The fast-growing British supermarket chain planning 18 Bay Area stores has halted U.S. openings for the next three months, raising concerns about its prospects.
Fresh & Easy Neighborhood Market, the U.S. division of Tesco PLC, insists that the break was anticipated all along and that every announced location will open. Some, however, believe the move reflects early and serious trouble as the world's third-largest retailer attempts to plant its flag across the pond.
"The more stores they open, the more money they lose," said Jim Prevor, a food industry consultant who writes the Perishable Pundit blog. "I believe there's good reason to believe they will fail ... (unless) the company is willing to rethink the whole concept."
Fresh & Easy spokesman Brendan Wonnacott said that the pause doesn't reflect financial troubles and that planned Bay Area stores will open in 2009. He added that it takes time for stores to build up sales, but that the early results are encouraging.
"Sales and repeat customer visits are all increasing every week," he said. "We've been thrilled with the reception we've received in the neighborhoods we're in so far."
The company hasn't released financial data.
After talking to suppliers, Piper Jaffray senior research analyst Mike Dennis wrote in a March 13 report that Fresh & Easy is running 70 percent below projected U.S. sales, $30 million compared with $100 million in the second quarter. That equates to about $60,000 in weekly sales per store compared with the $200,000 average he says the company projected.
He noted that Tesco has tapped an American executive from its Thailand grocery business, Jeff Adams, to determine how the company can turn a profit on its $700 million investment to date. The company has said it plans to invest $2 billion over five years in its U.S. division.
"If Fresh & Easy fails it will add to the list of U.K. retail brands unable to break into the U.S.," Dennis wrote. The company generated buzz locally after announcing plans to set up in neighborhoods that other grocery stores have avoided. That includes a store in San Francisco's Third Street corridor, promising to complete a more than 10-year effort by city officials to expand the food selection in the district.
Fresh & Easy agreed to buy the 15,000-square-foot retail space of a condominium project at 5800 Third St., being built by Goldman Sachs Urban Investment Group and Noteware Development.
Amy Cohen, director of neighborhood development for the Mayor's Office of Economic and Workforce Development, said that project is on schedule and the company is looking at more sites in San Francisco.
"Fresh & Easy is actively working with the city," she said. "We see no slowdown."
A report released Tuesday by Mayor Gavin Newsom's office found that Bayview-Hunters Point residents spend $14.5 million annually on groceries in other neighborhoods or cities, because of lack of options in the neighborhood.
Additional Fresh & Easy stores are planned for Antioch, Concord, San Jose, Hayward, Oakland, Oakley and elsewhere in the Bay Area.
The company has opened nearly 60 stores since late last year, mostly in Southern California. It is generally building about 10,000-square-foot spaces, slightly smaller than a typical Trader Joe's. The company stocks its shelves with a narrower selection of goods than traditional supermarkets, with a higher proportion of private-label and prepared products.
Food industry consultant Prevor, who puts Fresh & Easy's weekly sales figure at around $50,000 per store, said the markets aren't drawing adequate foot traffic because they don't carry enough items for all-in-one shopping trips and U.S. consumers aren't yet familiar with the Fresh & Easy brand.
He added that he spoke to Fresh & Easy vendors who have been working for more than a year to meet the company's projected volumes. Last week was the first they had heard of any planned break in store openings.
Fresh & Easy Chief Marketing Officer Simon Uwins wrote on his company blog last week that the "pause for breath" had been planned after the company had opened 50 stores.
"We've given ourselves a little bit of time to kick the tires, smooth out any wrinkles, and make some improvements that customers have asked for," he said.
Fresh & Easy said in December that it expected to have 200 stores open by the end of this year. That figure now stands at 150, Wonnacott said.
Planned Fresh & Easy locations
Antioch: Somersville & Buchanan roads
Lone Tree & Golf Course
Concord: Clayton & Ygnacio Valley roads
Danville: Diablo Road & Interstate 680
Fairfield: Beck Avenue & West Texas Street
Hayward: Mission Boulevard & Rousseau Street
A Street & Hesperian Boulevard
Mountain View: Middlefield Road & Rengstorff Avenue
Napa: Jefferson Street & Imola Avenue
Oakland: 73rd & Bancroft avenues
Oakley: Laurel Road & Ohara Avenue
San Francisco: Third Street & Carroll Avenue
Silver Avenue & Goettingen Street
San Jose: Bird & Minnesota avenues
Almaden Road & Curtner Avenue
Sunnyvale: Tasman Drive & Fair Oaks Avenue
Vallejo: Oakwood Avenue & Springs Road
Walnut Creek: Ygnacio Valley Road & San Carlos Drive
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