specialty standard foods at everyday prices.

JL: What exactly does 'specialty standard foods' mean to the American consumer?

TM: We will be offering products of the quality that places like Whole Foods sell – and there are a lot of those kinds of stores targeted at affluent consumers – but at significantly better prices. Also we're offering an easier shopping trip, with wider aisles, lower shelves, easier to get round, and a carefully edited range. The stores are smaller, with the advantage that it is easier for the customer to select. But the disadvantage is that the ranges will be more limited.

And because we have to offer an edited range, our buyers have to be category experts. They have to stand over the category and select each individual product. And each product has to have a reason for being, a place, a point of view. This will be different from many of our competitors whose business is more about real estate. They have big stores with lots of space in which they put every brand known to man and the poor consumer is forced to search. I went out at the weekend to buy salad dressing and it took me 20 minutes to find the one we normally buy.

JL: How are you going to introduce this concept? What kinds of promotional activities are you planning?

TM: We have to to find ways to let people sample as many of our products as possible. The biggest proportion of our marketing budget for the opening years is actually on product sampling and buying. In the store we have a thing called the Kitchen Table which is the heart of the store and we'll have people whose only job will be to run the Kitchen Table. They will be expert about every product and enable customers to participate in intensive sampling programmes. This means that whenever you come to one of our stores, we will be trialling various different foods that will demonstrate the quality of the fresh&easy products.

An important thing we picked up in our research is that the clamour is not so much for healthy food and healthy eating, but simply less adulterated food. People increasingly feel that food is much too processed.

This has led to a big effort in finding the right suppliers. A very few products carry preservatives because things like bacon and ham aren't bacon and ham if they don't have preservatives. And we've got some preservative in our dried fruit because people won't buy a dried apricot if it's brown. But generally we can promise no artificial additives, no artificial preservatives, no artificial colours and no trans-fats.

JL: How much of your range will be your own products and how much manufacturer brands?

TM: We're planning on about a 50/50 split. We took the view that this is the land of branded, fastmoving consumer goods. And going back to the point about being more of a one-stop shop and being more useful, certain branded items you just have to carry if you really want to satisfy a range of needs.

One of the things that you can do if you have a lot of your own products is control the whole delivery experience. You see it with Marks & Spencer and you will see it in sections of our stores that are heavily fresh&easy branded. You can organise how it looks on the shelves, how the shelf-ready packs look, how the packaging looks – everything is under your control. So you can really make it look nice, and if things look nice people tend to buy more. In areas that are more manufacturer branded you've got lots of different colours, lots of shouting going on, it looks less aesthetically pleasing. But those are the products we need to sell.

JL: I understand there isn't such a wide range of prepared foods in the US compared to the UK. Did you have trouble finding quality suppliers for these kinds of products?

TM: That's true and we've worked very hard in finding good suppliers. I've never come across as motivated a group of people as the fresh&easy brand supply base – other than fresh&easy people themselves. The reason is because we have gone out and found like-minded people. For example, we've found a family business based in Los Angeles, that makes great tortillas without any additives or preservatives. We told them who we are, what our vision is, and how big we plan to be if we're successful. And they decided that this is the opportunity for them to go from being a small local business supplying Los Angeles to a step change in their business. A major factor in the long-term development of our own brand over the past 20 years in the UK has been our partnerships with innovative suppliers. We are applying that partnership approach in the US, and our suppliers seem to really enjoy working with us.

JL: Are there a lot of these kinds of companies in different Sectors?

TM: Yes, there are and every product in the range has a back story – some specific reason why the fresh&easy buyer said that's the supplier for me. There's a coffee supplier called Rogers, out of San Francisco, again a family business, and they have a significant family charitable foundation. Every farm that they take coffee from, they put a social programme back so part of the way that they trade is to say we buy your beans but we also put back a water purification plant, a school or drainage system or something. They've become our coffee supplier and we've gone into that programme with them. So people can come in with us at the beginning and then scale up.

Our team has done a great job of sharing the better food, better quality, more natural, more environmentally concerned vision. And people have found it attractive and have wanted to come with us.

JL: Are these back stories from your suppliers going to be used in any kind of consumer promotion?

TM: They will be used extensively through packaging and some point of sale. But one of the findings from our research is that people are sick of being bombarded with messages. Everything screams, everything shouts, everything over-claims. They're saying just give me the information to enable me to make my mind up; tell it like it is. The American consumer is looking for the antidote to overclaiming marketing.

JL: Is your approach of opening a lot of stores at once the way retailers do it typically? Or is this a risk you're taking deliberately?

TM: It's basically a consequence of having such an integrated supply chain and having so much ownbrand. Normally, if you open big stores, you put a big warehouse on the back and have direct deliveries. So when you go into a new country you keep your infrastructure costs as low as you can. And when you get critical mass you then make the supply chain investments. But because fresh&easy is a business of small stores, it is critically dependent upon its supply chain. Therefore this can't mean having a few very high-performing, high-turnover stores. It has to be about having a lot of mediumturnover stores.

That's how we will build our market share and therefore we have to get them open quickly because we're building a distribution centre that has the capability of serving over 400 shops.

JL: When do you think 400 shops will actually be open?

TM: Probably quicker than you'd think. What we've said so far is that starting with Los Angeles we will have opened 50 by the end of the year and in excess of 200 by February 2009.

JL: Who do you think will be your biggest competitors?

TM: Our biggest competitors, statistically, are obviously the supermarkets because they are still the ones who have the lion's share of the food market. How they will respond remains to be seen. There clearly will be a price-based response because American supermarkets have an unbelievable number of price lists on which they run their stores and they all use price optimisation modelling. So I'm sure that they will come after us pretty aggressively on price.

But it's not that easy because one of the first things they will realise is that we're quite small and nimble, and difficult to catch.

JL: British supermarkets have tried to crack the us market and failed. Why did Marks & Spencer and Sainsbury's pull out?

TM: The main thing I think was that they both bought existing businesses whereas we have deliberately built our business model ourselves. If you look at the history of Tesco since Terry and I and the others on the executive board have been at the company, it's been a story of product development. We've developed new formats, developed new brands within the format and we've developed new businesses that live underneath the umbrella of the brand. We're taking what we've learned in the UK in terms of customer insight and product development, as well as staff selection, management and motivation, and applied them in a way that is purposedesigned for the American market.

JL: What is the proportion of British to Americans in your senior management?

TM: My marketing director, my buying director, and my real estate director are all ex-Tesco in the UK and have between them 70 years service. My retail operations director, my supply chain director and my IT director are all American and they came into Tesco about ten years ago from Tesco in Thailand.

JL: So they're all really pretty imbued with the Tesco culture aren't they?

TM: Yes, and it helps enormously. It's easier to have discussion about the things you've done that have worked, and the things that haven't worked because you share similar knowledge.

For example, we are in the process of hiring at the moment. As you can imagine, if we're going to open 50 stores between now and next February, we're going to need people. If you have a huge amount of hiring to do, the obvious thing is to use a recruitment consultant to do it. So we looked into using them. It was horribly expensive and it just didn't seem good value. Then suddenly we said why don't we offer personnel managers from our stores in the UK four months in California to come and join this adventure and they can do the recruitment. So we've been able to get a dozen people who are deeply imbued with the Tesco culture to come out here and be the front face of our recruitment. And it's been fantastic.

JL: That must be the best way to build a culture.

TM: A lot of what we are trying to do at this stage is just that – to establish a culture. We're saying this is going to be a great place to work and we've worked hard to have excellent standards of communications, excellent standards of objective setting and feedback. We have a communication meeting with the whole company once a week when we get the whole company together. We have what is in effect a market square here and everybody gathers in the market square on a Tuesday afternoon (see Figure 1).

We've said this is a job you can be proud of and is worth getting up in the morning for. You are bringing better quality, better value food to every neighbourhood. But we're not only doing it for middle-class people, we're going to take it to every neighbourhood in Southern California to start with so that's a real contribution to society and to public health in America. And by the way, we're going to be a good neighbour because we're going to do it with less impact on the environment. So they all feel that they are doing something that is interesting, important, exciting and worthwhile.

JL: Do you have more sceptical colleagues who question whether you can actually talk to both upmarket and downmarket customers in one store?

TM: I think everybody questions that, and I think my response is that if we do our job right, we can do it. There are examples, after all – Starbucks, Apple, Microsoft. These are products and services which do transcend all these barriers.

Tesco in the UK is classless and democratic and we believe that there's a 21st century way of doing this which a grocery retailer can take advantage of because it is capable of offering so many different things to people For example if you're disabled, the most important thing about the shopping trip is what the disabled parking is like, what the accessibility is like and how friendly the staff are. If you're a mother with a baby then it's what about the baby-changing facilities and the baby products?

Different people want different things from a shopping trip and your job as the retailer is to try to meet as many of those needs better than other people – hence 'every little helps'. The 'every little helps' philosophy is absolutely written through the core of what we're doing at fresh&easy. We're just doing it under a slightly different name and a slightly different guise but the same sort of values and the same philosophies about service and development and innovation.

JL: The Tesco Clubcard has always seemed one of your strongest features and one that's the hardest to copy in the sense of all the experience you have in managing the data. How are you going to handle loyalty cards?

TM: Yes, it's clearly been massively important for our business in the UK. One of the great things about Clubcard is that for a very, very big business like Tesco in the UK it has enabled it to think small, think about individual consumers, individual shopping trips, individual experiences and that's been a real feature of its success. Once you understand this, it becomes part of the philosophy of how you go to market.

But the issue with loyalty cards in the US is that they are horrible. People don't like them, you can only get a decent price for a product if you carry the loyalty card otherwise you get ripped off, so they have a very bad reputation. So we won't be launching with them and we'll be working over the coming year to see what the new modern application would be in the market.

But the Clubcard can only ever be the icing on the cake. What we have to do here is to see how the core positioning and marketing mix of fresh&easy performs before judging that the cake is right for decoration.

JL: Finally let me ask you, what personally has been the most satisfying aspect of your time in this project?

TM: It's been watching the team develop and get more and more excited and more and more focused on what we're doing. There is a tremendous atmosphere at this place and visitors pick it up almost before they get through the front door. People feel that they're involved in something special, something to be proud of, something that they're really enjoying.

This article featured in Market Leader, Autumn 2007.

NOTES & EXHIBITS

FIGURE 1: ELEVATIONS OF A PROTOTYPE FRESH&EASY STORE