Tesco reinvents the 7-Eleven
The British retail giant is out to break the mold with gourmet mini-supermarkets in Southern California, reports Fortune's Matthew Boyle and Michael V. Copeland.
(Fortune) -- Convenience stores have long been a place to pick up beer and pork rinds. Earlier this month Tesco launched a $2 billion, five-year plan to change that. The British retailing giant just opened the first gourmet mini-supermarket in Hemet, Calif. Dozens more of these Fresh & Easys are scheduled to open over the next three months throughout California and the Southwest. Analysts think Tesco could grow their ranks to more than 1,000 in the next five years.
A nondescript strip mall off Hemet's main drag is the insertion point. Rather than hot dogs spinning beneath a heat lamp, bags of pomegranates, rose-gold apples, and watercress are the first things you see when entering through the door. Next in prominence are prepared foods, including Japanese shrimp dumplings, Mexican-style burritos, and Indian samosas. The food for sale is a combination of Fresh & Easy's store brands and national and regional ones. The vibe, given the eight aisles and the kinds of items for sale, is much more akin to Trader Joe's than to either a true convenience store or a full-size supermarket.
On its second official day of operation the store is by no means bustling. At 10 a.m., retirees are checking the aisles. Lucille Clift, 84, has a quart of nonfat milk and a bag of granola in her grocery cart. She and her husband are Trader Joe's loyalists, she explains as she navigates the unfamiliar self-checkout system.
"I am sure the food here is tasty," she says as an animated Tomb Raider-looking woman on the screen (there are no cashiers) guides her through the payment process. "But we are going to have to find more useful things if we are going to shop here much."
The other "shoppers" -- incognito execs from the competition with BlackBerrys hanging off their belts and no baskets -- stare at the food displays with an intensity normally reserved for the Super Bowl. The location and format that Tesco chose for its launch are a result of in-depth research that dates back 20 years and includes videotaping the contents of refrigerators and living with American families to monitor their every habit. (The retailer did the same before entering China in 2004.) Fresh & Easy CEO Tim Mason, 50, whose baby this is, even moved his family to a bungalow in Santa Monica last year.
Breaking the mold in retail is not for the squeamish, however. Nine years ago Wal-Mart launched Neighborhood Markets, trying to work its low-price magic in a box one-quarter the size of a Supercenter, but the concept never caught on. Also, the Southern California retail market is competitive, featuring all three big traditional grocers, a huge Whole Foods (Charts, Fortune 500) presence, Trader Joe's, Costco (Charts, Fortune 500), and Mexican retailer Gigante.