Tesco in Windy City just wind, for now
New York —Tesco in Chicago? Despite media reports of an imminent expansion of the retailer’s Fresh & Easy format to that Toddlin’ Town, it seems unlikely that Tesco is getting ready for an immediate geographic leap from its recently established West Coast market area.
That isn’t saying, though, that Tesco isn’t taking a look as it gathers for a leap. David Rogers, president of DSR Marketing Systems, who regularly evaluates real estate for retailers across the United States, noted that Tesco may be trying to settle on where it could expand its Fresh & Easy format beyond the West Coast. “You have to remember, real estate works at least two years ahead,” he said.
The London-based Independent newspaper—perhaps excited by the eagerness of its municipal rival The Financial Times to publish Tesco-in-America rumors—recently reported that the British retailer planned to open a Chicago office as a first step in bringing its Fresh & Easy format to the area. The Independent contended that Tesco is looking for potential distribution center and store locations in Chicago. The Independent further reported that Matthew Price, a real estate director at Fresh & Easy, will head its Chicago property acquisition team.
Yet, Tesco spokesman Brendan Wonnacott said the company’s attention remains fixed out West for the immediate future. “Right now, our focus is on California, Nevada and Arizona, and our expansion going into Northern California next year,” he said.
Tesco currently operates 71 Fresh & Easy stores in California, Arizona and Nevada.
Chicago would be an interesting test for Tesco’s Fresh & Easy concept, but actually landing a unit in the Windy City would require several conspicuous interim steps.
A source within Tesco said any potential company expansion from its current West Coast base to a market as far a field as Chicago must remain a long way off. Tesco couldn’t service Chicago using its current distribution capacity and would need some time to develop infrastructure.
Tesco’s real estate team continues to monitor major markets as part of its normal operations, but, the source said, Midwestern expansion isn’t a hot-button issue. Of course, any Tesco entrance into the Chicago market would be of immense interest. Chicago is, after all, a sort of retail crucible. Almost all major food retailers have significant operations in and around the city.
Moreover, Chicago is a big market for small-format operators. Supervalu’s Jewel supermarket chain has operated a small-format store at State and Ohio in downtown Chicago for over five years, and just blocks away, Safeway’s Dominick’s chain opened its first urban-oriented, and sized, Lifestyle stores a bit over three years ago.
Among the more likely locations for a Fresh & Easy is trendy Lincoln Park where, in addition to more traditional supermarket units, Whole Foods and Trader Joe’s operate, while Supervalu begins a new small store format experiment in a building that housed its Sunflower Market value natural food concept.
Tesco has yet to test Fresh & Easy in a true urban environment. Sure, it has units up and functioning in Las Vegas, Phoenix, Los Angeles and San Diego, but those metropolitan areas don’t have the density and pedestrian traffic that might prove the format’s worth in more traditional cityscapes. The performance of Fresh & Easy in an urban setting must be of some concern to Tesco. After all, Fresh & Easy is loosely based on the Tesco Express concept the company has successfully introduced in London and other cities in the United Kingdom, one that is heavily oriented toward capturing foot traffic.
Tesco does have such a test in the offing as it plans to open two San Francisco Fresh & Easy units as part of its push into Northern California next year. After enduring what it claimed to be unjustified criticism of Fresh & Easy performance after the format originally launched in Southern California, Nevada and Arizona, the company last year began an effort to quickly expand into Northern California including, critically, densely configured San Francisco.
Tesco may want to see how Fresh & Easy fairs in Frisco before it makes any high-profile moves into momentous municipalities elsewhere. The company recently tweaked its existing Fresh & Easy units, adding to the decor package by enhancing signage and dressing up the walls with more color to boost their appeal to middle-class shoppers. It also updated the take-out food assortment, adding more American stalwart choices such as ham and cheese sandwiches.
Recently, Tesco announced a very American promotion with a decidedly southwestern spin, offering a special end-of-summer grill pack with five pounds of beef patties, mild pork sausages and lightly-seasoned chicken along with a 12-pack of Fresh & Easy’s Taurino Cerveza beer, all for under $10. The promotion was originally conceived and launched for the Fourth of July holiday.
Tesco has proven it is willing to make changes to better fit U.S. markets of interest, so it might logically be inferred that the company would want to review and tailor its Fresh & Easy units in San Francisco before expanding the concept to other big cities. Launching and evaluating Northern California will be a significant endeavor all by itself. “For the actual city of San Francisco there are two stores, but there are 18 slated in the Greater Bay Area and 19 in the Sacramento area,” Wonnacott said.
Still, it’s also logical to think that farther flung market exploration is under way. “I understood that they registered the name [Fresh & Easy] in Denver,” Rogers said, “so, why not go there? From a distribution point of view, Denver makes more sense than Chicago. But they are probably looking around.”
Rogers asserted that Tesco had made missteps in its real estate strategy based on location and demographics. “I was always baffled about why they would go into lower-class Hispanic areas,” he said, noting that new food trends—including those in format—tend to take hold with the middle class initially. “You have to start with the middle class and work your way down,” he said.
And it would seem as if the store refurbishment program recently undertaken was an admission of that statement’s truth. So, the company seems to be applying lessons learned, particularly as regards building its relationship with American consumers.
Urban America could, on that basis, be regarded as an opportunity to engage and win over that element of the middle class that is most deeply involved in generating trends. And trendy is certainly something Tesco wants Fresh & Easy to become.