July 2, 2007
Tesco to Go Where Others Choose Not to Go
With the smattering of details that have leaked out about Tesco’s plans for the U.S., it’s easy to come away thinking of it as being an approach to use fresh and higher quality prepared foods to convince affluent consumers to buy more of their groceries in the chain’s small Fresh & Easy Neighborhood Market stores. Company plans have stores opening up in more than a few well-heeled neighborhoods in southern California, Nevada and Arizona. But, the company also appears to believe its apparently upscale approach will also work in neighborhoods where disposable income varies from severely limited to non-existent.
A case in point is Tesco’s plan to open new stores in South Los Angeles. As many remember, a number of major supermarket chains agreed to open stores as part of the planned rebuilding of an area that was decimated by riots in 1992.
Amanda Shaffer, author of The Persistence of L.A.’s Grocery Gap and a researcher at Occidental College’s Urban and Environmental Policy Institute, said actions such as those planned by Tesco are critically needed. She asserts that consumers in some urban neighborhoods are living in so-called food deserts with no convenient access to the quality and lower-priced groceries that most other Americans take for granted.
Ms. Shaffer told the International Herald Tribune that there are wide-ranging consequences for society that go beyond the perimeter of food deserts. “People suffering from diet-related illnesses because they don’t have a healthy diet affect everyone’s taxes and health care costs,” she said.
“I think that’s why Tesco has gotten such a warm welcome. People are just so excited and happy that some supermarket is coming in,” she said.
Tesco’s willingness to go into areas where others have not certainly gives it access to consumers in a less competitive environment. It also bears out a corporate approach that Sir Terry Leahy, Tesco CEO, talked about back in March at the World Retail Congress in Barcelona.
“If you follow customers – by which I mean if you really find out what they want and work very hard day and night to give it to them – then you will automatically find your way to the new opportunities that are out there,” he told attendees at the conference.
Interestingly, while Tesco is getting kudos for looking at low income areas to open stores, Ms. Shaffer said the company has a mixed record in its home country of England. Tesco has more than 1,800 stores in the U.K., but less than 20 are in low-income markets despite the company’s “Regeneration Partnership,” which is focused on bringing stores to underserved areas.
Discussion Question: What do you make of Tesco’s plan to open a store in South Los Angeles and possibly other low income areas? What are the challenges and opportunities in front of stores looking to open in American food deserts?
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This is a shot across the bow of American supermarkets that says, “you can’t serve your poorest citizens adequately, but a bunch of foreigners can.” This takes guts and, in my opinion, an overinflated view of Tesco’s capabilities. Anyone know how their test program with Kroger is going?
One possible take has to be that there is some PR related objective associated with this. It is certainly not going to hurt their image and it could be very positive. Ironically enough, it may wind up as a contrast point between Tesco and those who have been serving low income consumers’ needs in America for quite some time now….
But there could also be a business angle to this that may represent a very deep understanding of people’s relationship with food. People of every income level seek rewards and “luxuries” whenever they can. And food has always been the “first level of reward.” Whether it is a rural farm wife loading down a table with garden produce or a child living in poverty cherishing his Coke, food is one of the most accessible and satisfying rewards to all. So maybe putting really good food in lower income markets makes sense, even if it does cost more than the weekly budget allows.
I appreciate Tesco’s brashness to open upscale stores and offer premium products to the U.S. consumer. Such innovation can be rewarded if done properly and monitored closely. It appears that this is a smart call in markets like affluent areas of Los Angeles, Phoenix and other places where money is not the issue. However, Tesco may be wise to test the waters a bit in other areas before committing full bore to such a strategy.
There have been more than a few attempts by well meaning merchants to change consumers’ buying habits with creative offerings, marketing or merchandising. Without naming names, some have worked and others have failed miserably. Given a vote, I would advise Tesco to “go for it” but do so in a somewhat controlled manner until it is known whether consumers will bite on the concept. After all, the American consumer can be fickle and very demanding.
One need not look far to uncover statistics that are helpful at predicting consumer behavior. I am sure someone at Tesco has done just that. It is unlikely that people that smart are running into a situation without first gathering, analyzing and testing proof of concept. I say that other retailers should for sure take notice and keep a close eye on this venture. It quite possibly could point the way to what’s next in the American retail landscape.
Tesco is an imaginative food retailer and Tesco’s originality is the art of concealing its source. While opening a store in South Los Angeles seems a risk to most US retailers, I have faith that Tesco has a concealed reason for doing so. Instead of being a bog, perhaps this might be the beginning of something big in food retailing.
My experience in the Los Angeles market would lead me to expect that Tesco will have quite a challenge on its hands trying to meet the needs of the heavily Hispanic LA population.
I’m not sure that the Tesco name will be relevant to the population, and the fact that this is not a big take-out segment since most of these households tend to cook at home.
It’s one thing to appeal to lower income British families versus marketing to a population that is not only lower income but culturally different.
It will be interesting to follow this effort!
Tesco has deep enough pockets to experiment with its real estate strategy as it begins to roll out its new U.S. concept. And L.A. is such a vast market–geographically and demographically–that it pays to uncover opportunities wherever Tesco finds them. They may find that lower-to-middle income areas that have been historically underserved by “better” retailers may be very receptive to the Tesco approach.
This step by Tesco represents a commitment to serve a diverse group of consumers in a variety of areas, and a very positive way to introduce their stores in the States. If it works, other retailers should take a closer look at what has been successful and what has not. Sure, there are many significant hurdles, but it seems to me that retailers might learn from a “new” approach by Tesco. And yes, it is also a great pr move.
I wholeheartedly agree with Mr. Livingston. Tesco has received an amazing amount of press but has yet to open or prove they can operate stores in America. We just don’t know. Over the last twenty five years, other European food retailers have come to the US, opened stores and either failed or simply bumbled along making little progress. While Tesco is a well run company, doing business in the highly competitive US marketplace is unlike anywhere else in the world.
Tesco is no fool. They are researching price points and assortments to match trade areas. Stay tuned to watch their success.
The idea of creating a Garden of Eden in the food desert in order to feed the downtrodden and lame is an idea that only a central planner can love. Deserts have very little foliage because they have little water. Food deserts have few stores because they have no food sales.
Tesco can probably survive the losses in the grand food desert experiment but the real question is, can a small store carry enough fresh variety in a non-homogeneous but limited trade area to satisfy customer needs while keeping shrink under control?
We will know by this time next year.
It’s a great idea…and a wide open marketplace in the U.S. that few (save for the likes of Magic Johnson) venture into.
My thought is, if you’re going to test something, TEST IT!
It’s disturbing today the lack of curiosity on the part of retailers in terms of the desire to gain real retail knowledge vs. guessing with focus groups and ‘ethnography’. Which is more expensive anyway? Plus, when the dollar today gets in the way of the dollar tomorrow, well, you’ve got 30 years of malls!
One way or the other, Tesco will be able to tell you if South L.A. is a good place to be with their concept…THAT is for sure.
I have not investigated enough of Tesco stores in the UK to have been able to analyze whether there are differences in what is offered in the stores in upscale neighborhoods and the 20% of stores in “downtrodden” neighborhoods so I don’t know if the offerings are the same or not.
The press has applied the term “upscale” to the Tesco offerings in the US without having seen any of the stores or the products being sold. Bashas in Phoenix offers fresh prepared food at one price point in the Bashas stores and at another price point at the AJ stores. Just because the food is fresh doesn’t mean it has to be upscale.
Until the stores open we won’t know the extent of Tesco’s research and/or their ability to adapt to consumers in the US. I don’t think consumers want “upscale” food all the time when satisfying their demand for quick and convenient food. However, they will appreciate fresh and tasty food.
Many of us are waiting for these stores to open to determine the extent of Tesco’s research and ability to adapt.
Watching Tesco calculated expansion in the UK–in fact, I’m currently at our UK office and have been traveling about in rather dismal weather–they are a formidable retail performer. I think they have likely done their homework, run the financials and know precisely what they are doing in South L.A. They survive (and thrive) quite well in many financially-pressured areas throughout Great Britain.
I have been suggesting to retail clients that they have not yet experienced a foe quite like Tesco. Hang onto your hats, we’re all in for an interesting ride.
First of all, Tesco has failed to get a single store open anywhere in the US despite all the hype. So I’m a bit skeptical about them opening a store anywhere at this point. As far as opening a store in a so called “food desert,” Tesco will learn just like US chains learned, that people in those areas simply will not support the store. Stores in difficult neighborhoods often have low sales per square foot despite the perceived dollars available and lack of competition. There are a lot of reasons for this that are simply explained. I have an outline as to why if anyone is interested.
How does Tesco think it’s going to find employees willing to work in such dangerous areas? Has Tesco ever operated in an area where crime is so high and so many guns are available? I don’t know but I am wondering if they are just naive? You wouldn’t think so but a lot of smart companies have tried and failed in the inner cities.
Immediate challenges:
1. Lack of understanding of the types of food residents prefer. English scones and tea might not go over too well.
2. Children often receive free breakfast and lunch at school so there is no need for food shopping for children.
3. Shrink from shoplifting.
4. Small trade areas with limited automobile ownership.
5. Perceived high crime; residents leave the area to shop.
6. Finding qualified employees can be a HR nightmare.
7. Supervisors find excuses not to visit the store.
8. Declining population
9. High risk of having to close the store.
10. Extra security costs.
11. Personal safety issues.
12. Bad press from having a high price zone in a low income area.
We could could go on but the bottom line is, most retailers can find more than enough excuses not to build in food deserts.
As quoted above, I agree that this could be an interesting “experiment” for a firm with capital to possibly throw away. However, most of this strategy goes against basic marketing principles.
I believe in “thinking outside the box,” however, how do you expect to position yourself as ALL premium at a value price without tarnishing your brand? How do you believe you will achieve revenue targets with a targeted segment which has little to no disposable income, specifically for “premium” products?
More importantly, HOW do you maintain those facilities that are in markets that are–let’s be honest–practically impoverished, without the hassles?
There IS a reason why there are not many (if any) major retailers in those arenas…because the cost of sustainability is so dramatic that it is practically a waste of time. I very much applaud Tesco for its “philanthropic” endeavors, however I believe this to be more for publicity, rather than new policy.
Lack of experience may be the answer. I think an Aldi or Save-a-Lot should be running into South L.A., not Tesco. It is great to offer consumers high quality products, but if they don’t have the money, what can they buy?
Congratulations to Tesco for having the courage to step forward and to provide quality foods to those who lack transportation to the suburbs for groceries. We need to encourage equal access to fresh food and groceries for all of our U.S. citizens.
Tesco hasn’t said they’re only going to build stores in underserved poor areas. They merely committed to a test program. There may be a few underserved areas that would be profitable for them. Grocers can lose money in rich neighborhoods and middle class neighborhoods, too. Tesco has enough brains and capital to test in a variety of location types.
If it is like Eatzi’s and the like, it will be one of the first to micro market by the neighborhood.
What have the U.S. supermarkets and food service chains been thinking and doing? In general with few exceptions, not much. Hmmmmmmmmmmmmmm
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This is a shot across the bow of American supermarkets that says, “you can’t serve your poorest citizens adequately, but a bunch of foreigners can.” This takes guts and, in my opinion, an overinflated view of Tesco’s capabilities. Anyone know how their test program with Kroger is going?
One possible take has to be that there is some PR related objective associated with this. It is certainly not going to hurt their image and it could be very positive. Ironically enough, it may wind up as a contrast point between Tesco and those who have been serving low income consumers’ needs in America for quite some time now….
But there could also be a business angle to this that may represent a very deep understanding of people’s relationship with food. People of every income level seek rewards and “luxuries” whenever they can. And food has always been the “first level of reward.” Whether it is a rural farm wife loading down a table with garden produce or a child living in poverty cherishing his Coke, food is one of the most accessible and satisfying rewards to all. So maybe putting really good food in lower income markets makes sense, even if it does cost more than the weekly budget allows.
I appreciate Tesco’s brashness to open upscale stores and offer premium products to the U.S. consumer. Such innovation can be rewarded if done properly and monitored closely. It appears that this is a smart call in markets like affluent areas of Los Angeles, Phoenix and other places where money is not the issue. However, Tesco may be wise to test the waters a bit in other areas before committing full bore to such a strategy.
There have been more than a few attempts by well meaning merchants to change consumers’ buying habits with creative offerings, marketing or merchandising. Without naming names, some have worked and others have failed miserably. Given a vote, I would advise Tesco to “go for it” but do so in a somewhat controlled manner until it is known whether consumers will bite on the concept. After all, the American consumer can be fickle and very demanding.
One need not look far to uncover statistics that are helpful at predicting consumer behavior. I am sure someone at Tesco has done just that. It is unlikely that people that smart are running into a situation without first gathering, analyzing and testing proof of concept. I say that other retailers should for sure take notice and keep a close eye on this venture. It quite possibly could point the way to what’s next in the American retail landscape.
Tesco is an imaginative food retailer and Tesco’s originality is the art of concealing its source. While opening a store in South Los Angeles seems a risk to most US retailers, I have faith that Tesco has a concealed reason for doing so. Instead of being a bog, perhaps this might be the beginning of something big in food retailing.
My experience in the Los Angeles market would lead me to expect that Tesco will have quite a challenge on its hands trying to meet the needs of the heavily Hispanic LA population.
I’m not sure that the Tesco name will be relevant to the population, and the fact that this is not a big take-out segment since most of these households tend to cook at home.
It’s one thing to appeal to lower income British families versus marketing to a population that is not only lower income but culturally different.
It will be interesting to follow this effort!
Tesco has deep enough pockets to experiment with its real estate strategy as it begins to roll out its new U.S. concept. And L.A. is such a vast market–geographically and demographically–that it pays to uncover opportunities wherever Tesco finds them. They may find that lower-to-middle income areas that have been historically underserved by “better” retailers may be very receptive to the Tesco approach.
This step by Tesco represents a commitment to serve a diverse group of consumers in a variety of areas, and a very positive way to introduce their stores in the States. If it works, other retailers should take a closer look at what has been successful and what has not. Sure, there are many significant hurdles, but it seems to me that retailers might learn from a “new” approach by Tesco. And yes, it is also a great pr move.
I wholeheartedly agree with Mr. Livingston. Tesco has received an amazing amount of press but has yet to open or prove they can operate stores in America. We just don’t know. Over the last twenty five years, other European food retailers have come to the US, opened stores and either failed or simply bumbled along making little progress. While Tesco is a well run company, doing business in the highly competitive US marketplace is unlike anywhere else in the world.
Tesco is no fool. They are researching price points and assortments to match trade areas. Stay tuned to watch their success.
The idea of creating a Garden of Eden in the food desert in order to feed the downtrodden and lame is an idea that only a central planner can love. Deserts have very little foliage because they have little water. Food deserts have few stores because they have no food sales.
Tesco can probably survive the losses in the grand food desert experiment but the real question is, can a small store carry enough fresh variety in a non-homogeneous but limited trade area to satisfy customer needs while keeping shrink under control?
We will know by this time next year.
It’s a great idea…and a wide open marketplace in the U.S. that few (save for the likes of Magic Johnson) venture into.
My thought is, if you’re going to test something, TEST IT!
It’s disturbing today the lack of curiosity on the part of retailers in terms of the desire to gain real retail knowledge vs. guessing with focus groups and ‘ethnography’. Which is more expensive anyway? Plus, when the dollar today gets in the way of the dollar tomorrow, well, you’ve got 30 years of malls!
One way or the other, Tesco will be able to tell you if South L.A. is a good place to be with their concept…THAT is for sure.
I have not investigated enough of Tesco stores in the UK to have been able to analyze whether there are differences in what is offered in the stores in upscale neighborhoods and the 20% of stores in “downtrodden” neighborhoods so I don’t know if the offerings are the same or not.
The press has applied the term “upscale” to the Tesco offerings in the US without having seen any of the stores or the products being sold. Bashas in Phoenix offers fresh prepared food at one price point in the Bashas stores and at another price point at the AJ stores. Just because the food is fresh doesn’t mean it has to be upscale.
Until the stores open we won’t know the extent of Tesco’s research and/or their ability to adapt to consumers in the US. I don’t think consumers want “upscale” food all the time when satisfying their demand for quick and convenient food. However, they will appreciate fresh and tasty food.
Many of us are waiting for these stores to open to determine the extent of Tesco’s research and ability to adapt.
Watching Tesco calculated expansion in the UK–in fact, I’m currently at our UK office and have been traveling about in rather dismal weather–they are a formidable retail performer. I think they have likely done their homework, run the financials and know precisely what they are doing in South L.A. They survive (and thrive) quite well in many financially-pressured areas throughout Great Britain.
I have been suggesting to retail clients that they have not yet experienced a foe quite like Tesco. Hang onto your hats, we’re all in for an interesting ride.
First of all, Tesco has failed to get a single store open anywhere in the US despite all the hype. So I’m a bit skeptical about them opening a store anywhere at this point. As far as opening a store in a so called “food desert,” Tesco will learn just like US chains learned, that people in those areas simply will not support the store. Stores in difficult neighborhoods often have low sales per square foot despite the perceived dollars available and lack of competition. There are a lot of reasons for this that are simply explained. I have an outline as to why if anyone is interested.
How does Tesco think it’s going to find employees willing to work in such dangerous areas? Has Tesco ever operated in an area where crime is so high and so many guns are available? I don’t know but I am wondering if they are just naive? You wouldn’t think so but a lot of smart companies have tried and failed in the inner cities.
Immediate challenges:
1. Lack of understanding of the types of food residents prefer. English scones and tea might not go over too well.
2. Children often receive free breakfast and lunch at school so there is no need for food shopping for children.
3. Shrink from shoplifting.
4. Small trade areas with limited automobile ownership.
5. Perceived high crime; residents leave the area to shop.
6. Finding qualified employees can be a HR nightmare.
7. Supervisors find excuses not to visit the store.
8. Declining population
9. High risk of having to close the store.
10. Extra security costs.
11. Personal safety issues.
12. Bad press from having a high price zone in a low income area.
We could could go on but the bottom line is, most retailers can find more than enough excuses not to build in food deserts.
As quoted above, I agree that this could be an interesting “experiment” for a firm with capital to possibly throw away. However, most of this strategy goes against basic marketing principles.
I believe in “thinking outside the box,” however, how do you expect to position yourself as ALL premium at a value price without tarnishing your brand? How do you believe you will achieve revenue targets with a targeted segment which has little to no disposable income, specifically for “premium” products?
More importantly, HOW do you maintain those facilities that are in markets that are–let’s be honest–practically impoverished, without the hassles?
There IS a reason why there are not many (if any) major retailers in those arenas…because the cost of sustainability is so dramatic that it is practically a waste of time. I very much applaud Tesco for its “philanthropic” endeavors, however I believe this to be more for publicity, rather than new policy.
Lack of experience may be the answer. I think an Aldi or Save-a-Lot should be running into South L.A., not Tesco. It is great to offer consumers high quality products, but if they don’t have the money, what can they buy?
Congratulations to Tesco for having the courage to step forward and to provide quality foods to those who lack transportation to the suburbs for groceries. We need to encourage equal access to fresh food and groceries for all of our U.S. citizens.
Tesco hasn’t said they’re only going to build stores in underserved poor areas. They merely committed to a test program. There may be a few underserved areas that would be profitable for them. Grocers can lose money in rich neighborhoods and middle class neighborhoods, too. Tesco has enough brains and capital to test in a variety of location types.
If it is like Eatzi’s and the like, it will be one of the first to micro market by the neighborhood.
What have the U.S. supermarkets and food service chains been thinking and doing? In general with few exceptions, not much. Hmmmmmmmmmmmmmm