Tesco Is Ready, Are You?

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Tesco Is Ready, Are You?

By Linda Lisanti, Convenience Store News - 10/22/2007
Ever since the news broke in February 2006 that Tesco, Britain's largest retailer, planned to enter the U.S. marketplace, retail consultants and analysts have issued a 20th century version of Paul Revere's cry for action, "The British are coming."

Next month, their call will change to "The British are here." After nearly two years of much speculation and anticipation, Tesco will finally open the first of its Fresh & Easy Neighborhood Markets -- 10,000-square-foot stores, smaller than the typical supermarket, but bigger than most convenience stores, offering everyday staples to gourmet items.

"It seems a lifetime ago we were showing customers around our mock store, seeing if we'd understood what they'd told us correctly. Now, November seems to be hurtling towards us, when we'll be opening our first Fresh & Easy stores," Simon Uwins, Fresh & Easy chief marketing officer, said in a recent blog on the company's Web site.

"We've seen our first outdoor sign lighted up, our first store being handed over to our store personnel to get ready for launch, and our first product being delivered to our depot," his blog continued. "It's an amazingly exciting time. Many different strands of the business we're building are now coming together, and we're finding out whether they're a perfect fit. You can just feel that we're onto something."

Fresh & Easy will debut in Phoenix, Las Vegas, Los Angeles and San Diego, although Tesco leaders have stated they hope the format will have wider appeal. West Coast c-store retailers are bracing for the increased competition.

"Well, I think any reasonable retailer would be concerned about the well-financed, well-thought-out business plan that [Tesco] apparently has," said Richard Crawford, president of Green Valley Grocery, operator of 35 c-stores in southern Nevada, including Las Vegas. "As they say, 'The proof will be in the pudding,' but from everything I've heard so far, it sounds like they will be able to back up their plans with execution."

Tesco's executives have been watching the U.S. market for several years, but didn't want to cross over the Atlantic until they had developed a new, truly original store format tailored specifically to meet the needs of American consumers.

The retailer went so far as to have 50 of its senior directors spend a month living with families on the West Coast, keeping daily diaries of their hosts' eating habits, shopping schedules, and entertainment and recreational preferences.

The Tesco team also built a dummy store in a California warehouse, claiming it was a movie set. More than 200 focus groups have toured the space, according to media reports.

Through this extensive research, Tesco CEO Sir Terry Leahy said the company found that Americans do their food shopping in more stores than British consumers, because no one store gives them everything they want. "You would think it is the home of the one-stop shop, but it's not," Leahy told The Wall Street Journal. "I think [Americans] feel the one-stop shop -- the big-box retailer -- doesn't quite do it on the food quality, the fresh food."

American customers also want fresh, wholesome food at affordable prices, Tesco USA chief executive Tim Mason noted. "They are desperately keen to feed their children better than they do. They are concerned about their kids and the fact that they are getting obese, and they can't control it," Mason said in an interview with British publications.

Tesco believes its Fresh & Easy Neighborhood Market will give Americans what they're missing -- a one-stop shop that offers a wide range of groceries, including customers' favorite brands as well as fresh, wholesome food at reasonable prices.

Fresh & Easy stores will offer lots of fresh foods, including pre-prepared and organic selections, to make healthy eating convenient and affordable, according to the company's Web site. All prepared foods will be made in a kitchen facility at the chain's Riverside, Calif., distribution center. Additionally, Tesco's private-label Fresh & Easy product line will have no added trans fat, artificial colors or flavors, and limited preservatives.

"For us, the centerpiece of this concept is freshness," John Burry, Fresh & Easy chief commercial officer, said in a statement. "To ensure freshness is paramount, we've put our distribution center in Riverside, central to the areas we are building stores, and we're making daily deliveries to each of our stores."

Tesco aims to give U.S. customers a faster, easier shopping experience as well, which is why Fresh & Easy will feature clear aisles and a simple layout.

"Based on our research, we are confident our stores will be a hit in every neighborhood we open in," U.S. chief Mason said in a company statement.

Raising the Bar

Of course, nothing is certain until Fresh & Easy rolls out, but given the details Tesco has released, and knowing its track record and the caliber of its people, consultant Anthony Ruback sees no reason why the U.K. retailer shouldn't succeed.

"I'm confident they'll be successful because Tesco is a learning organization, highly customer-centric and adapts to change," said Ruback, a principal at London-based Riverhead Consulting.

Despite all the signs pointing to Tesco's imminent success, U.S. retailers are still taking a wait-and-see approach. Ruback knows of very few who are being proactive, and he said those who are -- whom he declined to name -- are not based in the West. "The businesses we're in dialogue with are all multimillion-dollar operations that believe Tesco swill succeed, and are preparing to compete as Fresh & Easy rolls out eastward," he noted.

When Convenience Store News asked Green Valley Grocery's Crawford whether he was making changes to his stores, he said he would not discuss ways the chain may or may not react to Tesco's Fresh & Easy -- or any competition, for that matter.

For retailers who are reasoning that it will take Tesco time to adapt to the U.S. market and build awareness and trust with consumers, Ruback had the following response: "Tesco is one of the most agile retailers globally and will adapt quickly. Also, don't underestimate the challenge from the U.S. consumer to rapidly try and develop loyalty to new ideas. The breakneck growth of Wal-Mart and dollar stores is testament to this, as is the legendary reputation of Californians as lifestyle innovators."

He expects Tesco's Fresh & Easy markets to excel over U.S. convenience stores with its food offer, but said the concept may fall short in servicing the snacking and smoking requirements of gasoline customers. The stores will not sell cigarettes or other tobacco products, but will offer beer and wine, according to published reports.

With a third of all shoppers buying three or less items when they shop, Herb Sorensen, global scientific director of shopper insights for TNS North America, said Tesco appears to be going after those individuals who buy five to eight items -- a sweet spot between U.S. convenience stores and supermarkets. Convenience retailers, however, are in a better position to compete with Tesco's Fresh & Easy than grocery retailers, he noted.

"We've tracked millions of shoppers through the inside of stores, and c-stores do a better job getting their merchandise assortment out in front of shoppers. Basically, c-stores excel by getting their store closer to the shopper, both geographically and within the store. This is a big problem for supermarkets," Sorensen reasoned.

"U.S. supermarkets have driven consumers to c-stores because they focus on the stock-up shopper. Tesco is going after the convenience shopper, and will just encourage more consumers to switch from supermarkets to convenience stores," he explained.

Category manager Stephanie Poitry, of West Des Moines, Iowa-based Kum & Go Convenience Stores, also shares a positive outlook on Tesco's U.S. entrance. "They're going to raise the bar and raise customers' expectations," she said. "It will be good for the industry."

C-store retailers shouldn't be complacent, though, Sorensen cautioned. His advice: "They need to get better at merchandising their stores. They should be looking at increasing the size of their stores, yet maintaining the convenience model."