Tesco, UK’s leading supermarket chain, is set to open about 100 stores in California and Arizona based on its wildly successful Tesco Express concept. Having visited one of these stores on The Strand in central London last May, I can report that it is an idea that might just catch on here in the US, unlike homegrown concepts and acquisitions of many other UK-based retailers who have suffered for their dalliances in our market (I’m thinking Marks & Spencer with its mishandling of Brooks Brothers or Midland Bank’s doomed acquisition of Crocker National Bank, both of which make the Telegraph’s worst financial decisions hall of fame). http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=M3&xml=/money/2006/06/02/ccjeff02.xml).
A Tesco Express seems purpose-built for the emerging US lifestyle. A smallish store, maybe 2,000 square feet, it provides essential grocery and beverage items. But the innovation is in bringing to the US convenience store sector a feature of UK supermarket shopping that the British have keenly integrated into their lifestyles. Prepared entrée and side food items are abundant, and offered in three categories (value, good and best). The best items, or “Finest” as Tesco has it branded, are good enough to be – and frequently are – presented to guests in the UK alongside, or instead of, home-prepared meals. Takeaway dinners are a growth market in the US, and the multi-level range of meals offered by Tesco seems perfect for our market (although there is the obvious need for tailoring of menu to local tastes).
A fat market that's expanding
In US supermarkets, prepared foods have become the most profitable area of an otherwise marginally profitable enterprise. Tesco seems poised to steal market share from supermarkets as well as convenience stores and individually-owned takeaway specialists. It’s a lot of work to navigate today’s very large supermarkets just to get the few things you want for dinner and the Tesco Express concept seems spot-on.
Overall, the US consumer spends more than $1 trillion on food, so you can see why Tesco might be interested (see http://en.wikipedia.org/wiki/Food_industry). On July 8, 2006 The Orlando Sentinel in a very well reported article by Mark Chediak published the following statistics (http://www.orlandosentinel.com/orl-takeout0806jul08,0,3850200.story):
According to market-research organization NPD Group, the average American last year ordered takeout meals 122 times from restaurants and grocery stores, compared with just 80 meals eaten at a restaurant. Twenty years ago, the average American ordered takeout 84 times and ate 93 meals at a restaurant. Ten years ago, 65 percent of all dinners eaten at home were made from scratch; that number declined to 58 percent in 2005 with further decline expected
Tesco will compete with our largest retailers for "share of stomach"
Tesco is clearly targeting a growth area in the US, but it’s not alone. Wal-Mart’s Neighborhood Market chain is aiming at the same consumer. But here is where branding might pay a dividend: Wal-Mart doesn’t have a brand that most Americans would equate with upscale prepared food. Tesco has the opportunity to fashion a brand identity from scratch (pun intended); it can become the home for prepared foods that are just about as good as homemade with convenience of a mid-size, neighborhood store.
In 2005, sales of prepared foods at US grocery stores reached $20 billion, out of a total food-and-beverage market of $420 billion at retail food stores, according to Technomic, a Chicago food-industry consultant. Sales of ready-made meals at grocers have been increasing by about 2.5 percent to 3 percent a year, according to the research firm.
According to the Los Angeles Times, Tesco Express stores in the US will be called Tesco Fresh & Easy, and are expected to be much larger than their UK brethren at about 15,000 square feet. The Wikipedia entry on Tesco rightly compares this to Trader Joe’s, a chain popular for its un-corporate style and innovative merchandising. An interesting log of stories about Tesco from industry magazine Supermarket News is here on the Web http://www.supermarketnews.com/xref.cfm?&ID=10385&xref=Tesco and Convenience Store News joins us in writing about Tesco here... http://www.csnews.com/csn/search/article_display.jsp?schema=&vnu_content_id=1002538856.
Will Tesco succeed? It’s way to early to know. But, in contrast to historical failures of international expansion from other UK supermarkets, Tesco’s genuine ability to adapt to local markets could be a strategy for success. Many of its 100 stores scheduled to open in the US will be in California, a market that leads the US in adoption of new ideas (that’s why many auto firms have their styling studios there). It has the ability to invest in infrastructure, management, product development and marketing to make a real go of it. The fact that Warren Buffet has invested a not insubstantial $329m (£174m) is a strong vote of confidence. And the market is highly fragmented. There is no clear leader in small grocery stores that cater to our on-the-go lifestyle. Maybe we’ll soon all be serving Tesco’s Finest to our friends and families.
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