Tesco Calls a Time Out in America
Tesco has reacted with forceful denials when reports have circulated suggesting that the British retailer’s entry into the U.S. market has been less successful than the company expected before it opened its first location on the West Coast.
Now, it comes to light, that Tesco has decided to take a three-month breather from opening new locations after it rolled out 59 stores in its first four months.
According to a report by The Telegraph, Simon Uwins, marketing director of Fresh & Easy, wrote on a company blog, “We’ve given ourselves a little bit of time to kick the tyres, smooth out any wrinkles, and make some improvements that customers have asked for.”
Mr. Uwins said that Tesco would begin rolling out new locations after the three-month waiting period was over.
“Improving the operation and the shopping trip is what we do every day … but the next three months will allow us to accelerate this process, before we restart what’s been described as an opening programme on steroids,” he wrote.
One of the changes taking place is that an American-born member of Tesco’s executive team, Jeff Adams, is moving from his position as chief executive of the retailer’s Lotus division in Thailand to work with Tim Mason, CEO of Fresh & Easy.
Discussion Question: Are you reading anything between the lines of Tesco’s decision to hold off opening any more new stores for three months? What do you think now of the future prospects for Fresh & Easy in the U.S.?
There is nothing between the lines to read. The Fresh & Easy stores are simply low volume stores with minimal acceptance. Tesco has stores in Las Vegas and in a litte over a month from now thousands of industry colleagues will be at the FMI convention nearby. Tesco has about a month to put the clothes on the king.
Believe me, this group of spectators will not be impressed and simply say “oh it’s Tesco, they must be right.” American grocers will be brutally honest and I suggest that Tesco set aside their arrogance, admit failure, and take appropriate action, even if it means a quick and embarrassing exit.
What unfortunate timing for the reputation of British business. I assume many of you have been reading about the fiasco of Heathrow’s brand new Terminal 5 and its super duper best-in-the-world baggage handling system that broke down within hours of receiving its first piece of baggage. For months, nay years, both Tesco and British Airways courted publicity and screamed from the rooftops the wonders of their unique business model/new locations/designs. How sad (not) that such hubris has been rewarded in the way it deserves. Both companies will probably get things right in the end but the deliberate and massive pre-launch boasts reminded me of someone sticking out his or her chin and asking to be punched. It will take considerable time and effort to pick themselves up, brush themselves off and start all over again.
The Tesco game plan for tackling the giant that is the US Grocery Retail industry seems to have created more headwind than necessary. Trying to organically develop a retail chain is one challenge, developing an apparently new store format is a second (the first one is to a large extent a function of the second). The over-optimistic part could have been the decision to use a UK supplier to provide the stock for the stores.
To be fair, I think it’s too early to say this is a lost cause, it’s not even been a year. I haven’t been in a Fresh & Easy store so cannot really comment on a mismatch with the neighborhood but remember, the original strategy was bringing quality food to neighborhoods that weren’t upscale. If their executives really spent all those weeks living with families in these neighborhoods and collecting third party research data, they should know what these people are really buying, so it should not have been such a great mismatch.
The only thing that baffled me about their stated strategy was how were they going to make the economics work. I mean, selling quality food at lower prices? Nowhere have I heard how they were planning to drive the volume necessary to do that; it couldn’t be just the name alone since not a lot of their target consumers may even have heard of Tesco.
I wouldn’t count them out yet. I’ve worked extensively with retailers in both the US and the UK and found marked differences in the way they approach any new endeavor.
UK Approach: Plan, review, plan, review, and then plan some more. Only THEN, do you carefully and efficiently execute, reviewing and adjusting where necessary. When things go completely wrong (as they do), burn the midnight oil and find a way to fix it. Keep tweaking for years, if need be, until you get it right (or go bust!)
US Approach: Plan a bit, then aggressively execute. If it doesn’t make money in one or two quarters, kill it quick, learn your lessons, and come up with something fresh. It’s a brutal, “survival of the fittest idea,” approach.
Of course, I’m exaggerating in my descriptions above–but only for clarity. And just to be clear, I’m not saying that either approach is better than the other. Each approach is perfectly suited for its geography.
It’s very interesting that F&E will be getting some high-level guidance from an American born executive. Should get interesting.
Fresh & Easy has suffered from inconsistency of performance and perception so far–ironic considering it’s a high-efficiency format that depends on consistency to work. At several stores I’ve visited in Phoenix and Vegas, some looked vibrant in locations where the traffic was brisk, others looked moribund where the aisles were empty and the pre-packaged produce was evidently turning slowly.
This may one day be regarded as one of the most courageous and successful experiments ever undertaken in the U.S. grocery business, but right now it appears the volumes are not materializing in every store, which has to hurt performance of the finely-tuned merchandising and distribution system that Tesco is trying to introduce.
This announced regrouping is a wise choice for a format that will surely come under the industry’s microscope during FMI in May.
I visited a half dozen stores in the first week or so and then later visited Las Vegas and Phoenix stores, and last month revisited Las Vegas. Fresh & Easy is doing more things really, really right than really, really wrong. But the wrongs could weaken or kill the rest.
The first thing is that the entry INTO the store is all wrong. Shoppers need a wide open, attractive, straight ahead space when they enter the store, on the left (as F&E is), not be forced to take a left turn and begin shopping in the shopper abhorrent clockwise pattern.
Secondly, the Spartan look may communicate value, but it is not very welcoming, and does a poor job of complementing the high quality merchandise on display. Surely it wouldn’t cost that much to spiffy up the visual appearance–maybe even a better floor.
What is done that is overwhelmingly right is the small size, in fact, they could cut it in half and still have a very nice store. For that matter, Stew Leonard’s sells about a million dollars a year with about half the SKU count. The lower gondolas (68″ ?) are excellent, and should set the standard for the world. (People won’t go where people can’t see, and the view from the end of those very long supermarket aisles elsewhere is, in a word, horrible!)
It would be unfortunate if Tesco doesn’t get this right. As an urban dweller in the Western US and also being familiar with this format in the UK, I can say my neighborhood is in desperate need of this approach.
The local Safeway and overpriced independent C-stores are just awful, and I hate traveling to the suburbs just to shop for groceries.
Based on the comments, it seems much of the reaction to this story has been colored–or is that “coloured”?–by a dislike for Tesco as a whole, rather than an objective review of the concept/performance itself. (I was also chalking up a lot to international rivalry…until Bernice complicated things. 🙂
Only a few months into an experience is usually too early to separate bad ideas from good-ideas-done-poorly, and without hard data to go on, the differentiation is even harder.
When your results differ from your theory, stay with your results and get a new theory.
Tesco said it was going to offer Whole Foods quality at Wal-Mart prices. Americans already have that. It’s called Trader Joe’s. Did Tesco really ask if Americans really needed or wanted another?
Wow. I agree that there seems to be an anger with Tesco in many of the above comments and not many people giving the company a chance.
Any company that doesn’t get overwhelming success with its launch should refocus and redo. I find that many of the stores that win VMSD design awards are no longer in business a few years later. I wonder how many of those launched with multi-million dollar design budgets and soon found they were stuck with a gorgeous but completely unpractical store. (I frequent one of the big winners from about four years ago and it’s literally falling apart at the seems–ripped leatherette seating, permanently-marred custom plastic motifs and a complete store design that is cannot be altered without closing and starting over).
I relate the above because I like Mr. Sorensen’s specific comments, without endorsing all of them. Fresh & Easy can take the time to see if there are major design faults and fix them for all new stores without paying for individual alterations.
Tesco does not need to worry about positive/negative American reaction to its brand. The stores are Fresh & Easy, not Tesco. I would bet an overwhelming amount of F&E shoppers have no knowledge about the parent company.
I’m glad the company publicly announced it’s taking time to regroup. While I hope it’s not dire circumstances, obviously they are opening in a competitive field of slim margins in a rough economic patch–nothing that a great company can’t overcome. They won me over as a consumer and I am happy to know they want to further improve. Since my first visit I have not visited my regular Albertsons down the street (to which I never had loyalty; they are simply on a more convenient corner than the Smith’s across from them), nor Trader Joes’s to which I had limited loyalty (but Trader still required me to pick up extras at a major outlet).
The two F&E’s that I frequent (obviously, by no means a relevant sample other than to my personal needs) have been extremely clean, the self-checkouts work without a hitch, I’m in and out faster than anywhere I’ve been and their prepared foods–fresh and frozen–are great.
Opening 59 stores in 4 months in a brand new market area–not bad! It makes sense to analyze success and areas for improvement before costly mistakes are made. Listening to their customers will assist Tesco in “getting it right” so that Fresh & Easy is differentiated from the competition and true to its name for American consumers.
Tesco started big. The concept of Fresh RTE foods, Green sensibility, and convenience seemed like a sure winner. Indeed, I think it may have been if a few things hadn’t happened:
1. The Onslaught of Recession. Consumers who felt prosperous were more ready to spend a bit extra for convenience and freshness. Under an emerging “Fear Economy” (Iconoculture), consumer mindsets and behaviors are different. The time-money trade off now tilts more toward saving money over time.
2. The Selection of Tesco locations. The shoppers in these trade areas don’t generally have a the lifestyle and income to support this kind of store. Had they opened in other areas, who knows what we might be seeing.
3. Merchandising and Expiration dating. The fast expiration dating is confusing for many shoppers, who assume the food is close to expired (not fresh), rather than the opposite–super fresh. Differences in presentation of product may not signal price-value to American shoppers so much as unappealing fare.
If Fresh & Easy stores had huge crowds, overflow lines, with no parking spaces left, you’d have heard about it. Tesco needs crowds in its American stores. Without crowds, no food store makes money. Imagine any American grocery with no lines on the weekends, and no lines in the late afternoons or evenings. Even a convenience store gets busy for morning and evening rush. If you see no lines, you see failure.
Anyone, including Tesco management who believed the roll-out of Fresh & Easy stores would be without some difficulties is living in another world. The consumer marketplace in the United States is the world’s most competitive and is always filled with challenges. Will Tesco be successful? With deep pockets and patience they have a better chance that almost any other company of braking into and building a viable business in the US. But, there are certainly no guarantees.
One thing they’ve done from the start that many retailers here in the US don’t do is talk to and listen to customers about their likes and dislikes regarding the stores and merchandise. If they are paying attention to what their customers say, this alone gives them an excellent chance of success.
From visiting our local Fresh & Easy a few times, it is no wonder that Tesco is calling a time out. The store was empty, the products were presented in an unappealing manner and the overall feeling was one of “How are these guys going to stay in business?”
The best thing about the store was the personnel. They were friendly and happy to help. Was this because there were only 20 customers in the store?
I’m not too sure yet that Tesco’s Fresh & Easy brings to the U.S. marketplace a compelling enough reason to draw the numbers of customers it needs to build short term success. The time off could possibly be part of the original timeline and plan, however, it would not surprise me if the time out was called to regroup and discuss some tweaks or adjustments. Good companies do that.
Fresh, wholesome, environmentally friendly–gee, does this sound like the profile of what Americans want? We suggested, when first announced, that Tesco was trying to capitalize on an overstated trend. They may be finding out that Americans are not that hot on these dimensions. With all the research that was claimed in the name of this introduction prior to start-up, it’s hard to believe they need a time-out to make some changes.
Call it a tweak, a revolution or any other name–that they decided it could not be handled in the normal course of business or “on the fly” seems to indicate that there is a need for assessment and evaluation that is significant enough to stop “business as usual.”
From talking to others who have been in the stores (I have not, so my opinion is through their eyes), the stores are not “fish and are not fowl”–they have lots of Private Label/Store Brand product–but there is not enough compelling reason to buy it. The differentiation from national brands is not strong enough to cause the shopper to switch.
The shopping experience is not markedly better (or even different) than at other retailers, so the “draw” into the stores is not clearly defined for the shopper.
The stores are empty! They are too upscale and ‘green’ for the mediocre downscale locations they rushed in to buy…I saw contractors rummaging around giggling at the ‘hip’ product and wishing for a Red Bull and a donut. The moms they seek don’t live in the neighborhoods. Send ’em back over the pond!!!
It’s way too early to say this has been a failure, but certainly Tesco is not realizing the results it had planned. Could this be a result of the amount of private label products it sells? Are they differentiating enough from traditional grocers? Economic conditions are tough right now and the aggressive expansion plan proved to be a little on the overly ambitious side.
I haven’t had a chance to visit a Fresh & Easy store. But I have to say that for any retailer expanding into a new country, no matter how much prep work you do in advance, it’s always worth taking a break once you actually are on the ground and operating to revisit your assumptions. Wal-Mart has proven over and over again the folly of mass-exporting your assumptions about how people will react to your value proposition, and while TESCO has more experience in that realm, and I expected them to handle the cross-cultural aspects of entering the US market better than they apparently have, at least they are willing to admit that they didn’t get it quite right the first time.
Can’t wait to see what TESCO does next!
Tesco should have called a time out before this. It isn’t the case that Fresh & Easy is doomed as a format, it’s the case that it WILL be doomed as a format if there isn’t some course correction. The stores are mis-merchandised, mis-positioned and at least some of the locations are textbook examples on how not to select a site.
All that said, Tesco has enough resources–capital and human–to make this right. It’s good business not to try to course-correct and expand at the same time.
I think it’s smart to take a step back and see what you’ve got now after 4 months of retail “combat.” That would be the case for just about anyone coming out of the box with something new. Many retailers test 5 stores for close to a year to gauge regional issues, promotional ideas and general brand acceptance.
It does mean, of course, that everything is not 100% spot-on (a rarity), and that there in fact, is some tweaking to be done. After such an adventurous initial blast, I would think this is part of the strategy.
Ultimately, they should be applauded for this move…however, the true test of the mettle will be whether or not the ‘adjustments’ work, or whether there are still much larger problems; like brand/concept rejection. That jury, to us, is still out.
Tesco got it wrong and, given what I am sure are sales that are dramatically less than what they anticipated, I suspect this may be turning into a nightmare for them.
These Fresh & Easy stores are just nothing special. Yes, their everyday prices are good but their assortments are so lean and run of the mill that no one can do their complete shopping trip there. Most any grocery store today has a more complete offering of of everything and certainly someone looking for real “Fresh” or real “Easy” has plenty of other legitimate choices.
Here I thought there would be a little bit of that Trader Joe’s/Whole Foods type of variety. Boy was I mistaken. Their perishables, all prepackaged, are not low priced and I suspect are a big shrink problem. And the small amount of marketing they have done (at least here in Phoenix) is doing little to drive traffic to their stores. In fact, if anything I suspect most consumers are sorely disappointed once they do try it as I think their expectations are just not being met.
Maybe some tweaking will get it done but I am afraid Aldi and Save-A-Lot, which I see as their real competition now, have a big head start.
Everything I’ve read about Tesco suggests they learn on the fly and make improvements accordingly–even drastic ones. It doesn’t surprise me at all that they would delay openings until needed changes are made.
I think it’s too early for them to call it quits. Besides, the issue at hand could range potentially from supply chain issues to those related to customer satisfaction. Who knows? The average customer likely has a less critical eye than those of us watching business metrics to determine how the chain is faring.
While I don’t know the extent to which they have sourced volume from other grocers, I have read that customers shopping Fresh & Easy like the fact that they can find products there that can’t be found elsewhere. Is this enough to make the concept work? Only time will tell.
It wouldn’t surprise me that the noble concept of going into depressed areas to do business might change in the near future; I think that might have something to do with the “time out.” Several here have said some of the locations aren’t a success.
There is a reason why retailers like Safeway stay away from these areas, Tesco should learn from their competitors. I know here in San Francisco, Tesco planned a few locations that are in high crime neighborhoods. People commenting online in the local paper said that was a terrible idea, and Tesco would eventually close within a year like all the retailers before them. Perhaps Tesco is finding that out right now.
Here are my 2 cents. Americans don’t like change. Safeway and Kroger and the big supermarkets are what Americans are used to. Trader Joe’s took a couple of decades and unwavering ownership to hold true to their business plan before they became what they are. And that business plan has always been a glorified convenience store and not a supermarket.
Fresh & Easy has no brand recognition. Its private label products are pricey and are rarely displayed adjacent branded products as they should be. Worst of all, despite the weekly fliers there is little “discovery” in their barren stores.
With the rise of single households, working couples, and increased gridlock (with no solutions in sight especially in Southern California), the attribute most undervalued by groceries is convenience. Most supermarkets just pay lip service to this reality via their rotisserie chicken and deli section (with the exception of the megapopular Ralphs in downtown Los Angeles).
It is amazing that there are no imitators of Trader Joe’s. What I mean by that is a grocery with rock-bottom brands (San Pellegrino) which takes at most 10 minutes to navigate. Fresh and Easy stores have a too British assortment (Mango Chutney Curry everywhere), have little in terms of low price and are just way too big (there is only so much gray cement a customer can see before he gets depressed).
Here we go again! When are people going to wake up and realize that the customer drives business?! What may work so successfully in one area does not always work in another!
Fareway Stores in Iowa are a prime example of that. The Omaha stores are failing miserably due to the fact that they don’t understand “big city life.” They work well in Iowa because they fill a need for the consumer! The “not open on Sunday” and “they will drive to shop with us” doesn’t apply here!
When stores fail it is due to lack of customer understanding! How long will it take corporate America–especially upper management–to come out of the clouds and re-engage the customer? Maybe that is what Tesco is doing here? Don’t count them out yet! They may be the only ones to realize this early in the game that they need to adjust their strategy! Hopefully they won’t get as far as our nation’s largest banks before their arrogance catches up!
dunnhumby where are you?