Tesco’s entrance into the US market was a long time coming, with the company studying US shopping habits for 20 years. The team even sent out researchers to live with 60 American families for two weeks to discover the products they bought and they food they ate.
Tesco is showing faith in the (currently) loss-making chain by announcing a store opening spree in northern California.
Priding itself on offering gourmet-style produce, Fresh and Easy launched before the credit crunch, branding itself around the trendy theme of ‘environmental awareness’ - the stores are painted green and there is parking for hybrid cars along with bike racks. Its new distribution centre in Riverside in California - where it makes its salads and ready meals - has one of the largest solar-panelled roofs in the US.
Britons abroad hoping to stock up on Branston Pickle and Marmite will be disappointed - the stores are designed for American consumers. Tesco thinks it has got it right sales formula: the stores aim to cater for time-starved shoppers who want fresh, healthy food - including ready meals - at “affordable prices”. The company is promising to locate some of its outlets in areas that desperately need them. Many low-income, high-poverty areas have become so-called “food deserts”: areas that lack access to fresh, healthy, affordable food.
The idea of restricting choice is also a very interesting innovation. (Try this exercise for yourself. The next time you see the word ‘choice’, replace it with ‘decision’ and see if it’s so great). Fresh & Easy have modelled their west coast outlets on the 800 Tesco Express stores in Britain. Each outlet employs between 20 and 30 people and are much smaller than the typical US supermarket. This will help minimise competition with giant US retailers like Wal-Mart (Asda in Britain).
Tesco has made a sizable investment into the strategy. The plan was to spend around £800m between 2007 and 2010 before achieving breakeven. It hasn’t quite got there yet. According to The Guardian the failure to crack the US market is the one ‘blot on the copybook’ of former chief executive Sir Terry Leahy (see the ‘Tesco Question’ - the boss steps down).
The business is now not predicted to break even until the financial year 2012/13 and the number of store openings still lags well behind the target set when it entered the market in 2007. Last year it announced plans to mothball 13 stores in Nevada and Arizona because of the severity of the sub-prime property crash. The chain made a loss of £95m on sales of £247m in the six months to 28 August 2010. But maybe the tide is turning. According to the head of US operations: “We opened our first stores in 2007 with the goal of creating a modern, 21st-century grocery store. Fast forward to today, and we have 166 stores and more than 4,500 employees”. He added that the extra store openings would bring “welcome volume” to the factories and help to reduce the start-up’s heavy overheads.
But ambitions have scaled back, a bit. The outgoing Tesco boss hinted at the possibility that the chain could end up being “hundreds” rather than “thousands” of Fresh & Easy stores. It may be a while before the size of the US operation reaches the scale it has achieved in the UK.
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