Tesco Still Fighting Uphill Battle in U.S.

Discussion
May 27, 2011
George Anderson

Tesco’s Fresh & Easy keeps pushing along in the
U.S. as the chain recently announced plans to open its first two stores in
San Francisco.

"We could not be more thrilled with the strong performance of our first
11 stores in Northern California and we’re excited to get our doors open
in San Francisco," said Tim Mason, Fresh & Easy CEO, in a press release. "Judging
by the fantastic reception we’ve seen from customers throughout the Bay
Area, we are certain these stores will also be a hit."

Mr. Mason’s
optimism aside, there are many Tesco shareholders who doubt whether the
chain has found the right formula to make it on this side of the Atlantic.

Charlie
Munger, vice-chairman of Berkshire Hathaway, told The Telegraph earlier
this month, "It’s difficult to be a new boy. …Tesco is God Almighty
in England. But you come into Southern California and you have Trader Joe’s
and Costco — that’s tough competition."

Tesco has said it expects to reach
profitability in the U.S. by 2013, although there are many doubters outside
the company if not in its c-suite. A RetailWire poll in
October of last year found only 35 percent thought Fresh & Easy
would reach its goal in that timeframe.

Fresh & Easy, as a Bloomberg Businessweek article and others have pointed out, has made adjustments. The company has
expanded the number of items it carries from from 3,500 to 5,000. It has added
more healthy items and frozen foods to cater to local tastes in Arizona, California
and Nevada where it currently has stores.

Simon Uwins, Fresh & Easy’s chief
marketing officer, told the magazine "We’re
very confident that we’ve got Fresh & Easy in a place that customers like
it. We’ve just got to get more customers into it."

The changes have brought
some improvement. Same-store sales in 2010 were up 9.4 percent.

Discussion Questions: Are the changes made by Fresh & Easy working? Where do you see realistic opportunities for the chain to gain share of the grocery market?

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9 Comments on "Tesco Still Fighting Uphill Battle in U.S."


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Steve Montgomery
Guest
9 years 11 months ago

All reports are that the changes are helping. However, “helping” does not mean Fresh & Easy will succeed.

The supermarket industry has found itself competing with everyone from Walmart, Target, dollar stores, Trader Joe’s, Whole Foods and now Walgreens. It will not give up market share easily. The famous Mark Twain quote “The report of my death was an exaggeration,” might in this case be reworked to read “The report of my success was an exaggeration.”

David Livingston
Guest
9 years 11 months ago
Obviously they are not working because Fresh & Easy keeps losing hundreds of millions of dollars every year. It seems that no matter what point in time, Fresh & Easy is two years away from being profitable. I think in 2013, they will revise that date to 2015. What we are seeing are sales per unit continuing to increase, but over all they are still doing horribly. They spin every piece of bad news and they insert buzz words like “thrilled,” “excited,” “fantastic reception” about losing money and store openings. They are the only company I know of that can spin continued huge losses and defeats as wonderful news. They think they are winning like Charlie Sheen. It’s real easy to get same store sales up 9.4% when your starting point is very low. They are going to need to repeat that performance for about 8 more years in a row just to get to their original goal of about 5 years ago. If they don’t give up, I think in about 10-12 years they… Read more »
Gene Detroyer
Guest
9 years 11 months ago

I ran a U.S. division of a European company for 5 years. What a pleasure it was. They thought long term and believed in strategy. They believed if the strategy was right then the business would succeed. They were amenable to minor adjustments but never did they panic.

I see the same taking place here. Tesco is a terrific retailer. They have identified a strategy to break into the U.S. market. They are making adjustments to that strategy, but are not panicking. They understand that the worst thing they can do is be a “me, too.”

Their strategy is not a willy-nilly bright idea. It is well grounded and they are patient. Their efforts will not reflect a new positioning and strategy every year like many of their U.S. counterparts.

Tim Henderson
Guest
Tim Henderson
9 years 11 months ago

Interesting juxtaposition of this Fresh & Easy discussion item following the brand Oprah discussion. With Oprah, it took a several decades to achieve success–and I don’t recall a lot of shareholder and Wall Street handwringing. Okay, I get it–these are obviously two very different brands. But my point is that we should at least give F&E a couple more years to tinker with the brand and hopefully achieve the recipe for success. Through no fault of its own, F&E launched at the start of Great Recession. F&E’s luck hasn’t got much better given the current impact of high gasoline prices and the recession-induced changed in spending and shopping behaviors. There’s certainly no guarantee that over the next several years F&E will achieve success. But if they do, it will be hard won and much deserved.

Warren Thayer
Guest
9 years 11 months ago

This one’s beyond me. I’ve been in a lot of Fresh & Easy stores, seen the nearly nonexistent traffic, and can’t help wondering why they are expanding instead of fixing what they have and getting it right. Have to agree with David on this one.

Eliott Olson
Guest
Eliott Olson
9 years 11 months ago

They did many things wrong in the beginning. Some things can be fixed, such as assortment, supply sources, etc. Some things like lousy locations can’t be fixed but lessons were learned. The San Francisco locations should do well. The Fresh & Easy concept was ahead of its time and the market structure is now catching up. Fresh & Easy can succeed.

Craig Sundstrom
Guest
9 years 11 months ago

Wow…I’m glad our respondents aren’t in the same room (I might have to duck under the table!). But back to F&E: one would think an organization – particularly a big one such as Tesco – would begin an endeavor with a basic idea of the challenges they might face and $$ losses and concept tweaking aren’t unusual during a startup phase. So the latter aren’t necessarily disturbing…but of course they aren’t particularly encouraging either. The reality is, we don’t know; maybe the project will turn around, or maybe it will end up having been complete disaster from day one; the small snippets of info we have are nowhere near enough to venture an educated opinion. My biggest concern is that the scattered placement of the stores doesn’t really allow for any kind of presence; I think a slower and (geographically) more concentrated approach might have made more sense.

Lee Peterson
Guest
9 years 11 months ago

You have to admire Tesco for hanging in there this long and trying to figure it out; takes wherewithal, for sure. But given what’s happened and the extensively entrenched competitive set they’re up against, it seems that F&E needs to make bolder moves than they have to this point. Start by analyzing all the P’s of the brand. I’ll just leave it at that.

David Livingston
Guest
9 years 11 months ago

Seems that all those who admire Tesco are basically saying so just because they haven’t given up. I’m not so sure that is a good reason to admire them. Fresh & Easy likes to compare their sales per square foot a lot to national averages. What many overlook is that in California and the West Coast, supermarkets must perform well above national average in order to be just average in that region. Typically sales per square foot and rents are a lot higher in California. I’m now going to say it will be 10-12 years on continued past performance to get them to a regional average level. Now will that happen? I think we can expect another economic downturn after the election. This may delay Tesco’s miracle perhaps 15 years now. By then the supermarket as we know it will probably not exist.

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