British grocery chain hits America with Fresh ideas

Still the store design has confused some shoppers. "It's not as organized or as customer-oriented as I'd hoped," says Rick Sanchez, who was disappointed by what he saw at the Long Beach store's grand opening. When the first U.S. store opened, it didn't sell milk in gallons — something quickly corrected, says marketing chief Simon Uwins.

One of its most surprising issues so far — given its research — is that while it learned early on that natural foods are a major draw for U.S. shoppers, it underestimated how much Americans want their grub ready-to-go. Sales of prepared foods have been twice what it expected, Mason says.

That's one reason the company hired chef Michael Ainslie. He figures he's created 110 grab-n-go products over the past year, roughly one new product every three days. A point of pride: Mac 'n Cheese. "This was not easy to create with 100% natural ingredients," he says.

The families Tesco observed — who were paid about $300 each — were not initially told who was watching them.

"We didn't have a clue," says Sharon Catlett. The Burbank mother of twins and law firm administrator and her stay-at-home husband "thought it was a couples counseling service, because they kept talking to us separately." Catlett shops at whichever of six grocery stores has the best deals. The observers shopped with her, then went home with her and watched her cook dinner with what she'd bought.

She says she now has slight misgivings about giving too much information to the Brits. But she concedes, "We're arrogant enough to think we can set them straight."

Which is what Tesco — known for testing and retesting — wants her to do.

Touring the model store

Tesco also built a mock Fresh & Easy store in a warehouse in Hawthorne, Calif., long before the first real store. Focus groups were paraded in to help tweak everything from the logo to operation of the self-checkouts.

Some non-grocery products were tested — and died — there.

"People just didn't think Whiffle balls belonged in the store," says spokesman Roberto Munoz.

While a reporter was shown the mock store, access was denied to the super-secret, 820,000 square-foot distribution center in Riverside, east of Los Angeles, where Tesco creates and packs most Fresh & Easy brand foods.

Tesco brought key U.K suppliers to its Riverside fortress. A second such facility is planned in Northern California.

Competitors are eagle-eyed but closemouthed. Wal-Mart would not comment on Fresh & Easy, but it plans to test a similar store dubbed Marketside near Phoenix. Whole Foods had no comment. Ditto for Trader Joe's.

Safeway CEO Steven Burd has said, "We'll watch the entry of Tesco closely."

Opening day lessons

Fresh & Easy tries to make a grand entrance. At openings, top executives (in casual dress) show up to hand out free tote bags. They work the floor, as they did at the Long Beach opening last month when 250 shoppers rushed in when the doors parted.

One arrival, Jennie Kwan, a retired grandmother from Hong Kong, mistook Uwins for a local store staffer and asked the marketing chief where to find coconut extract. He couldn't find it — but found almond extract. It wasn't what Kwan had asked for, but she snatched it up anyway, saying, "That's a very good price."

Uwins smiled at a small victory. On his blog last week, however, Uwins said Fresh & Easy would take a break from opening stores for three months "to kick the tires, smooth out any wrinkles and make some improvements that customers have asked for."

He's learned that to win over American shoppers, it's gonna take more than coconut extract.

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