Why you Need to Worry about Tesco

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Why you Need to Worry about Tesco

NEW YORK -- While Tesco is laying its foundation for a strong U.S. entry, retailers in the local markets aren't doing much to prepare for the international competitor, according to Mike Griswold, research director for AMR Research, who was cited by a recent Forbes report.

The Tesco stores, which will be branded "Fresh & Easy Neighborhood Markets," have generated large amounts of speculation into their offerings and where they will compete. Recent published reports state that stores will not offer convenience channel staples such as gasoline and tobacco, but will compete against the local convenience stores for fresh food offerings for meals.

Retailers in local areas where Tesco is planning to set up shop have more time to get prepared and develop strategies to compete against the British invader, said Griswold.

Tesco's original plans to be up and running by May look unlikely, and current plans show that the delay is centered around planning concerns at its Los Angeles area distribution center. To achieve the original schedule's plans for a May opening, another distribution system would be needed, such as relief distribution centers, which it has used in its United Kingdom during the peak holiday season, Griswold said. While this solution will take time, it is most likely that it will not be until fall until Tesco's impact is felt by retailers in the local markets.

Griswold suggested six competitive strategies for retailers to implement while waiting for Tesco to arrive:

-- Love customers: Know what customers buy from the store, and what they buy from competitors. Syndicated data, which can be attained through loyalty programs, can decipher the percentage of purchases going to the store versus the competition. In addition, mystery shoppers and unplanned visits by executives can shed light on the customer's view of the retailer.

-- Protect key assets -- store managers: A retailer's success is determined by the competency of the front line resources -- store and district managers. These positions, which deliver sound execution and superb customer service, will be heavily drafted by Tesco. Retailers looking to hang on to top performers need to map a comprehensive career path for those employees. Express the value and appreciation of their presence in the organization, and get them involved with store-level analysis.

-- Address range and assortment: With 5 percent of products reflecting 85 percent of sales, most retailers should thoroughly review the location's assortment. No better time than now.

-- Location, location, location: One of Tesco's specialties is selecting and securing retail estate at prime locations. Be sure that the company is continuously searching target markets in the U.S., so invest in real estate now. While convenience retailers might not be directly competing with Tesco on merchandise and offerings, stores will be competing for prime real estate.

-- Assess operating models and economics: Tesco's slim supply chain gives it a competitive advantage, and one survival tactic for retailers should be to integrate similar operational efficiencies in the extended business. Develop a model that will set stores apart from the competition, with a holistic view that covers end-to-end processes. Also, create key performance indicators that will provide in-depth performance reports and flexibility to react to demands.

-- Rethink the unthinkable: Tesco's entry could change the retailing paradigm by providing a full service grocery store in a compressed footprint. Think outside the box and create innovative ways to serve customers.

-- Wrap-up: Tesco brings with it a drive to take a deep, hard look at best practices in and outside retail. Its record for new entrances is 11 to two -- it faltered in France and Taiwan -- but is confident it can win over Americans and turn them into loyal customers.

Griswold ends the report with an apt quote by former U.S. president Theodore Roosevelt: "In any moment of decision the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing." With Tesco's upcoming entry into the U.S., doing nothing is not an option, he stated.