Tesco's Exit from the United States

Tesco's Exit from the United States
Case Code: BSTR437
Case Length: 26 Pages
Period: 2007-2013
Pub Date: 2013
Teaching Note: Not Available		 Price: Rs.500
Organization: Tesco Plc.
Industry: Retail
Countries: UK/USA
Themes: Business Strategy, Business Environment
Tesco's Exit from the United States
Abstract Case Intro 1 Case Intro 2 Excerpts

Abstract

The case discusses the entry of the UK-based retailer Tesco plc (Tesco) into the US and its subsequent exit. Tesco entered the US in 2007. Prior to that, it spent over three years doing research about the retail sector in the US and the format that would suit the US market. It started operating through small format grocery stores under the brand name 'Fresh & Easy'. The stores occupied an area of 10,000 sq.ft and were positioned as a smaller and more convenient alternative to the US supermarket. They sold fresh food, pre-wrapped produce, dry grocery items, and ready-to-eat meals. Most of the stores were located in neighborhoods known as 'food deserts' where not many grocery retailers were present.

Though Tesco spent considerable time trying to understand the market and plan its strategy, it failed to live up to customers' expectations. American customers were not comfortable with some of the practices like automated checkout counters, overemphasis on private label products, small assortments of products, etc. Besides, they were not happy with packaged ready-to-eat food. They also felt that the stores were dull. Within a few months of Tesco entering the country, the US economy found itself in the grip of recession, a fall-out of the subprime crisis. With growing unemployment, people started to spend less and preferred to shop at hard discounters. Though the prices at Fresh & Easy were lower than those at several other retailers, it found that it had yet to establish a value proposition among the consumers.

Tesco revamped the stores and increased the number of product lines in the stores. But the US operations did not break even and continued running at a loss. At the same time, Tesco started to face a tough time in its home country, the UK. Investors said that Tesco had concentrated on the US and other international markets at the cost of its core UK business. Tesco then decided not to invest further in the US operations. In April 2013, it announced that it would make an exit from the US.

Analysts' reactions to Tesco's exit were mixed. While some of them suggested that Tesco could have waited for some more time as the US economy had come out of recession and was on the growth path and smaller stores were making their presence felt in the market, others felt that Tesco had taken the right decision.

Issues

  • Understand the challenges retailers can face while entering into highly developed retail markets
  • Study and analyze Tesco's pre-entry and entry strategies in the US
  • Understand the US subprime crisis and its impact on the retail industry

Contents

Keywords

Tesco, UK, USA, retail, recession, globalization, international operations, Fresh & Easy, convenience stores, fresh food, pre-wrapped produce, hard discounters, competition

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