Product Diversification of Tesco in the Usa
In the beginning
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