Tesco. Global giant. Third-largest retailer in the world. Multi-billion pound company. Pretty impressive. You'd think they'd know all there is to know about big business, and over and above that, how to implement it.
However, according to a case by John Quelch, Professor of Business at Harvard that looks at Tesco's expansion into the USA, it appears their strategy and preparation work may need refining...
Throughout the rest of the world, Tesco have managed to be very successful so far; adopting a working policy of buddying up with a pre-existing retailer; gaining local knowledge, locations and homegrown management talent in the process. They've also largely kept the Tesco name to operate under. This approach obviously makes sense on all levels and that's why it has worked so far. Unfortunately, they didn't tackle the US in the same manner.
Firstly, they opted to enter the US market under the guise "Fresh & Easy", supposedly a "Neighborhood Market" aiming to offer a wide range of wholesome foods for cheap...except that the stores only carry 4,000 different products, compared with at least 40,000 in the UK Tesco stores. Many of their products are ready-made meals too, bringing into question the integrity of one half of their name, "Fresh".
Secondly, although attempting to mask it as being eco-friendly, they scrimped on the interior design; most of the stores apparently resembling hospitals inside rather than the wholesome, colourful, busy aesthetics Americans are used to in their supermarkets. "Tesco" say, "We design our stores to save you money, and the savings start from the ground up, literally. From simple cement floors to energy-efficient LED lighting, we keep our costs down and pass the savings on to you." Sean Silverthorne, editor-in-chief of HBS publication "Working Knowledge" says, "The advance team didn't learn all that it should, such as the notion that designing stark stores with concrete floors wouldn't necessarily appeal to American tastes."
Thirdly, the 50 British executives were sent to live with families only in California. This would probably be okay if they were planning on opening stores only in California, but the fact that they have opened Fresh & Easy stores in Arizona and Nevada too, despite their geographical closeness suggests a huge amount of cultural ignorance on Tesco's part...shopping habits, trends and customer requirements can vary dramatically from city to city in the UK, let alone entire states in the USA. John Quelch argues that Tesco had too many preconceptions of the market, and looked to the research reports with a view to, "gaining evidence in support of a predetermined strategy."
Fourthly, they really messed up on the location research. Obviously people driving out of a big city at the end of the day are going to be more inclined to purchase a ready-made evening meal from their "Neighborhood Market", over those going in...purely because there'll be more people commuting to work in a big city than there will those going from the city to work in the suburbs, and so they'll be considering dinner as they leave at night. So why on earth purchase retail units that are, effectively, on the wrong side of the road? Quelch argues that some of the stores are far more accessible to inbound traffic than outbound, and that could have a huge impact on their sales.
As a completely new venture, Tesco missed out on lots of, "local retail savvy" as Quelch puts it; largely due to their decision to employ mainly British expats in high level managerial roles. Without their UK reputation also, Tesco were always unlikely to attract the cream of the crop in terms of retailing talent. Almost 50% of their already compact product range is own brand too, the figure being far lower in the UK stores.
Five years on from the first store opening, "Fresh & Easy" are yet to make a penny...there are a plethora of mistakes that Tesco made with this foray, perhaps some of them only minor; but as they say themselves, "Every little helps".
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