Product diversification of Tesco in the USA In the beginning And now….. The world’s third biggest retailer, Tesco, has been open for business in the United States since 2007, trading under the brand name ‘Fresh and Easy’. 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 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. 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. 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. Fresh & Easy is giving Americans something new: Fresh food at exceptional prices, and fresh meals from the Fresh & Easy kitchen, all of a quality which is unprecedented. The food is made on our own premises. * They’ve identified the west coast as that’s more likely to go down the healthy eating route – a fresh fruit and veg model, which is much more what the UK supermarket experience is based on. Threats of the introduction (Retail expert George Godber’s opinion about this new model) * I think they applied the theory correctly but they failed to persuade people to come through the door. The brand awareness hasn’t worked and if you don’t get that right then you can’t get money out of people’s pockets. * They also might be losing some of the passing trade they enjoy in the UK, he says, because more Americans drive to supermarkets Main strategy of US introduction. Business plans are: * to create new brands * to develop product ranges * to appeal to increasingly aspirational shoppers (i. e. people who aspire to a wealthier lifestyle) Productline positioning (specified for american customers) new objective is to create “highly valued brands” This is partly about the group’s own-brand foods ranges, from “Value” at the cheapest end to “Finest” at the most expensive, but is also about developing new brands for shoppers who do not necessarily want to have the name of a supermarket emblazoned across the products they buy. “As people develop their higher levels of disposable income, they want to treat themselves. They do not want to just buy Tesco Value shower gel. They want to have something sat in their bathroom that looks like it is a brand.
So you create brands,” said the CEO in an interview. The group has already built up international brands like F+F in clothing and Technika in consumer electricals. It will also aim to create new brands in other product areas like Go Cook in kitchenware and Lighter Choices in health foods, and take them to all of its markets to benefit from economies of scale. Strengths * Drawing upon Datamonitor (2010), Tesco is ranked third largest grocery retail company in the world, operating over 4,331 stores primarily within the USA, Europe and Asia.
The company held 30. 7% share of the UK grocery retail market in 2010 (Euromonitor, 2010). * A strong financial performance has been shown by the company over the years, which underlines its strategic capabilities. According to Datamonitor (2010), Tesco is a ? 54billion turnover company recording an increase of 14. 9% when compared to 2008. The foremost strategy that has been adopted by the company is the product and services customization in accordance with the market demands.
The efficiency in performance of the company over the last decade can be summarised with the help of growth in following key indicators ( Fame, 2010): * Tesco’s strategy aims to focus on product affordability which ensures that customer gets the product to suit their budget without compromising on the quality. During 2009 the sales from online non-food retail company Tesco Direct have increased by over 50% (Tesco, 2010). * Tesco has a proven customer retention strategy with the help of its loyalty scheme called ‘ Tesco Clubcard’ .
Drawing upon DunnHumby (2008), the company uses data collected from this loyalty scheme in its powerful CRM systems named Crucible and Zodiac, and this information is then used for effective direct marketing and various other promotional techniques. * Marketing and Sales Loyalty programs like Tesco Clubcard are being introduced through information technology advances which dissuade the customers from switching over to their competitors. Tesco has introduced its Greener Living Scheme to give consumers advice on environmental issues, including how to reduce food waste and their carbon footprint when preparing meals. ——————————————- [ 1 ]. http://www. telegraph. co. uk/finance/markets/2788089/A-history-of-Tesco-The-rise-of-Britains-biggest-supermarket. html [ 2 ]. http://www. tutor2u. net/blog/index. php/business-studies/comments/tescos-strategy-in-the-us [ 3 ]. http://www. bbc. co. uk/news/magazine-13190124 [ 4 ]. http://www. tutor2u. net/blog/index. php/business-studies/comments/tescos-overseas-strategy [ 5 ]. http://www. ivoryresearch. com/sample36. php
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