Careful planning and promotion will be key to the giant’s success
The biggest event this year in UK retail will actually take place in the US, when Tesco launches there in November.
This week, Tesco chief executive Sir Terry Leahy shed further light on the eagerly anticipated opening of its Fresh & Easy Neighborhood Market convenience store chain. He declined to say exactly where or when in November the first store will open, but said it was now only a case of applying the finishing touches. "We're pretty much locked and loaded," he said.
So what are Tesco’s prospects in the US? On paper, they look promising. Tesco will introduce a new type of convenience store format in the US, selling a significantly higher proportion of fresh food. At present, the US convenience sector is characterised by rivals, such as Trader Joe’s and 7-Eleven, that are not best known for their fresh-food offer. Wisely, Tesco’s plans to open stores of about 15,000 sq ft will steer it clear of big-box rivals, such as Wal-Mart and Safeway.
Tesco has also targeted less affluent neighbourhoods, particularly in south Los Angeles, where convenience stores selling fresh food are conspicuous by their absence. The speed at which US consumers start embracing its combination of fresh food and ready meals will be critical to its success.
In fact, Tesco’s US entry will require a fundamental shift in the mindset of American consumers, who are married to their cars and love their big weekly shop more than UK customers. Tesco has partially circumvented this barrier by targeting former pharmacy sites close to the junctions of busy intersections, although stores on street corners in busy urban areas could prove more challenging.
Another barrier is that Tesco is still relatively unknown among US consumers. Therefore it is somewhat surprising that the retailer intends to adopt a relatively low-key ad campaign, according to a property source in Los Angeles, although a large programme of door-dropping leaflets is planned.
That said, few would bet against Tesco becoming a force to be reckoned with in the US in the long term. For a start, its roll-out plans are massive. Publicly, it has divulged that it has secured about 60 sites in Phoenix, Las Vegas, Los Angeles and San Diego, but this is just the tip of the iceberg.
Tesco has refused to divulge numbers, but it could easily have 200 stores in the US by the end of 2008. After next year, Tesco may well seek to open stores and a distribution centre on the East Coast and potentially acquire a rival. It would also be a major surprise, if it does not open different, larger stores, giving its full range of formats in most other countries.
In short, Tesco means business in the US and, while there may be a few bumps in the road, it will take a lot to derail the English juggernaut from ultimately succeeding.