September 20, 2006
Tesco Plans Covert Operation in America
Everyone knows Tesco is coming to the U.S. with a new small store format. Just what shape it will take is a bit of a mystery as the only store the company has built to date is safely kept from prying eyes inside a warehouse in California.
While details are scarce, there are a few known details about what Tesco has in store for America. For one, the company plans to spend 250 million pounds per year building small stores in the Western U.S. Reports have had the company looking at a number of major markets including Los Angeles, Phoenix and Las Vegas.
Another thing known is that Tesco is confident. The company said it expects to reach the break-even point by its second year of operating in America. Earlier this month, according to a Reuters report, Tesco Finance Director Andrew Higginson told an investor conference, “It’s (U.S. retail market) very competitive. But it is a market where you can get on if you do find a format or form that works. You can have many years of organic growth here.”
The British chain is not alone in its confidence. Darrell Rigby, head of the global retail practice for consultants Bain & Co., threw caution and understatement to the wind when he said, “Tesco will redefine convenience stores in the United States.”
Mr. Rigby and others believe Tesco’s entry into the U.S. will look very much like the retailer’s Tesco Express stores in Britain. There the focus is on fresh produce and easy-to-prepare meals consumers can eat on the go.
Tesco has a large rush-hour opportunity, according to Mr. Rigby. Typically, supermarkets are crowded during the evening rush as consumers stream into large stores to pick up a few items for that evening’s meal.
“The prospect of being able to do that in a couple of minutes through a convenience store rather than tromping through a 45,000 square foot grocery store … could be appealing,” said Mr. Rigby. “It’s just new.”
Discussion Questions: What are the biggest hurdles Tesco will have to face when it opens stores in the U.S.? Which of the current convenience or small
footprint grocery store businesses in the U.S. are most like Tesco’s Express format?
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Three major hurdles for Tesco: (1) much of the competition is family-run with minimal labor costs; (2) the best locations are already taken; (3) it’s not easy to stay special if the supplier network is the same everyone else uses. Focusing on #3: even if the first Tesco locations have unique assortments, getting copied is a certainty.
There’s been a lot of talk about Express (C-store) – but look toward Tesco’s ‘Metro’ format for an alternative. Typically 12-15,000 sq. ft., focused on Fresh and Upscale items, it’s a shrunken version of a Supermarket in an ‘unusual’ Grocery location for the US — normally at a busy downtown intersection or as part of a train station.
And once Tesco establishes an understanding, they will surely look to acquire — otherwise, what’s the point of entering a new territory?
As for the ‘covert’ approach, it’s a great ‘free’ PR move. Well done.
Final thought – once other Grocery retailers see Tesco flourish by offering an assortment 1/3rd the size of theirs, watch the acceleration of SKU rationalization in the rest of the retailers!
I agree with my braintrust partners. Location, store footprint, and product focus are all critical to Tesco’s launch. Getting all of these “in-sync” will be difficult enough when they are competing in a high-demand real-estate market, and their competitors have years of advance notice on store location, product placement success and maximizing store design. The US is a unique market and Tesco needs to have all of their “ducks in a row” to become a successful C-store player here. Their competitors are watching each of their moves under a microscope, and we can be certain that if there is a “secret sauce,” then it will be discovered.
I am a big believer in the “Express” or “Local” store format that has been employed in the UK for years. Considering that Tesco is building and testing its new format inside something of an airplane hangar or a film set, I think we are in for a bigger surprise than we think. My guess…Drive-Through Groceries, coupled with a “call/email ahead” type of service for larger orders. The quick-milk-buyers or cigarette-buyers will love it, as well as the time-starved on-the-go mom’s who still want to prepare dinner.
“What are the biggest hurdles Tesco will have to face when it opens stores in the U.S.?” Differentiation and quality. If my guess is accurate, they are on their way. “Which of the current convenience or small footprint grocery store businesses in the U.S. are most like Tesco’s Express format?” None, I would guess. Otherwise they wouldn’t be developing it in a warehouse hideout.
Location, Location, Location
I think the biggest challenge, which may be the reason for the long preparatory time, will be finding good locations. HOWEVER, I really believe the “Green Grocer” format for food retailing is something that is going to become more prominent as people use the internet to do their “primary shopping.” If Tesco does this well and uses the indicated format to tie into a web based shopping tool, they may surprise everyone. That is something the “mom and pop” operations will not be able to address and it will give Tesco a unique offering.
Our data shows that the c-store industry operates significantly below consumer expectations. So far, this continues because chain c-store executives come from inside the industry and think very much inside-the-box, and c-stores base their strategy on each other, not on fresh or creative thinking. Despite its wonderful inventiveness, Tesco will face enormous industry-culture and US consumer pressure to be like the other c-stores. Though subtle, this is one of the prevalent forces that eventually make highly differentiated smaller players into very UNdifferentiated bigger players. The American consumer gives c-stores very low marks overall, but then at least they are used to these kind of spaces; a new concept will certainly be welcome, but consumers will not initially know how to “use” it or fit it into their shopping habits.
Tesco couldn’t be entering the LA/LV/PHX market at a better time. With Albertsons in total disarray, Vons struggling, and Ralphs in transition to Corporate Kroger, there really aren’t any “forces to be dealt with” grocers around. The local market is lackluster. Something new, exciting, different is EXACTLY what is needed. Wal-Mart, though present in all these markets, isn’t the competition here. Fast, exciting, and utterly new is a welcome shot in the arm to the fast paced, upper end lifestyle that Tesco appeals to.
Once you visit a Tesco Express you quickly realize this fresh foods format is a natural for urban locations and “life in the fast lane.” Tesco trains its associates well and it is my belief they will do so in the USA.
The West coast is a natural for the Tesco Express presentation. The hurdles I see are available locations which I would presume competition will try to block Tesco from getting.
Can’t say too much, but I do have some insight into the Tesco Darke store operation and conclude, based on that, that Tesco is defining an entirely new retail space in the U.S. market, i.e., one that puts tremendous variety and quality fresh product into a much smaller footprint than the typical supermarket. This suggests that their most direct competitor — if one would be nearby — would be a fresh store like Whole Foods; however, I don’t believe that’s the dynamic that will play out.
What we expect is that Tesco is creating an entirely new convenience retail concept, i.e., one that focuses on fresh, more ready-to-eat product for household consumption with a format and delivery concept that makes it exceptionally appealing to shoppers.
If this proves to be the case, Tesco will have accomplished a real coup in that they will have developed an absolutely unique retail proposition, i.e., one without direct competition, with strong consumer appeal.
The biggest hurdles they will face revolve around “teaching” American shoppers who they are and how best they (Tesco) can be used.
Tesco will do just fine in the U.S. Because they are service and convenience fanatics, the work pool will be an issue. As for the U.S. competitors, they better get it in gear!
Sheetz and a few other c-store operations would have no worries, even if Tesco was in PA. Dean ‘n Deluca’s and the likes might have some concerns.
Tesco will shake up the convenience store world; and maybe, some smaller neighborhood food and grocery operations. Time for some better business models! Hmmmmmmm
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Three major hurdles for Tesco: (1) much of the competition is family-run with minimal labor costs; (2) the best locations are already taken; (3) it’s not easy to stay special if the supplier network is the same everyone else uses. Focusing on #3: even if the first Tesco locations have unique assortments, getting copied is a certainty.
There’s been a lot of talk about Express (C-store) – but look toward Tesco’s ‘Metro’ format for an alternative. Typically 12-15,000 sq. ft., focused on Fresh and Upscale items, it’s a shrunken version of a Supermarket in an ‘unusual’ Grocery location for the US — normally at a busy downtown intersection or as part of a train station.
And once Tesco establishes an understanding, they will surely look to acquire — otherwise, what’s the point of entering a new territory?
As for the ‘covert’ approach, it’s a great ‘free’ PR move. Well done.
Final thought – once other Grocery retailers see Tesco flourish by offering an assortment 1/3rd the size of theirs, watch the acceleration of SKU rationalization in the rest of the retailers!
I agree with my braintrust partners. Location, store footprint, and product focus are all critical to Tesco’s launch. Getting all of these “in-sync” will be difficult enough when they are competing in a high-demand real-estate market, and their competitors have years of advance notice on store location, product placement success and maximizing store design. The US is a unique market and Tesco needs to have all of their “ducks in a row” to become a successful C-store player here. Their competitors are watching each of their moves under a microscope, and we can be certain that if there is a “secret sauce,” then it will be discovered.
I am a big believer in the “Express” or “Local” store format that has been employed in the UK for years. Considering that Tesco is building and testing its new format inside something of an airplane hangar or a film set, I think we are in for a bigger surprise than we think. My guess…Drive-Through Groceries, coupled with a “call/email ahead” type of service for larger orders. The quick-milk-buyers or cigarette-buyers will love it, as well as the time-starved on-the-go mom’s who still want to prepare dinner.
“What are the biggest hurdles Tesco will have to face when it opens stores in the U.S.?” Differentiation and quality. If my guess is accurate, they are on their way. “Which of the current convenience or small footprint grocery store businesses in the U.S. are most like Tesco’s Express format?” None, I would guess. Otherwise they wouldn’t be developing it in a warehouse hideout.
Location, Location, Location
I think the biggest challenge, which may be the reason for the long preparatory time, will be finding good locations. HOWEVER, I really believe the “Green Grocer” format for food retailing is something that is going to become more prominent as people use the internet to do their “primary shopping.” If Tesco does this well and uses the indicated format to tie into a web based shopping tool, they may surprise everyone. That is something the “mom and pop” operations will not be able to address and it will give Tesco a unique offering.
Our data shows that the c-store industry operates significantly below consumer expectations. So far, this continues because chain c-store executives come from inside the industry and think very much inside-the-box, and c-stores base their strategy on each other, not on fresh or creative thinking. Despite its wonderful inventiveness, Tesco will face enormous industry-culture and US consumer pressure to be like the other c-stores. Though subtle, this is one of the prevalent forces that eventually make highly differentiated smaller players into very UNdifferentiated bigger players. The American consumer gives c-stores very low marks overall, but then at least they are used to these kind of spaces; a new concept will certainly be welcome, but consumers will not initially know how to “use” it or fit it into their shopping habits.
Tesco couldn’t be entering the LA/LV/PHX market at a better time. With Albertsons in total disarray, Vons struggling, and Ralphs in transition to Corporate Kroger, there really aren’t any “forces to be dealt with” grocers around. The local market is lackluster. Something new, exciting, different is EXACTLY what is needed. Wal-Mart, though present in all these markets, isn’t the competition here. Fast, exciting, and utterly new is a welcome shot in the arm to the fast paced, upper end lifestyle that Tesco appeals to.
Once you visit a Tesco Express you quickly realize this fresh foods format is a natural for urban locations and “life in the fast lane.” Tesco trains its associates well and it is my belief they will do so in the USA.
The West coast is a natural for the Tesco Express presentation. The hurdles I see are available locations which I would presume competition will try to block Tesco from getting.
Can’t say too much, but I do have some insight into the Tesco Darke store operation and conclude, based on that, that Tesco is defining an entirely new retail space in the U.S. market, i.e., one that puts tremendous variety and quality fresh product into a much smaller footprint than the typical supermarket. This suggests that their most direct competitor — if one would be nearby — would be a fresh store like Whole Foods; however, I don’t believe that’s the dynamic that will play out.
What we expect is that Tesco is creating an entirely new convenience retail concept, i.e., one that focuses on fresh, more ready-to-eat product for household consumption with a format and delivery concept that makes it exceptionally appealing to shoppers.
If this proves to be the case, Tesco will have accomplished a real coup in that they will have developed an absolutely unique retail proposition, i.e., one without direct competition, with strong consumer appeal.
The biggest hurdles they will face revolve around “teaching” American shoppers who they are and how best they (Tesco) can be used.
Tesco will do just fine in the U.S. Because they are service and convenience fanatics, the work pool will be an issue. As for the U.S. competitors, they better get it in gear!
Sheetz and a few other c-store operations would have no worries, even if Tesco was in PA. Dean ‘n Deluca’s and the likes might have some concerns.
Tesco will shake up the convenience store world; and maybe, some smaller neighborhood food and grocery operations. Time for some better business models! Hmmmmmmm