Tesco Faces Challenges Before First Store is Opened

Discussion
Apr 03, 2006
George Anderson

By George Anderson


It has yet to open its first convenience store in the U.S. and already Tesco is under fire for the decision.


According to a report from The Mail, Safeway is “evaluating the relationship” it has with Tesco in the Grocery Works home shopping business. Tesco took a 35 percent stake in the venture back in 2002 and has been providing staff and management advice for running the business. Tesco’s own home shopping service in the U.K. is often presented as the ideal for internet grocery businesses since it has been able to produce profits when others have not.


Another Tesco investment, the customer loyalty consultancy of Dunnhumby, is in danger of perhaps losing Kroger as a customer because of the chain’s unhappiness with the British retailer’s announced plans to enter the U.S. market.


Under a deal agreed on last week, Tesco will increase its stake in Dunnhumby from 53 percent to 84 percent. Tesco remains confident it can seek to grow outside the U.K. without jeopardizing the Dunnhumby business. 


Moderator’s Comment: What is your take on The Mail article? What does it mean for the British chain and the supermarkets currently doing business
with Tesco and Dunnhumby in the U.S.?

George Anderson – Moderator

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9 Comments on "Tesco Faces Challenges Before First Store is Opened"


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Camille P. Schuster, PhD.
Guest
14 years 10 months ago

Competition is tough; that’s the name of the game. If you know your customers well and are providing products and service they want in a timely fashion at an acceptable price, competitors will have a difficult time taking your customers away. However, customers are not static. With or without competitors, you need to keep abreast of your current customers’ needs, likes and dislikes. Whenever a competitor offers your customers something they want at a good price your relationship with your customers is at risk. It doesn’t make any difference whether it is a new or old competitor.

Mohamed Amer
Guest
14 years 10 months ago

The Mail article shouts “Tesco’s expansion plans have put it at loggerheads with two of its business partners.” The story sells papers, but is near a non-event for Tesco. Expanding their market to the U.S. far outweighs ongoing relationships with Safeway or Kroger, who have more to lose than Tesco by “evaluating” the current relationship. A more sticky situation for Dunnhumby is how to grow that business if a retailer has 84% stake – odds are expansion of their services will be with CPG companies and not other retailers in geographic proximity to Tesco’s banners. Tesco will do what is good for Tesco as will Safeway and Kroger, who must by now be building their own intellectual property. If systems were a silver bullet, then the reactions might be warranted, but they’re not. At the end of the day, people, processes and organizations have to leverage these applications and know-how to generate and sustain any advantage over the competition.

Daryle Hier
Guest
Daryle Hier
14 years 10 months ago

This is a non-issue. There are always little conflicts of interest in the corporate world and they’ll be worked out. Tesco coming to the U.S. with or without these relationships should worry both of these two companies, Kroger and Safeway, in more ways than one. Tesco sees a category, which these and others have missed. It will be interesting to watch but, in the long run, Tesco’s emergence could be the final straw for many of the grocery giants in the U.S.

Herb Sorensen
Guest
14 years 10 months ago

Unless somebody buys somebody, those relationships are doomed. Like Kroger, or Safeway or Wal-Mart are going to partner on anything? But then, I’m just an outside observer.

Bill Bittner
Guest
Bill Bittner
14 years 10 months ago

Obviously, the possibility of a certain amount of angst from their current business partners was something Tesco considered before expanding their Tesco Express offering into the US. What is more interesting is, “Why haven’t US retailers recognized the rising importance of the convenience format?”

We are all well aware of the expanding impact of the internet and the increasing number of consumers with broadband capability. This will only lead to more online purchasing, with the in-store purchases becoming more concentrated in convenience categories including Home Meal Replacement. A supermarket retailer, with their existing distribution channels, should be in a perfect position to capitalize on this trend. When are they going to wake up?

There will come a day when many consumers do their “big shopping trip” online and will only visit the store to get the items they need immediately or cannot stock. They will use Tesco’s online shopper to place their orders and pick up their last minute items from a Tesco convenience store.

Bernice Hurst
Guest
14 years 10 months ago

Tesco is a juggernaut (is that a word you guys use?). If they are interested enough in these partnerships, they’ll make them work. If they don’t work, it will be because Tesco doesn’t really care.

Mark Lilien
Guest
14 years 10 months ago

There are some industries where competitors simultaneously work as supplier-customer pairs and/or partners. For example, American movie companies often co-own distributorships in foreign countries. Book publishers often sell paperback rights to each other. Certain telecoms jointly own cellular firms. There’s no reason Tesco and the American firms it’s involved with cannot work together. The relationships are dependent on 2 things: (1) the maturity of the business leaders involved; and (2) the optimal alternatives.

Stephan Kouzomis
Guest
Stephan Kouzomis
14 years 10 months ago

We aren’t talking about blockbuster business relationships here. Kroger and Safeway have used the programs that Tesco has ownership in to further their operations and consumer loyalty. Okay…

One would correctly assume that both U.S. retailers have gained from these service businesses; staff accordingly; and can move on. One may say the biggest question for both U.S. retailers is, “Have they hired the marketing expertis” to handle the Tesco services parting?!

Tesco’s service businesses have a world before them of opportunity and know it! And they may feel the same way about retailing in the States! Hmmmmmmmmmmm

Gene Hoffman
Guest
Gene Hoffman
14 years 10 months ago

What’s the big deal? These relationships aren’t do-or-die. As for the potential current controversy, this too will pass. Tesco will come to the U.S.A. and Safeway and Kroger will continue current their relationships with Tesco. Time marches on and everyone continues to try to nudge forward.

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