Tesco in the United States
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Case Code: BSTR291 Case Length: 13 Pages Period: 2005-2008 Pub Date: 2008 Teaching Note: Not Available |
Price: Rs.300 Organization: Tesco Industry: Retail Countries: USA Themes: Business Strategy, Globalization Business |
Abstract Case Intro 1 Case Intro 2 Excerpts
"What's the problem with Fresh & Easy? In our view, it is a sterile, small Costco, too quiet, not quirky, has a negative feel, too different or ahead of its time. Maybe all of the above, but Tesco seems to have over-engineered the concept."
- Mike Dennis, analyst, Piper Jaffray, in April 2008.
"This is a tremendously exciting move for Tesco which will add a new leg to our international expansion. The United States is the largest economy in the world with strong forecast growth and a sophisticated retail market. It is a market we have researched extensively for many years and over the last year we have committed serious resources to developing a format that we believe will be really popular with American consumers. We've put a strong team together, led by Tim Mason and drawing on the wealth of skills and experience within the group."
- Terry Leahy, CEO, Tesco Group, in 2006.
"While the market, understandably enough, is giving Tesco the benefit of the doubt at this early stage, we see considerable risks associated with the US market and wonder whether the £250m a year would be better spent in existing territories or ones where dominance might be easier to achieve."
- Sanjay Vidyarthi, Retail Analyst, Teather & Greenwood, in 2006.
Introduction
On July 03, 2008, UK-based retailer Tesco plc (Tesco) opened its sixty second Fresh & Easy Neighborhood Market (Fresh & Easy) store in the US at Manhattan Beach, California. According to the company, the store opening was a major success, registering around 2,600 footfalls. The best-selling item on the opening day was the Grill Pack, with customers buying 1,400 units of these. "[The] opening was fantastic, the neighborhood showed up in force to show its support. Based on what customers are buying at the Manhattan Beach store, there are going to be a lot of Fresh & Easy barbeques this 4th of July weekend," said Tim Mason (Mason), CEO, Fresh & Easy.
The Manhattan Beach Fresh & Easy store was the first store that the company opened after a self-imposed three-month halt announced in April, 2008. Tesco had entered the US in November 2007 with small format grocery stores called Fresh & Easy, designed exclusively for the American market. Although the company opened its first stores only in November 2007, there had been reports in US-based newspapers since early 2005 on Tesco's pre-launch activities such as conducting market research, negotiating leases, purchasing land for a distribution center in Moreno Valley, California, and establishing its US headquarters in El Segundo, California.
By September 2005, reports indicated that Tesco had built a team of 60 executives in New York and on the West Coast. This team had apparently laid the ground for the store openings in late 2007. Although Tesco had thoroughly researched the US market and the American shopper and developed what it felt was a foolproof entry strategy, initial reports suggested that its US operations had met neither the shoppers' expectations nor its own. The company was criticized for its small assortment, its overemphasis on private labels, and its aggressive expansion. In April 2008, Tesco announced that it would halt its expansion in the US for the next three months. The company wanted to pause and make changes to its strategy based on customer feedback and its experience in the market. According to some sources, the company was forced to do this as sales had fallen far short of expectations...
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