November 28, 2006
Tesco Brings Suppliers Along for U.S. Adventure
Tesco is looking to eliminate any surprises, at least the unpleasant kind, when it opens its first stores in the U.S. next year. That’s why the British retailing giant is bringing its own suppliers from the U.K. as it sets out to conquer America.
According to a Financial Times report, Natures Way Foods and 2 Sisters Food Group are planning to open sites in the U.S. adjacent to Tesco’s distribution center in southern California.
Natures Way supplies Tesco with prepared salads and lettuce in the U.K. It has set up an American subsidiary Wild Rocket Foods.
The 2 Sisters Food Group supplies Tesco with poultry products. It also recently purchased Rannoch Foods, a U.K. prepared foods producer.
Tesco’s decision to import suppliers from its home country is seen as key to its strategy of providing superior quality prepared foods to American consumers. Prepared salads and poultry are expected to play a prominent role in the 150 stores Tesco has planned in the Los Angeles, Phoenix and Las Vegas markets.
Discussion Question: What is your reaction to Tesco bringing along its U.K. suppliers to help it crack the American market?
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We keep hearing, reading the nonsensical phrase–“it’s a global world now.” If it’s a “global world” then what’s wrong with bringing your preferred suppliers with you from your home base? It’s not as if Britain’s Tesco is a stranger to the United States in language, business culture and familiarity. After Canada, Britain is economically the closest country to the U.S. The U.S is practically home turf to Britons.
I don’t know that Tesco is “leaning” on its suppliers to come to the US. If you wanted to expand to the US what better way to do that than to come with a guaranteed customer!
Tesco’s supply chain in the UK is even more efficient than Wal-Mart’s. Bringing those suppliers along is a very reasonable strategy for Tesco. They will learn about the distinct differences of the US market, including the size, together and adapt already well-refined processes. Sounds like a good strategy.
If anyone else attempted to pull this off I’d say it’s not a smart move, however, since it’s Tesco, we’ll have to wait and see if the approach works in the US. One thing to keep in mind is that Tesco is using the US as a testing ground and as such by bringing with them suppliers from the UK they’ll be able to take learning back with them to the UK.
This move by Tesco will save them an enormous amount of time and build on their current relationships with existing suppliers. Such relationships are increasingly important for quality, safety, reliability and value in product offerings.
Having unique suppliers could also lead to differentiated products for consumers and that could be a plus as well. Quality prepared foods to go are increasingly popular with today’s time-pressured consumers and Tesco could have an edge here based on their reputation in the UK.
Valued and trusted business relationships are priceless in any venture. As Tesco expand their frontier here in the US there will undoubtedly be challenges. It stands to reason that working with your established business partners will alleviate some of those challenges. Although the world is getting flat as far as product offerings, some of the English and/or European products may bring surprise and delight to American customers.
Another interesting connection is that of dunnhumby as pointed out by Laura Davis-Taylor. dunnhumby and their relevance marketing initiatives are being used by both Tesco and Kroger. dunnhumby claims to have increased revenues at both grocers by 1% directly attributable to their programs. This connection and the claimed results could be invaluable to Tesco’s introduction the the US market.
We are still not savvy enough to provide a global retail environment. This lesson is learned over and over again as many retailers try to use their domestic successes in a foreign market. The C-store and grocery channel is very different, as are the products and requirements between Europe and the US. It doesn’t take anyone very long to realize this as they try to compare products, availability and even store layouts (we have many combo stores, and gas-stores here in the US), let alone regional mixes and pricing which requires a local awareness and understanding of the nuances of each regional market. Our markets are not global, and this will be a cruel (and expensive) lesson for Tesco to understand as they try to grow in the US market. It is very difficult to manage a global brand (like Coke) on a multinational level, let alone provide the retailing mix for an entire store or chain of stores throughout the US.
Here I come again from left field. What if…customers don’t like the British versions of products that, according to this story, Tesco is bringing because of their superior quality? What if…like European and Middle Eastern responses to Americans these days, Americans think that Tesco is insulting them by insisting that what they have is better and are being arrogant in imposing their own products and suppliers? What if…Americans decide they want it their way?
It makes perfect sense for Tesco to lean on those that they trust and have tried and true experience with. Why aim to recreate their operations & offerings with unknown resources when their U.S. entry will be so challenged by competition? I agree with Mark that this move will enable them to bring some fresh, unexpected selections to their stores.
I’ll also be watching what strategic resources they bring over from the UK. As much as Tesco has acculturation challenges to deal with, they do indeed have some unique retail skills that the U.S. can benefit from. Their loyalty program, as an example, is inspiring. The relevance marketing approach dunnhumby designed for them is perfectly in line with today’s customer-centric challenges and I hope it creates some healthy motivation from the current players.
It appears that Tesco’s decision to enter the US was well thought out and the steps which they are taking to make their entry successful are nothing short of brilliant.
In this over-stored, competitive American environment a successful entry is anything but assured. Tesco is a thoughtful and deliberate company and from what I have experienced and have followed in the press, have calculated that they have several potential advantages over American retailers.
The fact that they have invited those suppliers from the UK who provide them this niche to build their American business in tandem, literally, is essential if they are to exploit this advantage. While, as Mark points out, this is not a new approach in industry, it may be in the grocery/retailing business.
Additionally, their decision to build their own distribution center will both eliminate any need for system integrations with a new American partner and provide a greater likelihood of achieving logistics cost advantages over a shorter period of time.
Tesco is a very good operator and a fierce competitor, their entry is sure to upset the applecart and perhaps be the catalyst for another round of regional consolidation in the future.
Supply chain management will be critical to the success of the new Tesco venture, particularly if, as everyone assumes, the merchandising will be focused on fresh and prepared foods. Transportation is different in the US, and a new supplier will have to make adjustments to their distribution processes for traffic, weather, even earthquakes and more. Also, there will be sourcing challenges (what goes out to the stores has to come in from someplace) at the start up, and different government regulations to deal with (California has a lot of laws covering food distribution, and Governor Schwarzenegger is working on more).
Many, if not most, of the challenges faced by Tesco and its suppliers in entering the markets in the West also have to be managed by other suppliers and retailers, so in that sense there is a fairly level playing field. One could also argue that coming into the market fresh with the latest technology might give the Brits a slight advantage. Still, there is a phrase used in Australian history to explain why such a large country has a third of the population as the much smaller UK — The Tyranny of Distance. It is one of the main obstacles Tesco and its suppliers have to understand and plan for when they come to these shores.
When the Japanese auto manufacturers started building assembly plants in North America, they asked their parts suppliers to build adjacent local plants, too. Tesco’s use of familiar suppliers has 2 advantages: (1) Tesco doesn’t have to train new suppliers about any unique requirements; and (2) anything Tesco would buy from domestic suppliers is already available to its competitors. Furthermore, it’s easier for Tesco to ask a pre-existing supplier to do something special, since the negotiating leverage is huge. What leverage do they have in the U.S. today (not in the future, when they have hundreds of stores) with the usual grocery suppliers?
The dunnhumby connection gives Tesco an enormous competitive advantage. Tesco is an investor in dunnhumby and their relationship is a close and long-standing one. dunnhumby’s market basket insight into local shopper preferences and practices has not only delivered dividends in topline revenue and profit — even more important, the creativity and culture that has resulted at Tesco from this relationship is a priceless competitive asset.
Tesco shares customer insight freely with key suppliers. Tesco is going to beat the pants off its US competitors, most of whom are still musing about the “value” of investing in customer insight.
This should be looked upon as a good thing. If the suppliers open US facilities it is a case of a global economy helping the US. It is good for US workers as it creates new jobs. It is good for the consumer because it can create a better product. This helps increase competition, but competition often creates innovation and improvement.
Another smart move by this new entry. It will shake up the convenience store industry.
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We keep hearing, reading the nonsensical phrase–“it’s a global world now.” If it’s a “global world” then what’s wrong with bringing your preferred suppliers with you from your home base? It’s not as if Britain’s Tesco is a stranger to the United States in language, business culture and familiarity. After Canada, Britain is economically the closest country to the U.S. The U.S is practically home turf to Britons.
I don’t know that Tesco is “leaning” on its suppliers to come to the US. If you wanted to expand to the US what better way to do that than to come with a guaranteed customer!
Tesco’s supply chain in the UK is even more efficient than Wal-Mart’s. Bringing those suppliers along is a very reasonable strategy for Tesco. They will learn about the distinct differences of the US market, including the size, together and adapt already well-refined processes. Sounds like a good strategy.
If anyone else attempted to pull this off I’d say it’s not a smart move, however, since it’s Tesco, we’ll have to wait and see if the approach works in the US. One thing to keep in mind is that Tesco is using the US as a testing ground and as such by bringing with them suppliers from the UK they’ll be able to take learning back with them to the UK.
This move by Tesco will save them an enormous amount of time and build on their current relationships with existing suppliers. Such relationships are increasingly important for quality, safety, reliability and value in product offerings.
Having unique suppliers could also lead to differentiated products for consumers and that could be a plus as well. Quality prepared foods to go are increasingly popular with today’s time-pressured consumers and Tesco could have an edge here based on their reputation in the UK.
Valued and trusted business relationships are priceless in any venture. As Tesco expand their frontier here in the US there will undoubtedly be challenges. It stands to reason that working with your established business partners will alleviate some of those challenges. Although the world is getting flat as far as product offerings, some of the English and/or European products may bring surprise and delight to American customers.
Another interesting connection is that of dunnhumby as pointed out by Laura Davis-Taylor. dunnhumby and their relevance marketing initiatives are being used by both Tesco and Kroger. dunnhumby claims to have increased revenues at both grocers by 1% directly attributable to their programs. This connection and the claimed results could be invaluable to Tesco’s introduction the the US market.
We are still not savvy enough to provide a global retail environment. This lesson is learned over and over again as many retailers try to use their domestic successes in a foreign market. The C-store and grocery channel is very different, as are the products and requirements between Europe and the US. It doesn’t take anyone very long to realize this as they try to compare products, availability and even store layouts (we have many combo stores, and gas-stores here in the US), let alone regional mixes and pricing which requires a local awareness and understanding of the nuances of each regional market. Our markets are not global, and this will be a cruel (and expensive) lesson for Tesco to understand as they try to grow in the US market. It is very difficult to manage a global brand (like Coke) on a multinational level, let alone provide the retailing mix for an entire store or chain of stores throughout the US.
Here I come again from left field. What if…customers don’t like the British versions of products that, according to this story, Tesco is bringing because of their superior quality? What if…like European and Middle Eastern responses to Americans these days, Americans think that Tesco is insulting them by insisting that what they have is better and are being arrogant in imposing their own products and suppliers? What if…Americans decide they want it their way?
It makes perfect sense for Tesco to lean on those that they trust and have tried and true experience with. Why aim to recreate their operations & offerings with unknown resources when their U.S. entry will be so challenged by competition? I agree with Mark that this move will enable them to bring some fresh, unexpected selections to their stores.
I’ll also be watching what strategic resources they bring over from the UK. As much as Tesco has acculturation challenges to deal with, they do indeed have some unique retail skills that the U.S. can benefit from. Their loyalty program, as an example, is inspiring. The relevance marketing approach dunnhumby designed for them is perfectly in line with today’s customer-centric challenges and I hope it creates some healthy motivation from the current players.
It appears that Tesco’s decision to enter the US was well thought out and the steps which they are taking to make their entry successful are nothing short of brilliant.
In this over-stored, competitive American environment a successful entry is anything but assured. Tesco is a thoughtful and deliberate company and from what I have experienced and have followed in the press, have calculated that they have several potential advantages over American retailers.
The fact that they have invited those suppliers from the UK who provide them this niche to build their American business in tandem, literally, is essential if they are to exploit this advantage. While, as Mark points out, this is not a new approach in industry, it may be in the grocery/retailing business.
Additionally, their decision to build their own distribution center will both eliminate any need for system integrations with a new American partner and provide a greater likelihood of achieving logistics cost advantages over a shorter period of time.
Tesco is a very good operator and a fierce competitor, their entry is sure to upset the applecart and perhaps be the catalyst for another round of regional consolidation in the future.
Supply chain management will be critical to the success of the new Tesco venture, particularly if, as everyone assumes, the merchandising will be focused on fresh and prepared foods. Transportation is different in the US, and a new supplier will have to make adjustments to their distribution processes for traffic, weather, even earthquakes and more. Also, there will be sourcing challenges (what goes out to the stores has to come in from someplace) at the start up, and different government regulations to deal with (California has a lot of laws covering food distribution, and Governor Schwarzenegger is working on more).
Many, if not most, of the challenges faced by Tesco and its suppliers in entering the markets in the West also have to be managed by other suppliers and retailers, so in that sense there is a fairly level playing field. One could also argue that coming into the market fresh with the latest technology might give the Brits a slight advantage. Still, there is a phrase used in Australian history to explain why such a large country has a third of the population as the much smaller UK — The Tyranny of Distance. It is one of the main obstacles Tesco and its suppliers have to understand and plan for when they come to these shores.
When the Japanese auto manufacturers started building assembly plants in North America, they asked their parts suppliers to build adjacent local plants, too. Tesco’s use of familiar suppliers has 2 advantages: (1) Tesco doesn’t have to train new suppliers about any unique requirements; and (2) anything Tesco would buy from domestic suppliers is already available to its competitors. Furthermore, it’s easier for Tesco to ask a pre-existing supplier to do something special, since the negotiating leverage is huge. What leverage do they have in the U.S. today (not in the future, when they have hundreds of stores) with the usual grocery suppliers?
The dunnhumby connection gives Tesco an enormous competitive advantage. Tesco is an investor in dunnhumby and their relationship is a close and long-standing one. dunnhumby’s market basket insight into local shopper preferences and practices has not only delivered dividends in topline revenue and profit — even more important, the creativity and culture that has resulted at Tesco from this relationship is a priceless competitive asset.
Tesco shares customer insight freely with key suppliers. Tesco is going to beat the pants off its US competitors, most of whom are still musing about the “value” of investing in customer insight.
This should be looked upon as a good thing. If the suppliers open US facilities it is a case of a global economy helping the US. It is good for US workers as it creates new jobs. It is good for the consumer because it can create a better product. This helps increase competition, but competition often creates innovation and improvement.
Another smart move by this new entry. It will shake up the convenience store industry.