British grocery chain hits America with Fresh ideas

This Fresh & Easy Neighborhood Market sits a few doors from Grauman's Chinese Theatre, where stars from Judy Garland to George Clooney have left their footprints in concrete.

Fresh & Easy, a British-owned grocery chain that hopes to some day have more U.S. stores than Safeway, now is bent on leaving its footprint in the quick-drying concrete of the nation's trend-setting capital.

But might it land face first?

Backing Fresh & Easy is U.K.-based Tesco, the world's third-largest retailer. Tesco's audacious plan is to change the way Americans shop and, in the process, take on rivals from Whole Foods to Wal-Mart. Instead of megamarkets, it's opening small Fresh & Easy stores that offer quality food and low prices. They're about the size of a Trader Joe's with lots of Whole Foods-type natural foods and prices that can seem Costco-esque.

But the unfamiliar combination — and a rather sterile store décor — seem to have left American shoppers confused about just what the chain is. As a result, Tesco is finding it harder than expected to make its mark on the nation's $500 billion grocery business.

Fresh & Easy's early U.S. sales are below expectations so far, and Tesco has paused its once-rapid store expansion until July to regroup. In the past year, however, 59 Fresh & Easys have popped up in Southern California, Las Vegas and Phoenix. Plans for Northern California were revealed last month. And few doubt that Tesco's aim is to give rivals all the way up to Wal-Mart a run for the grocery dollar in a very un-Wal-Mart way.

The stores are simple, bland and tiny by supermarket standards at about 10,000 square feet. The Fresh & Easy name signals the two things it wants shoppers to think of it for: freshness and convenience. All fresh food is dated — even the produce. And the stores are easy to shop.

Perhaps more important, however: price. They're up to 30% cheaper than conventional market chains, reports TNS Retail Forward, a research firm.

Fresh & Easy store-brand goods account for about half the products on the shelves — and have been created to contain no artificial ingredients or preservatives. But the store also carries name brands from Coca-Cola to Kraft.

"We've created the 21st century market for the 21st century American," says Tim Mason, CEO of Fresh & Easy, who is overseeing the chain's U.S. expansion from offices in El Segundo, Calif.

Results lag behind projections

Sales to date have been a letdown. Tesco won't reveal results, but a report by Piper Jaffray analyst Mike Dennis estimates weekly sales per store have been $170,000 instead of the projected $200,000. Analyst Jim Prevor is more downbeat, saying in a report that his research indicates weekly sales may be averaging less than $60,000.

Prevor cites lack of cultural understanding as one major problem, and that must be enough to drive Tesco crazy. It has invested more time and money trying to understand Americans than just about any other outsider entering the market.

Mason says sales aren't what Tesco had hoped — particularly sales of major brands, he says. "There's been some surprise and some disappointment."

But analysts say Tesco is a company that fixes its mistakes and will only grow stronger.

"If it's not performing to expectations, it will make all the changes to assure that it does," says Jennifer Halterman senior consultant at TNS Retail Forward, which projects Fresh & Easy will have U.S. sales of $10 billion by 2015, putting it in the top 10 grocers.

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