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Chula Vista First Stop for U.K. Food Giant Tesco

The only grocer happy about Tesco’s arrival here is Tesco, according to Lloyd Greif of Los Angeles-based investment bank Greif & Co.

“Tesco recognizes the competitive market of Southern California, and their aggressive buildout strategy is a concerted effort to make their brand known here,” Greif said.

Tesco controls 30 percent of the grocery market in the United Kingdom. In 2007, the company posted $5.28 billion in profits.

The British food giant’s new business unit is El Segundo-based Fresh & Easy Neighborhood Market, set to open its first local store Nov. 16 on East H Street in Chula Vista.

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Fresh & Easy opened six L.A. stores earlier this month, and will open six more San Diego locations in Vista, Escondido, Santee, El Cajon and San Diego within an 18-month time frame.

The chain said it plans to open 200 stores altogether in Southern California, Arizona and Nevada by February 2009.

Conceptually, the grocery store aims to bring fresh, convenient foods to neighborhoods at low prices, according to company spokesperson Brendan Wonnacott.

The typical Fresh & Easy store covers 10,000 square feet, similar in size to a Trader Joe’s store, offering only 3,500 selected items and brands to keep prices affordable. That’s about 10 percent of what is found in traditional grocery stores. Many produce and dry items are prepackaged, thus reducing costs of materials.

Prepared products include a 17-ounce package of macaroni and cheese for $2.99, a packaged cooked and sliced 16-ounce chicken breast for $4.99 and a mixed-greens salad with dressing for $1.99.

Products with a Fresh & Easy private label often are priced lower than competing national brands in supermarkets.

Each store employs from 20 to 30 people, and of the first six stores that opened in early November, 50 percent of employees live within three miles of each store. Forty percent of workers are full time, and all work more than 20 hours a week.

Entry-level positions will pay over the current minimum wage of $5.85 per hour, starting at $10 per hour in Nevada.

Part-time employees are eligible for benefits if they work over 20 hours per week and have been with the company for 90 days. Medical, dental, vision and prescription coverage is included, and benefit packages are extended to families of employees.

United Food and Commercial Workers activists have criticized retail giants like Wal-Mart Stores Inc. for advocating high-deductible health care plans for workers. Similar labor negotiations were spurred by the recent union strikes with regional supermarket chains.

With a foot barely in the door, however, Tesco has been deflecting criticism from the labor coalition Alliance for Healthy and Responsible Grocery Stores since September.

The retailer pledged to place Fresh & Easy stores in different neighborhoods, including low-income areas traditionally underserved by supermarkets. The coalition says it has doubts about Tesco’s reliability to follow through with that goal.

“You have to look at the stores that have been announced already, and consider that there are a lot more in the pipeline. Our South and East L.A. locations are a few examples,” Wonnacott said.

Greif said he believes that the Alliance is trying to bully a multibillion-dollar retailer, which is an ill-advised strategy, he says.

“The Alliance is shooting from the hip and firing prematurely. Trying to draw conclusions now is ludicrous. Just look at the mixed-population markets of the Hemet and Eagle Rock locations; these are not high-income neighborhoods,” Greif said.

Fresh & Easy was deliberate in choosing its name, Wonnacot says, as the stores focus on prepared food options, prepared daily, to keep on-the-go shopping simple.

While Greif says Tesco’s presence here will make an already competitive market more competitive, he says its success in more suburban neighborhoods will depend on how the stores are “dressed up.”

“The harsh, florescent lighting and concrete floors compare more to a Smart & Final. That’s not going to appeal to a yuppy, affluent neighborhood necessarily,” Greif said.

He says Bristol Farms and Whole Foods stores will not be Tesco’s competitive targets directly, as those upscale store designs and products are not aimed at penny-pinching customers.

Analyst David Merrefield of supermarketnews.com says that the small store approach will likely not take a big chunk out of competing supermarket business.

“It’s more likely convenience stores and restaurants will feel the heat,” Merrefield said.

As for customers, Greif says Fresh & Easy is targeting those looking to save a dollar while including certain key nutritional foods in their diets.

“Tesco’s looking for crossover shoppers. Their typical consumer might buy an organic peach with a nice cold Diet Coke,” Greif said.

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