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A lot of speculation has already started regarding the performance of Fresh & Easy Neighborhood Market, the food chain recently launched by Tesco, the largest British retail, to enter the US market. Questions came up after the announcement that Tesco will put a halt on the opening of additional stores in the next three months.

It is too early to say whether the business model chosen will be successful or not. Any new business needs time to assess initial performance and implement corrective action to unforeseeable challenges, and then proceed with a more prudent and robust roll out.

Tesco executives agree that Fresh & Easy will report loses in the first year given the initial launching costs, but many stores have already reported beyond expectation sales compared to industry averages – $20 in sales per square foot per week versus an industry average of $9-10.

Entering the highly competitive US market is not an easy task, even for the giant retailer. The challenge becomes bigger given the differentiated business model adopted – limited branded products with more fresh, ready-to-go offerings – and the decision to grow organically with a new brand, which will require time for American consumers to learn and adopt.

Given the culture of constant learning embedded in its business and the deep pockets to finance the project – Tesco reported a $5.5 billion profit in the last fiscal year – the game has just started and is far from being over.

A better assessment will be possible in September when the company promises to report first financial results for the new chain.  

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Tesco, the largest retailer in the United Kingdom and third worldwide after Wal-Mart and the French retailer Carrefour SA with sales over $80 Billion, started its American operations last November by opening the first 20 stores in the West Coast.  The grocery store chain is called Fresh & Easy Neighborhood Market.   

 

 The chain’s strategy is to offer high quality, fresh and nutritious food on 10,000 sq-ft stores – between the size of a convenience store and a supermarket – located on local neighborhoods. Many people questioned the format picked by Tesco given the one-stop shop culture in the US translated into the success of the big boxes and mass merchandisers. Tesco spent over 3 years studying the American retail market and found that actually Americans visit multiple stores to get what they want. Tesco’s executives believe people will continue shopping on mass merchandisers and clubs to find lower prices but the neighborhood stores will bring a differentiated assortment, with more focus on fresher and ready-to-eat products versus packaged goods, and offer more shopping convenience to customers.

Tesco’s debut into the US market has been long expected. Tesco brings its expertise on operating multiple retail formats – convenience stores (Tesco Express), supermarkets (Tesco Metro), super-centers and a large format (Tesco Extra). It has successfully penetrated in 12 markets, always tailoring the retail format to the local market dynamics and customer needs. For instance, in Japan, where Wal-Mart has struggled to create a solid, growing operation and Carrefour already withdrawn, Tesco has successfully opened small convenience stores, adapting itself to the habits of the Japanese customers. 

Another 120 stores are planned to open by the end of 2008 across California, Arizona and Nevada. 

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