International Expansion: Why Tesco Missed the Mark in the U.S. Market
Tesco is one of the largest retailers in the world. In 2021, the Tesco Group generated $66 billion USD in revenue. It currently operates 4,673 stores across the globe. Almost 4,000 of those stores are located in the United Kingdom, which is Tesco’s primary market. Based in Hertfordshire in southern England, Tesco “is the leading supermarket brand in the United Kingdom, consistently ranking highest in terms of grocery market share.” Tesco also operates successful stores across many European and Asian markets. In 2007, Tesco expanded in the United States under the brand, Fresh & Easy. At its peak, the company operated 208 stores in the market; however, due to its small store formats, skewed customer research, poor store locations, and food packaging concerns, the company was forced to exit the market in 2013 when it sold its remaining stores. In total, Tesco suffered losses of $1.6 billion USD as a result of its failed entry into the U.S. market.
Small Grocery Store Format
Tesco’s Fresh & Easy stores confused many American shoppers because the stores were much smaller than the traditional American grocery store. The typical Fresh & Easy store was around 3,000 square feet, which is less than one-third the size of an average American grocery, which is usually around 10,000 square feet. The stores were designed to make shopping easier and more convenient for the consumer. In short, they were built for daily shoppers. This daily shopper model, which is common in Europe, did not resonate with the typical American grocery shopper, who typically shops on a weekly basis. Tesco’s smaller stores had less variety which also frustrated the American consumer, who prefers to buy everything at a single store.
Skewed U.S. Market Research
The stores emphasized pre-prepared and ready-made meals, which did not resonate with the average consumer. Because Americans typically shop on a weekly basis, they are often buying items in bulk, which means ready-made items are less appealing. Tesco completed “detailed market research including visiting shoppers at home to see what they bought and asking people to keep a food diary to observe what they consumed.” In their research, Tesco primarily talked to consumers in California. The company did not build a robust representative sample of the wider American grocery shopper. This oversight likely contributed to Tesco’s misguided decision to purchase small store formats with less variety and ready-made meals.
Poor Store Locations
In its initial property deals, Tesco acquired store locations that “were essentially on the wrong side of the road.” Many Tesco store locations were located on the in-bound side of the road, which made it extremely difficult for people to stop on the way home from work as they left their jobs in the city. People would see the stores on the way into work when they were not looking to shop. Analysts say Tesco should have prioritized stores on the out-bound side of the road, so customers could quickly grab something for dinner on the way home from work. These poorly located stores severely hurt foot traffic in stores, which contributed to decreased sales in the U.S. market.
Food Packaging Concerns
In some ways, Tesco’s Fresh & Easy grocery stores were ahead of their time. Fresh & Easy stores fully embraced self-checkout. At the time, “self-pay checkouts for groceries were confusing for Americans so used to service.” The self-checkouts required products in the store to have a barcode clearly displayed. This meant that Tesco products were often individually wrapped in plastic for easy checkout. This frustrated American consumers, who are accustomed to touch and feel items like produce and fruit. The plastic wrapping undercut Tesco’s environmental and sustainability stance in the U.S. market. Despite its Fresh & Easy name, “it was hard to get quality fresh food there – especially fruit and vegetables.”
Tesco struggled to properly incorporate and contextualize the lessons learned during their customer research, which ultimately hurt the company’s expansion in the U.S. market. At CASTUS, we work with our clients to execute on their strategic growth plans to drive sustainable, long-term sales. If your company wants to expand into the U.S. market, we would love to talk with you.