1. Why has Tesco been so successful? Tesco’s success can be attributed to the efforts of its leaders over the years. Between Jack Cohen and Terry Leahy, the adoption of newer techniques in the grocery and convenience store industry gave Tesco a competitive advantage. The two learned how to introduce new styles of managing for the enjoyment of the consumer. The two leaders shaped the path for success when they gave consumers a more positive experience in the Tesco stores all over the world. Jack Cohen started off as a small grocery stall owner but quickly expanded into the owner of a few grocery stores in the UK after WWI.
His travels to the US revealed a different kind of approach to consumers; consumer-centricism. Consumers had to choice to walk through the store and look at the products offered. By adopting this approach in his own stores, Cohen attracted more customers that led to more stores. Self-service was a huge hit in the UK and Tesco thrived on opening new types of stores as well. Tesco Express was a store that was much smaller yet was tailored to the needs of local neighborhoods. Cohen had started the company off with success and innovation.
Terry Leavy took over the reins in the 1990s, after a huge financial downturn in the 80s. His plan was to stay on track with Cohen’s tailoring approach which head led the company to big success before. Leavy believed that different types of stores that fit different communities were the key. People had different needs in different areas, city life and suburban life were very different and Tesco had to work with both. Leavy had coined this tailoring approach “The Tesco Way” because Tesco focused so much on different target groups by designing different types of stores to meet consumer needs.
Tesco Express, Tesco Metro, Tesco Superstore, Tesco Extra, and Tesco Homeplus were all examples of how “The Tesco Way” worked. Some stores offered products for the consumers of the inner cities and some stores aimed to please the needs of those in the suburbs. The point was that the store portfolio was very diverse and centered around what the consumer wanted. This strategy yielded success for Tesco in other emerging markets as well; the consolidation of many other supermarkets in Eastern Europe and Asia worked very smoothly with this approach.
The level of adaptation and flexibility was so unique that when Tesco acquired chains in Thailand, it changed its stores to fit the wet market set up that met the local consumer preferences. Leavy also realized that increasing capability (one of his core elements to success) would improve the store. By investing in information technology, electric consumer loyalty cards would show patterns and trends in consumer purchasing thus making it easier for Tesco to tailor their products and promotions to customers of each store. Leavy also expanded the services provided by Tesco: banking, insurance, telecommunication, and delivery of groceries.
Tesco became a place for the consumer to go besides grocery needs. Leavy’s efforts could only be translated into success by the 2. Which success factors are or are not transferable to the United States? There are a lot of factors that attributed to Tesco’s success in both the European market and Asian market but since the US market is the hardest to penetrate, those same factors may not always be transferable. The factors that are transferable are that of tailoring stores to meet market needs, such as focusing towards a health conscientious market, and keeping the focus on great service and value of the stores.
The factors that could not be transferable to the US stores were offering a range of products and services such as clothing, home goods, telecommunications, banking, and insurance. Fresh & Easy had to only focus on grocery store elements because they could not offer any of the other things in confidence. 3. Was Tesco smart to enter the United States market? In California, Arizona and Nevada? Tesco was not smart to enter the United States market overall because of the domination of other food stores in the country.
American consumers are much harder to please when it comes to where they shop for their food. Entering states such as California, Arizona, and Nevada were a bit easier to penetrate because of the growing populations of diversity and the health conscious ideals that people had converted to. But those things are not enough to go up against the consumer behavior in the US though. Fresh & Easy had not anticipated the demands of American consumers when it came to store atmosphere, store operating convenience, brand loyalty, or options of transactions.
Tesco had not understood that stores had to be warm and welcoming, they had to be open close to 24/7, consumers had to feel comfortable with purchasing the brands that were available, and eliminating the option of American Express, coupons, and vouchers was a distinct inconvenience. The lack of research on consumer behavior on their part did not compliment their anxious efforts to open 200 stores. They did not have the right fit in the market when so many stores (such as WalMart) delivered the service better. 4. What is the Fresh & Easy value proposition?
Fresh & Easy’s value proposition was to supply customers with fresh and wholesome food at a lower price than other stores. They based their value around having low prices all the time instead of weekly specials. Every day was as if there was a special at Fresh & Easy because the price of produce and meat were always significantly low. This pricing approach was significant to the survival of Fresh & Easy during the recession when frugal spending was the new trend. Fresh & Easy also offered value through its “healthiness” in a sea of junk and snack food.
Their market research on the changing American ideals were pertinent to the value added to their store. 5. Assess Fresh & Easy’s financial performance against plan. Fresh & Easy’s financial performance did not line up linearly according to plan in the US. The original plan was for Tesco to expand its international market share by entering into the US market with a goal of opening up 200 stores by February 2009. The sad reality was that Fresh & Easy had only opened 115 stores by April 2009 and not many more were to follow despite previous plans.
Fresh & Easy could not open up any more stores because there was a lack of funds; an average Fresh & Easy store only generated 1/5 as much revenue in a week as a Tesco express in the UK yet was much larger. Trading profits decreased and were projected to stay in the negative from 2009 to 2012. Sales growth was also evidently decreasing and was projected to decrease throughout 2012. This was no surprise since 2008 was no success: Fresh & Easy had spent more than $700 million on start up costs but could only generate 30% of their target sales.
Instead of bringing in $100 million like they had aimed for, Fresh & Easy were only able to bring in $30 million in revenues, not nearly enough to deem the launch decent. 6. Is the economic recession to blame? No, the economic recession is not to blame for Fresh & Easy’s loss and stagnation. Tesco was far too ambitious when lacking research on consumer behavior. The 200 store goal was an apparent failure of aiming too high when so many complaints about their first stores were widely voiced.
Tesco just did not understand the type of consumer behavior that went along with grocery shopping, the researchers that stayed with the families in the US had to have missed a greater part of the shopping experience since the Fresh & Easy were not meeting the standards of the American consumer. Although the recession was not to blame for goals being met, Fresh & Easy did take appropriate action in the financial crisis by reforming and improving their existing stores in the US. Remodeling and accepting vouchers or coupons was a much more effective strategy in growing their brand than opening more stores and focusing on an unrealistic goal.