Tesco is Coming, Tesco is Coming
By George Anderson
The British chain Tesco is finally coming to the U.S.
The company announced it will finally make its long rumored entry into the American market with a convenience store start up on the West Coast. The first stores are expected to open in 2007.
According to a company press release, plans are to grow the business organically and pump the equivalent of $436 million a year into the operation. Stores will be modeled on Tesco’s Express concept, which now has 800 stores in the U.K. and elsewhere.
Tesco expects the convenience store business to reach break-even by the second full year of operation.
Tesco’s CEO, Sir Terry Leahy, said in a released statement, “This is a tremendously exciting move for Tesco which will add a new leg to our international expansion. The United States is the largest economy in the world with strong forecast growth and a sophisticated retail market. It is a market we have researched extensively for many years and over the last year we have committed serious resources to developing a format that we believe will be really popular with American consumers.
“We’ve put a strong team together, led by Tim Mason (current marketing and property director for Tesco) and drawing on the wealth of skills and experience within the group,” said Sir Terry.
Moderator’s Comment: What is your reaction to the Tesco announcement it plans to enter the U.S. market with a chain of convenience stores?
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George Anderson – Moderator
“The British are coming, the British are coming” again … only this time not with muskets and red hats but with the Express and new formats; and not to New England at its best, but to a receptive La La Land far out West.
Wal-Mart won’t be on the beaches with any convenience store cannons so the entry should be implemented rather peacefully. And so we shall see another chapter written in retailing’s passing parade. So we’d like to express a welcome to The Express, Sir Terry Leahy and Time Mason.
Tesco’s Express stores in Europe sell “petrol.” Most successful American C-stores sell gas. To NACS attendees, it’s clear that fuel leads the way in this channel. In other words, C-stores in both the U.S. and Europe count on gasoline sales to drive traffic (no pun intended), and without fuel pumps out front, C-stores generally fail.
So, if it’s reasonable to assume that Tesco’s American C-store entry will include gasoline and even depend on it to lead them, they’re going to have to count on a gasoline marketing effort to get shoppers’ attention. Regardless of how cute and cuddly their stores are, they’ll amount to nothing without a trustworthy brand of gas at competitive prices being pumped out front. What brand will that be? Who will supply it?
A final point: The “inviting” C-store format that Tesco is counting on to attract customers will also be attractive to criminals (more sales, more cash). Then the logic behind “blaring” lights and checkout counters that remind one of “bunkers” will become apparent.
Fantastic move. Focus on the front end of the operation, create a C-store experience sorely lacking in the U.S. market, and trust in your ability to fill in the back end after critical mass has been achieved. Perfect strategy. Locations will not be a problem. Business turnover in small retail is enormous. Supply will not be a problem. “Good enough” distributors already exist and will be very happy to supply Tesco.
The idea of Tesco coming to America should not be a surprise to anyone. It is well known which countries they have been studying. The format should also not be a surprise. Tesco has some the best defined formats in the retail world. Unlike Carrefour’s approach of “here is your hypermarket and consumers will like it,” Tesco has a true consumer focus. What may be misleading is what the press is calling a convenience store. This format looks nothing like a 7-11 or typical converted gas station garage. Expect a strong fresh presentation.
Please don’t take offense at this but Tesco and Americans deserve one another and will, I am sure, live happily ever after. There is starting to be a an anti-Tesco backlash here (well deserved and about time too) from customers, competitors and suppliers alike so any and all new markets to them are more than welcome to have them and will hopefully divert them enough to give the rest of us some respite. Lots of luck to you all.
I’m not so sure Tesco will be successful. Why don’t more European retailers come to the U.S.? For 2 reasons: (1) many of the ones that came got destroyed and (2) European real estate is very different from U.S.A. real estate. In most European countries, unlike most of the U.S.A., land development is so highly regulated that it’s discouraged. Erection of new shopping centers and other new commercial locations occurs at a snail’s pace. So a retailer who already has a location is often protected from a pop-up of new unexpected competition. Imagine how profitable U.S.A. retailing would be if one third of all the shopping center and other retailing space was never built.
Tesco stores not only have to be different, they need a “competitive moat”: something that prevents others from just copying them successfully. Copying is especially easy if their suppliers are the same suppliers anyone else can use.
Yes, a welcome addition to the U.S. market. The Express concept in the UK is a good one, and their convenient fresh food-oriented assortment should play well here. The West coast should also be a good entry point given the limited number of corporate owned and operated convenience stores (as opposed to dealer/jobbers) in that part of the country. It will be very interesting to watch how the supply chain works itself out, especially for grocery and other merchandise. Unlike the UK, they won’t have the grocery mother ship there, so will they self-distribute or sign on with McLane, etc.? And, what deals will they strike on the fuel side?
It’s about time. I toured two of the Tesco Express stores in December and found them more inviting than any C-store in the US. The lights weren’t blaring, the walls and floors weren’t all a sterile white and the checkout counters didn’t remind me of bunkers. They had a great variety of items, probably 40 percent more SKUs than a typical U.S. C-store and there was a good vibe between the customers and the staff. They’re sort of like what you’d imagine a Starbucks C-store would look like, without the attitude of the clerks, or what you’d expect Wegmans to build if they got into the business. The challenge will be selecting the best sites for these stores. Walgreens and Starbucks are scouring the country for real estate, and many of the best spots for these stores are gone. It will also be interesting to see who supplies the stores. McLane may get major pushback from existing customers if they start distributing to the new chain.
My initial reactions are twofold. First, what took them so long to come here? Do we intimidate foreign retailers? I think not. So why didn’t they come sooner? My second reaction; isn’t the convenience store market a bit over-saturated? What are they going to offer different from the other major convenience store chains? With the over-saturation, in my opinion, of retailers, it appears that the only way to gather market share is either eliminate the competition or increase the amount of the transaction once a consumer makes a purchase. it will be interesting to look at how they will differentiate themselves and what their marketing strategy will be.
If it makes sense for Wal-Mart to go there, then it probably makes sense for Tesco to come here. And doing it with a format that does not directly compete with Wal-Mart as one of the survey questions posed, seems to be a good strategy. Given the significant growth trends in the C-store channel, it does not surprise me that this is where they will kick off their entry into the U.S. market. I am still amazed at how the NACS show gets bigger and bigger each year, and the FMI show keeps getting smaller. Americans want convenience!
This will be huge! Tesco’s Express format is a uniquely designed retail concept that combines exceptional shopper benefits with intense retail merchandising and sales. For example, some of the best of these little stores do well over the equivalent of $100,000 a week in inside sales in less than 4,000 square feet.
Tesco, who is known as an exceptionally effective retailer, must have done some breakthrough work regarding logistics in the U.S. market to be able to transfer the Tesco Express business model to this country. The power of the Tesco Express turns, in large measure, on maintaining a broad assortment of consumable items in a small selling area,which can only be done with a highly efficient supply chain keyed to less than full-case selection. It will be interesting to see whether this radical new supply-chain concept is delivered through one of the leading convenience wholesalers such as Coremark, who probably has the capability to do it, or whether they’re going to try something new.
From the standpoint of other retailers, the Tesco Express will definitely be a direct competitor to both supermarkets and to drug stores who began to focus increasing emphasis on consumables.
Stepping back, this development makes one think that while Wal-Mart has been working with neighborhood stores for several years, Tesco who has actually invented one may now steal the march by rapidly deploying them in North America.
For my money, this is the most important announcement of pro-active activity by a major retailer in years.
America continues to be the “Land of Opportunity.” Make no mistake about it, Tesco is not the first competitive retail format to land on American soil, and it will not be the last.
I think c-store operators in the states should take a good look at the Tesco machine. Their Express format outlets are fantastic and their grocery stores among the best in the UK. If I were a retailer, I would spend time now sharpening my ax in preparation for being on the top of my game when Tesco arrives. They are that good!
This looks, on the surface, to be a good move. The Tesco Express model does seem to be different in just the right areas; fuel to bring the customer in and convenience with a larger format, which should offer the best of both worlds.
A note that hasn’t been mentioned is Circle K. I know, you never hear about them and for good reason – they don’t advertise. But they do have several hundred stores on the West Coast with a similar model, although smaller selection than Tesco Express. They are remodeling many of their C-stores plus Circle K’s parent, Canadian firm Alimentation Couche-Tard, is rebranding all their stores into Circle K and is aiming to contend with 7-11 – looks like they have more work ahead of them.
This looks to be an interesting battle.
I say it’s about time. Having lived and traveled extensively, I have found plenty of examples of inviting convenience stores outside the US. In fact, one American C-store chain, 7-11, is poised to be purchased by the Japanese 7-11 group. They have really done a great job of providing value added services like copiers and bill paying services while providing inviting food, helpful and friendly employees, and at prices not too much different from supermarkets. Unlike the U.S., you don’t get the feeling that you’re being robbed by a foreigner when you enter a C-store there. And just like the auto industry, we exported our model and they took it to the next level while we sat idle and watched. Shame on us. Let’s see what the Brits do. Perhaps America will wake up and become competitive again.