Tesco Entering the Us Market

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Over recent years, Tesco has become the world’s third largest retailer and holds a dominant position in the UK’s grocery market, with a turnover of £42.6Billion in 2007 (FAME). Tesco has increasingly looked overseas for growth, with 1,376 stores outside the UK; international sales of £11billion in 2007, generating £564million in trading profit. International expansion began in Hungary in 1994 but most of the company’s overseas development has occurred post 2000 and currently operates in 14 countries (Dawson et al 2006, p182). Tesco’s previous international ventures have been in developing economies such as the Eastern Bloc, Thailand and China (Japan being the exception). In all cases there is an extensive evaluation of markets, and the Tesco format is adjusted to a formula for the local market. For example, Tesco’s market research told them in Thailand, people prefer to “interact with vendors and rummage through piles of produce to choose what they want” (Tesco, 2007), rather than the western approach of packaged produce. Tesco being responsive to local demand has been costly in market research, however it has lead Tesco to be successful internationally. The US is seen by some retail analysts as “a graveyard for the British retailer” (Palmer, Miller, Olsen 2007). This is somewhat accurate as successful UK retailers such as Debenhams, Dixons and J. Sainsbury all have attempted to enter the US market and failed. Determined not to have the same fate as previous British retailers, Tesco have researched the American market for 5 years, largely in secrecy, prior to publicly announcing their plans. Tesco has chosen to open its first American stores on the affluent West Coast in “Los Angeles, Las Vegas, Phoenix and San Diego in November 2007” (Telegraph, 2008). Daniels, Radebaugh and Sullivan suggest “companies expand into high growth markets because they expect demand for their products will increase as the economy grows”. The west coast has a combined population of 55million (US Census Bureau, 2006). The population in this area of America is large, and considering Americans spend $680billion per year on groceries (Miller and Olson, 2007), the market size is large enough and growing enough to make a profit with the right strategy. Companies require research on new markets to reduce uncertainties in their decision making process. With so much money and resources at stake, 5 years of market research has been conducted, and most on it has been internal reports by Tesco executives. They used various methods to determine the most effective Tesco format and looked at competition. One method was to build a mock-up grocery store in a Californian warehouse along with “$67,000 of groceries” (Telegraph) and observe the public’s purchase patterns, likes and dislikes. The idea was successful and revealed purchasing patterns such as “US shoppers hate Twiglets, are more fussy than UK counterparts about meat but less so about wine” (Telegraph). Traditional analysis techniques, such as published secondary data or reports from government agencies, wouldn’t reveal this information. Another research method used put “anthropologists in the homes of 60 US shoppers for two weeks to analyse their every move and track their spending patterns” (Telegraph). Observing what people buy will give Tesco knowledge of what products would sell best in their stores and observing when people buy these and how far they travel for these products will determine what sizes and locations their stores need to be. Simon Uwins, chief marketing officer concluded from the research " they told us they wanted was somewhere in their neighbourhood where they could get all their stuff in one go." Furthermore “Americans may have more space, but busy breadwinners were short on time for shopping and preparing” (Miller and Olson, 2007). With the market research in mind, Tesco’s US stores will be “under the fascia ‘Fresh and Easy’” (Harris, 2007). This is in an effort to...
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