Fresh & Easy Sticks to No-Card Policy

MICHAEL GARRY

NEW YORK — Despite the exceptional success it has enjoyed with loyalty cards in its home market in the United Kingdom, Tesco will continue to steer clear of them at the 110 small-format Fresh & Easy Neighborhood Market stores it has opened in three Western U.S. markets since November 2007.

“Analysts have been predicting we would [invest in loyalty cards] for quite a while,” said Doug Rutledge, chief information officer for Fresh & Easy Neighborhood Market. “But it's not one of our strategies at this point in time.”

These were among the comments Rutledge made this month at the National Retail Federation's 98th Annual Convention & Expo at the Jacob K. Javits Convention Center here. Rutledge was part of a panel of retail CIOs, the “CIO Innovators Forum,” moderated by Scott Langdoc, chief strategist, RetailCentric, South San Francisco.

Rutledge said Tesco is taking a different approach to loyalty marketing in the U.S. than it has taken in the U.K., though Fresh & Easy's chief executive officer, Tim Mason, was one of the architects of Tesco's U.K. Clubcard loyalty program.

“We're trying to create loyalty, not with IT, but by trying to focus on offering a great shopping trip with honest prices,” Rutledge said. This strategy was based on feedback from customers who said “they didn't want to be part of a loyalty program to get great prices,” he added. “They said they were irritated being behind someone in line with a key fob that unlocks a different pricing structure.”

Fresh & Easy surprised observers when it opened its initial stores in late 2007 without offering loyalty cards. Tesco's U.K. card-marketing strategy, developed in concert with London-based Dunnhumby, a loyalty marketing specialist, is credited with helping the chain achieve its market-leading position among U.K. food retailers.

Tesco has long denied that its decision to avoid card-marketing in the U.S. was related to Kroger's 50-50 partnership with Dunnhumby's U.S. affiliate, Dunnhumby USA.

Fresh & Easy is also employing a low-tech approach to other consumer marketing, going with “word of mouth” rather than traditional media vehicles. “Word of mouth is much more powerful in building a brand than what we would say in print or email,” Rutledge said. “We're talking to neighborhood decision-makers and allowing them to tell their friends, who would tell their friends and so on.” But as Fresh & Easy gains “density” in its customer base, it plans to move to mass-marketing outlets, he added.

Fresh & Easy's overall growth is slower than its initial projections, which called for 200 stores by February 2009.

Where Fresh & Easy is using technology, much of it was created by Tesco in the U.K. and imported in a package of systems known as “Tesco in a Box,” which is also used in the retailer's other foreign markets. Fresh & Easy's small IT organization is also supplemented by Tesco's IT operation in Bangalore, India.

Rutledge said that the two most important IT-based processes at Fresh & Easy were “aligning stock with sales and space” and “aligning hours with work.” The former process is intended to make sure “no products are left in the back room and they're all on the sales floor,” he noted, adding that it employs Tesco's internally developed continuous-replenishment system, which has been married to a space-planning system from JDA Software Group, Scottsdale, Ariz.

The labor process is meant to determine “the hours we need to deliver the work, so we don't have six people at 6 a.m. when we need three,” Rutledge said. Fresh & Easy recently selected a labor-scheduling system from Red Prairie, Alpharetta, Ga., and the chain is also looking at adding task management functionality to its labor systems, he noted.

Fresh & Easy also partners with NCR and Oracle Retail on technology implementations, Rutledge said. NCR is the provider of the chain's self-checkout lanes, which are the sole checkout format at Fresh & Easy stores. As he said last year at the Food Marketing Institute/Marketechnics Show in Las Vegas, Rutledge observed at the NRF show that shoppers tend to like the self-checkout format. Fresh & Easy store employees are available to help shoppers who prefer not to scan their groceries, he added. “It's assisted self-checkout,” he said.

Moreover, front-end employees have a greater opportunity to “bring their personalities to customers” in Fresh & Easy's checkout scenario than in a traditional front end, he said.