EL SEGUNDO, Calif. — The smaller-format stores Fresh & Easy Neighborhood Market here plans to test in the next few months are unlikely to have much impact on competition or the chain's financial fortunes, industry observers told SN last week.
Fresh & Easy said the smaller format, called Fresh & Easy Express, will cover 3,000 square feet, with another 1,000 square feet of back-room space. The stores are scheduled to make their debut late this year or early next year.
Fresh & Easy is a division of United Kingdom-based Tesco . Most of its 176 stores in California, Arizona and Nevada have 10,000 square feet of sales area, though a handful operate with 7,000 square feet.
The stores lost just over $300 million for the fiscal year that ended last February, though Tesco said it expects them to turn a profit by the end of fiscal 2012-2013.
Neil Stern, senior partner with McMillan Doolittle, Chicago, said the Tesco Express format has been very successful in the U.K. and abroad, “but by and large, the conditions that make it successful elsewhere don't exist in many locations in California — very strong population densities with a commuter-centric population.”
According to one Southern California retail executive, who asked not to be identified, “I think this test of a smaller store is reflective of the fact Fresh & Easy is struggling to find a format that will work over a wide area. At 3,000 square feet, the stores will be almost a convenience store or small deli, and while that might make sense in a beach community [like Hermosa Beach, one of the test sites], I don't understand why the company thinks it would be effective in a more traditional setting or a low-income area, like some of the other proposed sites.”
One competitor said he believes Tesco might be more comfortable with a convenience-store-style format, given its experience with Tesco Express in countries around the world.
“The European shopping concept — of people coming to the stores every day — just doesn't fit in with the Southern California culture where people live in their cars,” said another competitor.
Brendan Wonnacott, a spokesman for Fresh & Easy, told SN the company plans to test the smaller format at an unspecified number of locations before deciding whether to expand it.
“The smaller size will allow us to get into neighborhoods where the property market can't accommodate a 10,000-square-foot sales floor,” he explained.
Wonnacott said the smaller locations are set to open in at least three Southern California sites: one in an urban section of Los Angeles; one in San Pedro, home of the Port of Los Angeles south of the city; and one in Hermosa Beach, a beach community southwest of the city. The company is also looking for additional sites in Los Angeles and Orange counties, he added.
Wonnacott declined to indicate when any of the Express stores might open.
He said Fresh & Easy is still “in the early stages of developing” the format. “They will offer everything that customers love about Fresh & Easy — fresh prepared meals, meat, frozen foods, groceries, but in smaller varieties,” he said.