NAIOP TESCO TOUR

Hello again,

I just arrived back into the office from the Meridian Business Center in Riverside. The occasion was a NAIOP (National Association of Industrial and Office Properties) breakfast at the brand new Fresh and Easy Distribution Center. Fresh and Easy ("F&E") is Tesco's attempt to enter the American grocery market and as far as I can tell it is a British version of Trader Joe's as both seem to be going for the small (15,000 SF and less) neighborhood grocery store niche.

A little digression is in order:

I live in Pasadena and I live 1 block away from the first Trader Joe's ever and over the past 8 months the quality of service and food has been, in my opinion, lacking. This is counter-intuitive to me since the flagship store for Whole Foods was recently built not a block away. This was quite a brazen and clear attempt on Whole Foods part to "throw down the gauntlet" and attack Trader Joe's on their home-turf and I expected some sort of retaliation on Trader Joe's part in what I felt was going to be an epic battle of the brands. The Organic Food dollar is a very strong dollar indeed, and it seems to me that Trader Joe's just seemed to curdle up and die in the face of such overwhelming competition.

Then I realized that even though the Wholefoods mega-mall opened a stone's throw from the historic Trader Joe's, that the two were not competing directly with each other. The Wholefoods, complete with sushi-bar, tapas bar, an organic buffet bonanza and a cheese sampling station, (among other esoteric organic offerings) was akin to an organic Costco, whereas the Trader Joe's was designed more as an organic neighborhood 7-11 (a classy 7-11 with produce). The Wholefoods vs. Trader Joe's dichotomy was not one of organic oligopolistic competition, but rather an example of market segmentation.

With this back story in place, I think F&E will absolutely destroy Trader Joe's as I have seen the future and the only hope for Trader Joe's is to manage its inevitable decline gracefully. This company I feel has been trading on the goodwill and the fan base that it has generated over the last 40 years. It is no longer enough to just have Hawaiian shirts and to ride the good vibes that the Trader Joe's name generates (that cutesy organic little guy that we all know and love). F&E is gathering its forces on the horizon and I feel Trader Joe's has let its guard down and has never faced such overwhelming competition.

The F&E Distribution Center is amazing. Much of what F&E offers will be private label, meaning that they make their own food. Trader Joe's follows the same tactic, allowing them to pocket much of the margin, but also absorbing all of the risks associated with food products. The major difference is that many of the private label foodstuff's available at Trader Joe's comes from other parts of the country, whereas all the private label foodstuffs from F&E, as per my understanding, will originate from Riverside, thus I believe that the total "food miles" of F&E will be much lower than that of Trader Joe's. In no small part this is due to the fact that Tesco hails from Europe where the government is much more green.

The push across the pond has been for food-miles labeling and the green movement in Europe is taken much more seriously than here in the States. This means that Tesco is much more advanced in terms of implementing green technology on a large scale. And this shows in how they built their building and operate their logistics system.

The F&E distribution center has on its roof the largest privately owned solar generating plant in North America. There are 500,000 SF of solar panels that are able to generate up to 2 megawatts of power, enough to power 50% of Tesco's massive operation. R30 insulation covers the refrigerated portion of the warehouse, meaning that less energy is lost. The forklifts inside of the warehouse are electric and the delivery trucks that service the local stores are powered by natural gas.

400,000 SF Warehouse

Refrigerated Docking