June 18, 2008
Tesco Adjusts to Business in the U.S.
Tim Mason, chief executive of Tesco’s Fresh & Easy business, has learned that having lower prices than the competition is one thing; communicating that difference to consumers is something else altogether.
“People didn’t get the prices as quickly as we thought,” Mr. Mason told the Financial Times. “This egg price $1.58 for a dozen barn eggs are unbelievably cheap. At Trader Joe’s they would be $1.58 but at a supermarket they would be $3.60.”
To get consumers’ attention, Fresh & Easy has moved away from a strict everyday low pricing strategy.
“When we first started we didn’t have any high/low promotions at all, because we were doing EDLP,” said Mr. Mason. “What we discovered, because we were the new kid on the block, was that people didn’t get the price image.”
To drive home its price advantage, Fresh & Easy began running sales promotions. So far, according to Mr. Mason, it appears to be working.
“What we have done is a very few [promotions] across the entire store, probably 30 high/low promotions, which have dramatically improved the price image… We track [our price image] every week by exit surveys, and this has improved that by about 20 points,” he said.
Discussion Question: How important do you believe price image will be to Fresh & Easy’s eventual success or failure in the U.S.? What are the relative strengths and weaknesses of EDLP and high/low pricing approaches? Will Tesco, like Trader Joe’s, get to a place where a strict EDLP strategy will be successful for it?
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You have to wonder if the issues of business softness are all related to price. Moving back and forth between EDLP and a promotional pricing strategy will confuse shoppers and possibly cause some shoppers to leave you as they counted on you for the EDLP position and the great barn egg prices you offer.
Could it be that the store format and image of the store is a cause for the lack of success you envisioned? How about the amount of private label and how you display products to your shoppers? Is store service what shoppers expect when they shop with you? A full assessment is needed to understand where you may be falling sort of shopper desires. Then, once you understand that dynamic, marketing the new concept to an interested audience will lead to the results you hope to reach.
Tesco’s Fresh & Easy is premised on an everyday low-price, value proposition offering, at least philosophically. In fact, the success of the venture is really based on that format premise.
The positioning of Fresh & Easy by Tesco is to be just what the name says, a neighborhood grocery store in which all consumers are targeted. In other words, success for the format and venture means gaining as many primary shoppers as possible. This is why, unlike Trader Joe’s for example, Tesco’s plan is to locate Fresh & Easy stores close together, about 2 miles apart in each market. Trader Joe’s does the opposite.
The problem is, Tesco has done a poor job of both creating that EDLP/value proposition retailing position from a merchandising standpoint as well as a marketing one. The format is a jumble, and looks more like a Trader Joe’s than it does an Aldi for example: private label organic and specialty foods, specialty wines and craft beer, fresh food entrees, along with the limited assortment of basic groceries, most of which are store brand.
Fresh & Easy stores even look like Trader Joe’s to a large degree: same type interior flooring, similar shelving, etc.
Having done extensive market basket price comparisons for a major consumer packaged goods manufacturer that does big business with two of Tesco’s main competitors in the three markets it’s in, I can tell you Fresh & Easy currently has low everyday prices. However, I can also tell you its margins are not only below those of its two major competitors in the markets, but currently below industry average in the U.S. as well. That comes right from two Fresh & Easy buyers.
That can only be sustained for so long by a public company as part of start up costs.
Improving and communicating (increasing business) it’s value proposition is a must if Tesco is going to succeed with Fresh & Easy; and it still has time to do so. However, much is needed on the merchandising and marketing ends to do so. First and foremost Tesco really has to figure out what Fresh & Easy is, which I do not believe they really have yet.
If it’s a “Trader Joe’s” then it needs to be marketed that way. That’s not what it is in the plan though, but thus far that’s what in reality it is closest to, which will not work under Tesco’s plans for Fresh & Easy.
As every good American retailer knows, it’s easy to go down in price, but almost impossible to go up once you’ve done that. Price decreases directly effect the brand perception.
The U.S. consumer is addicted to low prices after years of deflationary pricing in almost every retail category. It is one of THE key strategic elements before any launch on this continent. Therefore, I’m personally surprised to read this news as I’m absolutely positive they’ve thought about it, tested it ad nauseum and marketed their position prominently. So why jump ship so early?
Only one right answer: they’re not finished, the concept is still very much in test mode.
What I had thought Tesco was bringing to the marketplace was innovation. Getting caught up in the conventional thinking of the marketplace will only stifle what I perceived they could do for the market. Now I am really not sure what they actually bring to the market. If they get caught up in this game, it will likely be nothing. We have enough of the same.
Tesco should do what Aldi used to do–just print out a flyer with every item in the store and state its price. Pricing for Tesco will be important because they claimed to be low priced and turned out to be not so low priced. Their problems go much deeper than just price. They should do more studies to understand the US customer and focus on building in “A” locations rather than just any location available.
I don’t live in a Tesco area, so I don’t know how they are promoting themselves, but I do know that it takes a long time to change shopping patterns, and that consumers need to know what a store stands for to want to go there. The original Trader Joe’s promise was distinctly upscale: save money on gourmet items. Now they’ve rounded out their offerings and becoming a place to shop more frequently, for everyday items. They had a hook that gave them a distinctive advantage in at least one area, specialty foods, and that was enough to get a small group of well-educated consumers to try them. People assume that Trader Joe’s is now a well established brand. It’s not. In Puget Sound, at least, a number of downscale shoppers still do not know about the store. This tells me that it takes a while to establish your identity with the target group, and even longer to spread awareness among a wider group.
I’m still waiting to see if the concept of “fresh and easy” and everyday low prices go together. For almost all products, you get to pick two out of the three basic qualities of “cheap,” “good” or “fast.” “Fresh” tends to be an upscale concept (and it’s definitely not pizza). And so I can see Fresh & Easy if it is targeted at time-pressed yuppies stopping on the way home. I think it is another thing to take Fresh and Easy downscale. There may be a basic positioning concept here that still needs to be worked out: who is their customer?
Two Fresh & Easy stores have opened within reasonable driving distance of my house. I have only seen one ad or direct mail piece about the stores. So price of the products had not been the major issue; not even knowing about the store is a major issue! Consumers have to know they exist before they can have any kind of image of the store.
Ever since Fresh & Easy opened in the LA area I’ve been wondering what they stood for. Their fresh foods (meat and produce) looked old an unappetizing. And it was easy to move about their stores because few shoppers were in them.
They need a strong core story to stand apart from the competition. Trader Joe’s has a fantastic story; one that most Angelenos know. Bouncing between EDLP and high/low won’t help.
If Tesco is now counting on low prices as a key competitive advantage, they are in even more trouble than I previously thought.
The whole point of these stores was supposed to be easy shopping for fresh food–an experience based concept. As such, it is the antithesis of the big box/low price model. While one might expect their store brands to be a little lower priced than national brands, it certainly doesn’t seem like low prices was ever meant to be the key selling point.
Rome wasn’t built in a day nor were dynamic Tesco stores in the UK. Right now, Fresh & Easy is finding out that price alone won’t make them a new miracle retailer in the United States overnight.
It’s increasingly difficult to be unique in food retailing but when a retailer finds such an innovation the consumers flock to that new format ala Trader Joe’s, Starbucks, etc. The Hi-Low approach now being practiced guarantees that Fresh & Easy is far from unique. F&E’s best bet now is to persevere with their original master plan and let time become their ally.
High/low = heroin. It feels good at first but once you train the shoppers you can’t stop. Ever. Tesco would’ve done better to state its everyday prices compared to the competition. Look at Progressive Insurance’s web site. They give you their price for auto insurance as well as the prices of their main competitors.
It really is too bad that F&E are having difficulty communicating their value proposition. Without having conducted market research, I would still like to pose a few theories why this is the case.
1. F&E is a radical departure from the norm and a seismic shift of this nature takes time to be accepted.
2. Many customers have specific expectations of service and variety but don’t realize these come at a cost. The US has long been a nation of growing prosperity. Limiting selection, opening hours, personnel, etc. have long been seen as lack of customer focus (when in reality, if they keep the same margins, they are doing the customer a favor).
3. Many customers are heavily swayed by impulse shopping and have little knowledge of what price to expect. Just watch the local news interview customers on gas prices. Few customers actually remember what prices were last week, let alone last year.
4. Comparison shopping is not as prevalent in US supermarkets as it is in Europe. This might be more of an issue in Southern California than elsewhere where traffic, distance and infrastructure deter motorists from driving the extra mile just to compare.
5. Prices are changing at a pace too swift to keep up with. Ever since computers, consultants and hyper hi-lo pricing agendas have made it possible to set prices at a store and item level for any day of the week, they have made customers numb and confused as to what price to expect for a bunch of grapes. In addition, the “negation” of seasonality, the fact that customers expect red seedless grapes from January through December, mean that 1 week those apples might come from next door at little cost, the next week they’ll come from the southern hemisphere at significantly higher cost. So what should a Fuji apple cost? Answer: it depends…
6. The US is lax on product safety so customers have become skeptical of inexpensive private labels. Again, back in Germany when I bought my laptop I knew there was a 2 year guarantee mandated by law so I had no doubts in my mind when I bought the cheap private label. On the other hand, when I bought my printer at Office Depot in Los Angeles, I was asked if I wanted to purchase the 1 year guarantee. That made me think the item I bought was a piece of cr*p.
7. Difficulty in teaching the customer is nothing new. I always have to laugh when I think of the US shopping cart conundrum. In virtually every supermarket in Germany, to prevent “shopping cart shrinkage,” carts have slots requiring deposit of a small token (usually €1 coins) to be usable. I have been told that this has been attempted on this side of the Atlantic to no avail, as customers did not believe their token would be returned. I assume these are the same customers F&E is having difficulty reaching.
Mind you, I am biased in my opinion. I have become a big fan of F&E and wish they stick around long enough to become a formidable alternative to the status quo. Supermarkets in the US have too long tried to prevent change and care more about appeasing their branded “tenants” than focus 100% on the customer.
Good luck F&E and Mr. Mason.
As mentioned, Fresh & Easy’s prices are “low” and extremely competitive, based on the market basket surveys we’ve conducted. There should be no doubt about this.
The problem is with margin. There are some reasons other than just needing more critical mass for this margin problem. They include the special shipping cases Tesco is making vendors use just for Fresh & Easy, some very costly vendor requirements, and a few other secondary variables. Low prices can only remain for so long in conjunction with low margins, as any grocer or ex-grocer knows well. This is one of the big challenges for Tesco with Fresh & Easy.
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You have to wonder if the issues of business softness are all related to price. Moving back and forth between EDLP and a promotional pricing strategy will confuse shoppers and possibly cause some shoppers to leave you as they counted on you for the EDLP position and the great barn egg prices you offer.
Could it be that the store format and image of the store is a cause for the lack of success you envisioned? How about the amount of private label and how you display products to your shoppers? Is store service what shoppers expect when they shop with you? A full assessment is needed to understand where you may be falling sort of shopper desires. Then, once you understand that dynamic, marketing the new concept to an interested audience will lead to the results you hope to reach.
Tesco’s Fresh & Easy is premised on an everyday low-price, value proposition offering, at least philosophically. In fact, the success of the venture is really based on that format premise.
The positioning of Fresh & Easy by Tesco is to be just what the name says, a neighborhood grocery store in which all consumers are targeted. In other words, success for the format and venture means gaining as many primary shoppers as possible. This is why, unlike Trader Joe’s for example, Tesco’s plan is to locate Fresh & Easy stores close together, about 2 miles apart in each market. Trader Joe’s does the opposite.
The problem is, Tesco has done a poor job of both creating that EDLP/value proposition retailing position from a merchandising standpoint as well as a marketing one. The format is a jumble, and looks more like a Trader Joe’s than it does an Aldi for example: private label organic and specialty foods, specialty wines and craft beer, fresh food entrees, along with the limited assortment of basic groceries, most of which are store brand.
Fresh & Easy stores even look like Trader Joe’s to a large degree: same type interior flooring, similar shelving, etc.
Having done extensive market basket price comparisons for a major consumer packaged goods manufacturer that does big business with two of Tesco’s main competitors in the three markets it’s in, I can tell you Fresh & Easy currently has low everyday prices. However, I can also tell you its margins are not only below those of its two major competitors in the markets, but currently below industry average in the U.S. as well. That comes right from two Fresh & Easy buyers.
That can only be sustained for so long by a public company as part of start up costs.
Improving and communicating (increasing business) it’s value proposition is a must if Tesco is going to succeed with Fresh & Easy; and it still has time to do so. However, much is needed on the merchandising and marketing ends to do so. First and foremost Tesco really has to figure out what Fresh & Easy is, which I do not believe they really have yet.
If it’s a “Trader Joe’s” then it needs to be marketed that way. That’s not what it is in the plan though, but thus far that’s what in reality it is closest to, which will not work under Tesco’s plans for Fresh & Easy.
As every good American retailer knows, it’s easy to go down in price, but almost impossible to go up once you’ve done that. Price decreases directly effect the brand perception.
The U.S. consumer is addicted to low prices after years of deflationary pricing in almost every retail category. It is one of THE key strategic elements before any launch on this continent. Therefore, I’m personally surprised to read this news as I’m absolutely positive they’ve thought about it, tested it ad nauseum and marketed their position prominently. So why jump ship so early?
Only one right answer: they’re not finished, the concept is still very much in test mode.
What I had thought Tesco was bringing to the marketplace was innovation. Getting caught up in the conventional thinking of the marketplace will only stifle what I perceived they could do for the market. Now I am really not sure what they actually bring to the market. If they get caught up in this game, it will likely be nothing. We have enough of the same.
Tesco should do what Aldi used to do–just print out a flyer with every item in the store and state its price. Pricing for Tesco will be important because they claimed to be low priced and turned out to be not so low priced. Their problems go much deeper than just price. They should do more studies to understand the US customer and focus on building in “A” locations rather than just any location available.
I don’t live in a Tesco area, so I don’t know how they are promoting themselves, but I do know that it takes a long time to change shopping patterns, and that consumers need to know what a store stands for to want to go there. The original Trader Joe’s promise was distinctly upscale: save money on gourmet items. Now they’ve rounded out their offerings and becoming a place to shop more frequently, for everyday items. They had a hook that gave them a distinctive advantage in at least one area, specialty foods, and that was enough to get a small group of well-educated consumers to try them. People assume that Trader Joe’s is now a well established brand. It’s not. In Puget Sound, at least, a number of downscale shoppers still do not know about the store. This tells me that it takes a while to establish your identity with the target group, and even longer to spread awareness among a wider group.
I’m still waiting to see if the concept of “fresh and easy” and everyday low prices go together. For almost all products, you get to pick two out of the three basic qualities of “cheap,” “good” or “fast.” “Fresh” tends to be an upscale concept (and it’s definitely not pizza). And so I can see Fresh & Easy if it is targeted at time-pressed yuppies stopping on the way home. I think it is another thing to take Fresh and Easy downscale. There may be a basic positioning concept here that still needs to be worked out: who is their customer?
Two Fresh & Easy stores have opened within reasonable driving distance of my house. I have only seen one ad or direct mail piece about the stores. So price of the products had not been the major issue; not even knowing about the store is a major issue! Consumers have to know they exist before they can have any kind of image of the store.
Ever since Fresh & Easy opened in the LA area I’ve been wondering what they stood for. Their fresh foods (meat and produce) looked old an unappetizing. And it was easy to move about their stores because few shoppers were in them.
They need a strong core story to stand apart from the competition. Trader Joe’s has a fantastic story; one that most Angelenos know. Bouncing between EDLP and high/low won’t help.
If Tesco is now counting on low prices as a key competitive advantage, they are in even more trouble than I previously thought.
The whole point of these stores was supposed to be easy shopping for fresh food–an experience based concept. As such, it is the antithesis of the big box/low price model. While one might expect their store brands to be a little lower priced than national brands, it certainly doesn’t seem like low prices was ever meant to be the key selling point.
Rome wasn’t built in a day nor were dynamic Tesco stores in the UK. Right now, Fresh & Easy is finding out that price alone won’t make them a new miracle retailer in the United States overnight.
It’s increasingly difficult to be unique in food retailing but when a retailer finds such an innovation the consumers flock to that new format ala Trader Joe’s, Starbucks, etc. The Hi-Low approach now being practiced guarantees that Fresh & Easy is far from unique. F&E’s best bet now is to persevere with their original master plan and let time become their ally.
High/low = heroin. It feels good at first but once you train the shoppers you can’t stop. Ever. Tesco would’ve done better to state its everyday prices compared to the competition. Look at Progressive Insurance’s web site. They give you their price for auto insurance as well as the prices of their main competitors.
It really is too bad that F&E are having difficulty communicating their value proposition. Without having conducted market research, I would still like to pose a few theories why this is the case.
1. F&E is a radical departure from the norm and a seismic shift of this nature takes time to be accepted.
2. Many customers have specific expectations of service and variety but don’t realize these come at a cost. The US has long been a nation of growing prosperity. Limiting selection, opening hours, personnel, etc. have long been seen as lack of customer focus (when in reality, if they keep the same margins, they are doing the customer a favor).
3. Many customers are heavily swayed by impulse shopping and have little knowledge of what price to expect. Just watch the local news interview customers on gas prices. Few customers actually remember what prices were last week, let alone last year.
4. Comparison shopping is not as prevalent in US supermarkets as it is in Europe. This might be more of an issue in Southern California than elsewhere where traffic, distance and infrastructure deter motorists from driving the extra mile just to compare.
5. Prices are changing at a pace too swift to keep up with. Ever since computers, consultants and hyper hi-lo pricing agendas have made it possible to set prices at a store and item level for any day of the week, they have made customers numb and confused as to what price to expect for a bunch of grapes. In addition, the “negation” of seasonality, the fact that customers expect red seedless grapes from January through December, mean that 1 week those apples might come from next door at little cost, the next week they’ll come from the southern hemisphere at significantly higher cost. So what should a Fuji apple cost? Answer: it depends…
6. The US is lax on product safety so customers have become skeptical of inexpensive private labels. Again, back in Germany when I bought my laptop I knew there was a 2 year guarantee mandated by law so I had no doubts in my mind when I bought the cheap private label. On the other hand, when I bought my printer at Office Depot in Los Angeles, I was asked if I wanted to purchase the 1 year guarantee. That made me think the item I bought was a piece of cr*p.
7. Difficulty in teaching the customer is nothing new. I always have to laugh when I think of the US shopping cart conundrum. In virtually every supermarket in Germany, to prevent “shopping cart shrinkage,” carts have slots requiring deposit of a small token (usually €1 coins) to be usable. I have been told that this has been attempted on this side of the Atlantic to no avail, as customers did not believe their token would be returned. I assume these are the same customers F&E is having difficulty reaching.
Mind you, I am biased in my opinion. I have become a big fan of F&E and wish they stick around long enough to become a formidable alternative to the status quo. Supermarkets in the US have too long tried to prevent change and care more about appeasing their branded “tenants” than focus 100% on the customer.
Good luck F&E and Mr. Mason.
As mentioned, Fresh & Easy’s prices are “low” and extremely competitive, based on the market basket surveys we’ve conducted. There should be no doubt about this.
The problem is with margin. There are some reasons other than just needing more critical mass for this margin problem. They include the special shipping cases Tesco is making vendors use just for Fresh & Easy, some very costly vendor requirements, and a few other secondary variables. Low prices can only remain for so long in conjunction with low margins, as any grocer or ex-grocer knows well. This is one of the big challenges for Tesco with Fresh & Easy.