Tesco went on the offensive this week after broker Piper Jaffray lambasted US customers’ reactions to the grocer’s fledgling Fresh & Easy convenience store format.
In a note to clients, senior research analyst Mike Dennis said that the 50 Fresh & Easy stores that have opened so far around Los Angeles, Las Vegas and Phoenix, Arizona, could be averaging sales of only US$170,000 (£85,690) a week – lower than the planned initial sales of US$200,000 (£100,812).
Perhaps predictably, Tesco accused him of scaremongering, questioned the depth of his research and said that Fresh & Easy’s customer numbers were growing strongly.
However, there was one sentence in Dennis’s note that resonated with a source close to Tesco in the US. According to Piper Jaffray, if customer traffic was slow, then “Tesco must be concerned that the Fresh & Easy concept is not right and that they need to find out quickly what the issues are and reset the concept or ranges”.
A key concern of sceptics is that Fresh & Easy’s product offer is not targeting a broad enough church of US consumers. According to the US source, the format is proving popular with consumers who don’t have big families to feed, such as young and elderly shoppers, but less so for those with families.
This could be partly because its 15,000 sq ft (1,395 sq m) stores offer a high proportion of products, including ready meals, salads and pre-packaged produce, that are ideal for frequent shoppers. It is less clear whether Fresh & Easy is proving as popular with moms and pops who want to fill their gas-guzzling cars with a big weekly shop.
Another criticism is that Fresh & Easy offers customers the same products regardless of vastly different demographic mixes, such as a majority of Hispanic or Chinese people, in certain areas.
However, in time, Tesco will surely adjust its product proposition as it expands rapidly along the west coast and further inland.
For example, Tesco boss Sir Terry Leahy has readily admitted that the grocer altered its initial strategy and offer in Eastern Europe after launching there in the 1990s.
Another point in Tesco’s defence is that it launched its US operation – including a hugely impressive warehouse and vertically integrated food facility – bang on time and has not yet faltered in its roll-out programme, which has surpassed 50 stores.
That said, Tesco has no divine right to succeed in the US and sceptics are right to question whether Fresh & Easy, in its present guise, is the ideal format. Like other UK retailers that have gone before, it could well find the US market a tough nut to crack.
But the smart money is on the Cheshunt retailer getting it right in the long-term – albeit with some refinements to Fresh & Easy along the way.