Explaining Southern California's economy

Fresh & Easy's competition problems in California

Tesco Opens First Of Its "Fresh & Easy" Stores In L.A

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This was one of the first 16 stores that Fresh & Easy opened in the U.S., and this was — and still is — in Los Angeles. But now the British-owned chain, after a $1.6 billion investment, will likely leave the U.S. market or see its parent, Tesco, sell it.

The L.A. Times reported last year that Fresh & Easy, a relatively newly arrived grocery chain owned by Britain's Tesco, would be closing stores in the U.S., including seven in California.

At the time, the LAT quoted a Fresh & Easy spokesman who said that it would continue to grow in the U.S.:

Despite the store closings...Fresh & Easy will maintain a brisk pace of expansion, with an average of 50 stores opening per year.

More than two dozen new stores will open their doors through March, including seven smaller-format Express stores in Los Angeles and Orange counties and five stores in Sacramento.

KPCC Business Reporter Wendy Lee filed a story Thursday that suggests those plans have changed. And the Wall Street Journal has a long story about how Fresh & Easy is a $ 1 billion-plus debacle for Tesco and quotes Clarke declaring that it's "likely, but not certain, that our presence in America will come to an end."

This actually provides me with a great opportunity to lament the departure of Fresh & Easy, where my family has been regularly buying groceries and other stuff for about five years. Again, the WSJ:

While it attracted a few loyalists, Fresh & Easy largely failed to capture the imagination of American consumers unaccustomed to British-style ready meals, self-service cash registers and unorthodox store layouts.

Many of Tesco's ideas—which propelled the chain to incredible success in Britain—were lost in translation. For example, the stores featured a huge portion of Fresh & Easy own-brand products, even though American shoppers are far more brand-conscious than their British counterparts. The shops also opened in cities where people drive, meaning the journey to a larger supermarket—with all the national brands and a wider selection—was in many cases only a few extra minutes down the road.

We count ourselves among the loyalists, and we have the rewards cards and the compulsive habit of shopping at F&E several times each week, using up whatever coupons the company dispenses either through mailers or online. And the WSJ commits a whopper of a analytical misstep by suggesting that F&E is failing because the balance of store brands to national brands is off. One of the big advantages to shopping at F&E is that you get a mix of store and national brands, something rival Trader Joe's doesn't offer. 

So Fresh & Easy offered a hybrid of the Trader Joe's model and, in Southern California, what big stores like Vons and Ralphs provide. It's true that the F&E shopping experience is different, what with the self-checkout and the packaged produce. But plenty of consumers already buy packaged produce at Trader Joe's and the big chains have begun to experiment with self-checkout. 

Fresh & Easy's real problem, at least in Southern California, is that this area is the most competitive grocery market in the U.S.  if not the entire world. We explored this at KPCC last year, in the lead up to a regional grocery workers strike that didn't ultimately take place. "Disruptive innovation," at several levels, is being played out big time in the regional Southern California grocery market. The major chains, which are unionized, are duking it out with F&E, Trader Joe's, high-end stores such as Whole Foods and a legion of upstart ethnic markets. 

If you drop into this scene, you'd better have the ability to grab share in a hurry. F&E arrived with a concept and an aggressive plan for expansion, but it evidently couldn't convert its investment into a solid customer base.

F&E won some loyalists, and I was one of them. But that wasn't enough, if you believe what the CEO is now saying. Bottom line: you need far more than a few loyalists if you plan to conquer America's grocery store market.

Follow Matthew DeBord and the DeBord Report on Twitter. And ask Matt questions at Quora.

Correction: In an earlier version of this post, I completely failed to notice that the Fresh & Easy spokesperson has made his comments a year ago — in January. So of course what he had to say wouldn't have matched what the CEO said in December. That spokesperson noted this on Twitter. I regret the error as well as the "gotcha" tone and have updated the post.

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