Article

Tesco still fighting uphill battle in the United States

Tesco's Fresh & Easy keeps pushing along in the U.S. as the chain recently announced plans to open its first two stores in San Francisco.

June 5, 2011

The following is an excerpt from a recent conversation on RetailWire, with comments from its panel of contributors.

Tesco's Fresh & Easy keeps pushing along in the U.S. as the chain recently announced plans to open its first two stores in San Francisco.

"We could not be more thrilled with the strong performance of our first 11 stores in Northern California and we're excited to get our doors open in San Francisco," said Tim Mason, Fresh & Easy CEO, in a press release. "Judging by the fantastic reception we've seen from customers throughout the Bay Area, we are certain these stores will also be a hit."

Mr. Mason's optimism aside, there are many Tesco shareholders who doubt whether the chain has found the right formula to make it on this side of the Atlantic.

Charlie Munger, vice-chairman of Berkshire Hathaway, told The Telegraph earlier this month, "It's difficult to be a new boy. ...Tesco is God Almighty in England. But you come into Southern California and you have Trader Joe's and Costco -- that's tough competition."

Tesco has said it expects to reach profitability in the U.S. by 2013, although there are many doubters outside the company if not in its c-suite. A RetailWire poll in October of last year found only 35 percent thought Fresh & Easy would reach its goal in that timeframe.

Fresh & Easy, as a Bloomberg Businessweek article and others have pointed out, has made adjustments. The company has expanded the number of items it carries from from 3,500 to 5,000. It has added more healthy items and frozen foods to cater to local tastes in Arizona, California and Nevada where it currently has stores.

Simon Uwins, Fresh & Easy's chief marketing officer, told the magazine "We're very confident that we've got Fresh & Easy in a place that customers like it. We've just got to get more customers into it."

The changes have brought some improvement. Same-store sales in 2010 were up 9.4 percent.

RetailWire BrainTrust comments:

All reports are that the changes are helping. However, "helping" does not mean Fresh & Easy will succeed.

The supermarket industry has found itself competing with everyone from Walmart, Target, Dollar stores, Trader Joe's, Whole Foods and now Walgreens. It will not give up market share easily. The famous Mark Twain quote "The report of my death was an exaggeration," might in this case be reworked to read, "The report of my success was an exaggeration." - Steve Montgomery, President, b2b Solutions, LLC

Obviously, they are not working because Fresh & Easy keeps losing hundreds of millions of dollars every year. It seems that at no matter what point in time, Fresh & Easy is two years away from being profitable. I think in 2013, they will revise that date to 2015.

It's real easy to get same store sales up 9.4% when your starting point is very low. They are going to need to repeat that performance for about 8 more years in a row just to get to their original goal of about 5 years ago. If they don't give up, I think in about 10-12 years they might get it figured out. Most likely they will leave the country but put a huge positive spin on it such as that they felt it was more important to reduce their carbon footprint by closing. - David Livingston, Principal, DJL Research

I ran a U.S. division of a European company for 5 years. What a pleasure it was. They thought long term and believed in strategy. They believed if the strategy was right, then the business would succeed. They were amenable to minor adjustments but never did they panic.

I see the same taking place here. Tesco is a terrific retailer. They have identified a strategy to break into the U.S. market. They are making adjustments to that strategy, but are not panicking. They understand that the worst thing they can do is be a "me, too."

Their strategy is not a willy-nilly bright idea. It is well grounded and they are patient. Their efforts will not reflect a new positioning and strategy every year like many of their U.S. counterparts. - Gene Detroyer, Entrepreneur, Advisor, Consultant, Professor, Independent

(Photo by James Tenser.)