Case 6-8: Tesco

This case examines the market entry of the UK’s largest retailer (Tesco) into the USA.
Tesco’s launch of a new brand - Fresh & Easy!
Tesco Plc is a British based company which is the largest food retailer in the UK. It is
one of the largest British sellers and holds third rank in retail industry after USA based
company Wal-Mart and France based company Carrefour.

In the 1990s, Tesco's CEO Leahy started serious efforts to develop the Tesco business
abroad.
The importance of international success underlines the significance of Tesco's entry into
the USA (Which has been the graveyard for many British retailers international
strategies) with its Fresh & Easy concept. Entries by firms like Mars & Spencer and
Saintsbury in the US have been disasters.
Tesco's US market entry is based on a small-store format - loosely based on the Tesco
express, but emphasizing low price for high quality and healthy food - operating as
Fresh & Easy (F&E) not as Tesco branded stores.

The Tesco commitment to its ​US strategy​ is underlined by the intense efforts to build
an understanding of the US market.
Researchers probed the refrigerators contents of and lifestyles of US families, checking
the time they got up, what they ate for breakfast and when they shopped. The retailer
even prepared meals for them.
For two weeks 50 senior Tesco directors and managers lived the "American Dream" -
shopping and eating with US families on the west coast, even sharing their leisure
activities. Amid intense secrecy a prototype store was built in Los Angeles - the cover
story was that the were making a movie, and executives used plastic bags of cash
rather than corporate credit cards to buy things for the mock store, rather than risk
tipping off rivals what they were doing.

Part of the ​F&E strategy​ is to open its small stores in poor inner-city areas largely
unpopulated by rival retailers - the US "grocery gap" where areas like South Central Los
Angeles lack supermarkets and the city's poorest residents pay the highest prices for
food at small local stores with limited stores with limited access to fresh food.

The F&E ​positioning​ is between the discount, cut price supermarkets and the trendy
upscale "organic" food stores.
The business model positions F&E as a hard discounter, with costs kept low by keeping
product ranges and store formats identical across the chain.
The ​proposition​ is low cost fresh food. Much of the fresh produce and premium ready
meals are locally sourced.
Prices are low because stores are located in low-rent areas. Some locations are
planned for "food deserts" - areas like Compton in Los Angeles, which other retailers
have avoided.
The F&E stores are small by comparison with normal supermarkets.
Problems:
● Tesco's reputation is one of aggressive treatment of competitors, brutal almost
feudal treatment of suppliers and transgressions like collusion to fix price; in the
dairy business.

● The consumer relationship is potentially problematic. F&E is mainly own brand,

which is a risk with brand-obsesed US consumers. The stores are utilitarian and
basic in a country where this is far from the usual food retail expectation. There
are few staff in hand to assist, which is unusual for US stores and their service
culture. The F&E Stores use self-service checkouts to reduce costs, which is
difficult to for the elderly and non-English speaking consumers - Americans are
used to being served. Neither there are any of the money-off coupons and
vouchers to which US consumers are accustomed.
Consumer blogs describe the F&E stores as "boring, sterile and depressing"

● There have been some problems regarding existing partnership relationships.

One cost of Tesco's entry into the USA was the demise of collaborative
relationships that had been established over time with US companies.
Perhaps the most problematic part of the F&E relationship network relates to
relationship with employees and trade unions. The company was accused of
arrogance, being out of touch with local communities, and failing to aporeciate
the close ties between consumers and grocery workers.

● Tesco chain "Fresh & Easy" was questioned regarding the freshness of its
products (using television programme evidence about shortcomings in hygiene
and waste control in UK's food stores)
A new group called "Health First" was created which was the group that brought
a successful court case against Tesco on the basis that it's main warehouse did
not meet environmental planning law - similar Tactics have been used to stop the
expansion of Walmart in California.
It was also criticized demanding better conditions for Tesco's battery firmed
chickens, amid much television and press publicity.

● Suppliers were reporting disappointing sales at F&E, and that F&E stores were
struggling to attract customers.
Solutions:
Understanding of US culture​ ​specially consumer preferences: ​For a global
corporation, understanding cultural differences is a must. There are a lot of services
provided by Tesco which seems okay in a British society, but in a US society it is not.
Although it's brand name is "Fresh & Easy", freshness of its products was questioned
which really disappointed customers. Negative reviews by consumer blogs can really
destroy it's brand image. That's why responding to consumer needs is really important.
Diversity:
Diversity increases a company's profitability by quite a healthy margin. Operating in a
fragmented market requires a lot of local skills and experties. Consumers can feel a sense of
inclusiveness. Americans like to deal with companies which have a local bond. So, Tesco needs
to hire a lot of local people to make their organisation more diversified.
Improvement of Supply Chain​ ​Management System:
Tesco made a huge mistake ignoring calls from likes of Barack Obama, Hillary Clinton and Top
US business association for joining into the union and working together. Their refusal was
replied by negative campaign and criticism.
They need to improve their relationship with suppliers. They have already created a bad image
of arrogant, rude organization. In the long run, this is going to create a lot of problem in the long
run. A successful marketing strategy depends on its relationship with its suppliers, consumers
and others. That's why they need to have a positive attitude.
Focusing on product quality and environment:
US is one of the worlds most competitive markets. To compete here, Fresh & Easy has to show
an outstanding performance. Nowadays, people are so health conscious that if they are
concerned with the quality of food as well as environment, it's survival will be difficult. Quality
food and environment will attract a lot of people who are the core of any marketing strategy.