Tesco Still Searching for Answers in the U.S.

Discussion
May 22, 2009
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By George
Anderson

Tesco has
been busy trying to figure out what American consumers want. The company’s
latest answer is adding about 1,000 new items to shelves of its Fresh & Easy
stores. The typical Fresh & Easy currently carries roughly 3,500 items.

"This
isn’t about changing the concept of Fresh & Easy," Jonathan Church,
a spokesperson for Tesco, told Reuters.
"What we’ve got to do is fine-tune the model for the customer we have
before us today."

Mr.
Church said that among the new items would be Fresh & Easy branded
quiche and gourmet hamburger buns, some value-priced private label
products, such as Mother’s Joy breakfast cereals, and some national
brands.

Tesco,
which currently operates 120 Fresh & Easy stores in the Southern California,
Las Vegas and Phoenix markets, has slowed its expansion as it seeks to
get on the right footing with consumers in America. The original plan had
200 Fresh &
Easy locations up and running by the end of this year. The company now expects
to reach that number by the end of 2010. Tesco has put most of the blame
on its slower-than-expected start on economic factors rather than strategic
or tactical missteps.

Mr.
Church told Reuters that same-store sales are up 30 percent year-over-year
and that foot traffic continues to grow. Tesco opened its first Fresh & Easy
store in Hemet, California in Nov. 2007.

Discussion Questions:
Where do you think Fresh & Easy now stands and will its plan to add
items be what it needs to improve its sales performance? Have most of
the problems that Tesco has faced since coming to the U.S. been a result
of the recession or something the company did or didn’t do?

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16 Comments on "Tesco Still Searching for Answers in the U.S."


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Max Goldberg
Guest
11 years 11 months ago

Each time I visit my local Fresh & Easy, I leave less than impressed. The staff is knowledgeable and friendly, but the produce and meat are unacceptable and the selection does not make sense. The lack of customers in the store lead me to wonder in anything is fresh. With all the success Tesco has enjoyed in the UK, I wonder why they have not been able to make a better go of things in the US.

Camille P. Schuster, PhD.
Guest
11 years 11 months ago

So far I have visited three Fresh and Easy stores. They all differ in terms of size therefore are different in the amount of merchandise carried. The produce section in all is not good and I have not been happy with the produce purchased. Each of the stores appears to have local clients and each is located in a neighborhood with a different mix of consumers. That may explain why I have heard some people rave about the choices and some people say they would never shop there.

I do not believe that there will be one model or selection of merchandise that will work for all their stores.

Kevin Price
Guest
Kevin Price
11 years 11 months ago
I went into three of the first Fresh & Easy stores the first week they opened in Southern California. I was stunned at how poorly their selection was set up, how empty the shelves were, and how unappetizing their own products looked. The conventional wisdom in the press at the time was “watch out America, here comes Tesco!” which, perhaps, set a too high expectation. Still, at the time, I was totally unimpressed and, with my partner, we published an article saying so…the ONLY negative article we could find at the time. Their performance today reflects our initial impressions. Their management at the time was basking in the glow they were receiving from the press. But common sense told us this was a potential train wreck. I feel bad for them as they’ve clearly put tons of resources into this. Some of their decisions were, to me, inexplicable (such as not leveraging their loyalty card capabilities), but I guess that’s what happens when the people in charge have a ‘we know better’ lack of humility.
Gene Detroyer
Guest
11 years 11 months ago

Tesco has entered over a dozen countries including India, China and Japan. They have been a leader in entering Eastern Europe. Each of their expansions has been successful. They have been successful because they have uniquely designed each retail concept by country. They view their core strength as being operators with the concept being a variable depending on the demands of the local market.

Tesco is a patient company. They don’t measure success on what tomorrow must bring, but against a several-year vision. They emphasize getting the concept right before they expand. They are not locked in to management dictation but driven by well researched strategic decisions.

Tesco obviously is having some problems getting their concept just right. This experience is not different than they have had before. Their faulting is not likely recession related, but concept oriented, which will be fixed. Remember, they are a very patient organization.

Bernice Hurst
Guest
11 years 11 months ago

Interesting that there are way fewer comments than voters here. From what my contact near a Fresh & Easy in Southern Cal tells me, the selection and location were both ill-conceived from the get go. It doesn’t sound like the economy has had all that big an influence (although undoubtedly some) compared to just not getting things right for the market and being reluctant (understandably) to admit it.

Steven Johnson
Guest
11 years 11 months ago

Realism is reflected in the customer counts and continued week sales numbers. Using the economy as the focus is an overly simple excuse and justification for missing the mark. Since 2005, clear indicators show a growth in the ready-to-eat, ready-to-heat niche i.e. the Grocerant niche hear in the US. They have consistently been asking the wrong questions of their consumers. What is important are the changing consumer habits, particularly: HOW THEY EAT, WHEN THEY EAT, and WHY THEY EAT. Most notable is the change in consumer vision and role of food: including social eating, eating economical, environmental eating, and eating for personal benefit! It’s time for them to refocus on the American consumer; then they will win.

Dr. Stephen Needel
Guest
11 years 11 months ago

Despite what we hear from Tesco and transplanted Brits, they either did not do their homework before coming over or they did their homework badly. I have the same negative reactions going into their stores and increasing items is not the problem–they have a quality problem, especially on the fresh side of Fresh & Easy.

Aaron Spann
Guest
Aaron Spann
11 years 11 months ago

I think the biggest problem is limited location. In my travels I’ve visited Fresh & Easy. I have enjoyed the stores but their locations are in strip malls and they have absolutely no presence. Americans are used to seeing Supermarkets as anchor-type stores. Also – Nevada, California and Arizona aren’t exactly a perfect cross-section of American Consumers. I think they really need to move East and they need to look at under-served markets instead of huge metro areas.

David Livingston
Guest
11 years 11 months ago
It’s easy to be up 30% when you start out with such a low base. Recent sales reports indicate the average store is about $70,000 per week. What is it they were expecting? Something like $180,000? They will need a few more 30% years to get up to that level. The economy might be somewhat to blame but most of the blame belongs to Tesco. Wal-Mart doesn’t seem to be crying to the blues about the economy. Wal-Mart formats their stores to match the economy. Tesco failed to adjust their format to fit into high unemployment, high foreclosure markets. From what I can see, it’s as though Tesco is trying to fail. From checkouts, method of payment, layout, product mix, pricing, real estate selection, etc, it’s as though they are trying to fail on purpose. Then they make themselves look foolish by continuing to be in denial about their mistakes. I really feel sorry for the employees who are alone most of the day in those empty stores, the thousand yard stare on their faces,… Read more »
Eliott Olson
Guest
Eliott Olson
11 years 11 months ago
Visit Ireland and Britain and you will notice a difference in the people. One is a republic and the other is a monarchy with classes. The class structure has an effect on people’s attitudes and perceptions. When you give a British bloke a title like managing director, they think like Garfield Goose. Retail is detail and the princes who toured Southern California masquerading as cultural anthropologists in pursuit of Coronado’s gold only found the shaft into which they are now pouring their money. To paraphrase Fresh & Easy “We saw what was in the refrigerator but we failed to check the freezer in the garage.” I doubt that they checked out the garage that also bunked five undocumented workers, nor the neighborhoods that housed the Vietnamese, Koreans, Japanese, Lebanese, Chinese, Indians, Pakistanis, Iranians, East Africans, West Africans, Somalis, Russian, Arabs et al. They missed the variety needs of their stores and cannot localize their assortment. But on top of that, they missed their primary market , the Americans. While they are bringing in gourmet hamburger… Read more »
Jonathan Sapp
Guest
Jonathan Sapp
11 years 11 months ago

Stephen Needel his the nail on the head. They apparently did their market research in a bubble with the attitude of knowing it all. Their locations indicate a lack of focus. They seem to be going wherever they can find a site, rather than first rolling out locations that fit their market profile best and filling in later.

Rick Boretsky
Guest
Rick Boretsky
11 years 11 months ago

It just goes to show, once again, that entering a new international market is not easy – not even for the almighty Tesco. It’s hard to say without all the facts what the root cause of these problems are, although based on all the comments above it doesn’t sound like the recession is really the factor here, but rather poor store formats, poor produce, and weak product mix. Maybe they didn’t do their homework or just made some bad decisions. Either way, I think Tesco being Tesco they will adjust and eventually succeed. It could have just started off better.

Brent Streit Streit
Guest
Brent Streit Streit
11 years 11 months ago

I visited the stores a couple of times and found them sterile and that every other item was out of stock in the produce section. The dichotomy of the mega name brands on the pantry side and the generic food section on the fresh side drove me to leave the store.

Again, feels strange to walk into a store that nobody is running. It’s not like pumping your own gas. The format lends itself to high shrink when the word gets out. All sorts of poorly-run convenience stores and dollar stores seem to make it, so who knows anymore?…

Herb Sorensen
Guest
11 years 11 months ago
Just a casual tour of Marketside and Fresh & Easy show that WM has seriously outclassed F&E, although neither are ideal, from my point of view. Even with F&E boosting SKU count, Marketside doubles them. This means that WM has doubled “the long tail,” at least. And the primary role of that long tail is to ATTRACT shoppers to the store, not sell them. They are going to BUY the big head, regardless of what kind of store you build. Also, WM hit the ball out of the park with visual attractiveness once you come through the door. Probably a third of the store is wide open produce, deli, bakery, coffee bar and sit down eating area. F&E is a distant competitor of this strong entry. WM also wins strong points for maintaining the ATTRACTIVE long tail apparent but not impeding most of the big head in that first third of the store. I imagine this is done consciously, but probably not because of any desire to serve up the big head fast, as their… Read more »
Mark Lilien
Guest
11 years 11 months ago

Tesco lost 68 cents for every American sales dollar last year, according to their most recent (published April) figures. On sales of 208 million pounds sterling, they lost 142 million pounds. Per Tesco, Fresh & Easy’s losses are blamed on “…the necessary infrastructure in place from the beginning to support hundreds of stores. At this stage, it is therefore operating with high overhead and other costs in relation to the scale of the business, whilst also trading from immature stores…” Since Tesco’s typical trading profits are around 5% of sales, Fresh & Easy has a long way to go. They’ve been operating around a year a half. Most American startups make money on a four-wall basis almost immediately, and expand their corporate overhead as the number of locations grows. Tesco claims they’ve done the opposite.

Marc de Speville
Guest
Marc de Speville
11 years 10 months ago
It’s worth remembering that Tesco takes a very long-term view with regard to international expansion. Their strategy is always to make significant upfront investment in support infrastructure such as logistics and HQ–for instance building their own large DCs before reaching the store network density most other companies would consider economical. It took over a decade for their investment in Asia and Central Europe to meet cost of capital. Not many other companies (especially those that are publicly listed) could afford to be so patient. Now, it would seem from the comments above and other feedback I’ve had from local industry commentators (not always completely unbiased I have to say) that they have made some mistakes with regards to site choice, range adaptation, store environment, and explaining what their produce sell-by-date labeling means. I am quite surprised by the negative comments above regarding quality of produce, as I have seen mostly positive reviews from customers on other sites and their strategy of cutting out the middle-man/wholesaler should in theory ensure superior freshness. Perhaps there are some… Read more »
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