Why did Tesco Fail in the US?

The British supermarket giant Tesco announced yesterday that it is, selling all of its American Fresh & Easy stores and declaring their US market entry strategy a failure. However – this should not be a signal for UK businesses that the US market is off-limits.  Instead it is an opportunity to learn a number of valuable lessons and truths about the US market and market entry strategy.

Lesson #1:  Connect with your target market

Tesco did many things right – they hired anthropologists and spent 3 years and $1 billion researching the US market.  This work identified that their ethos of affordable fresh food resonates with the US grocery shopper, the existence of gaps in the grocery market, and incorporated US recipes into their ready-made-meal range.  Unfortunately in translating this theory into practice assumptions were made that resulted in a disconnect with their target market.  For example – their target market are those that want to shop for fresh food in a lifestyle environment.  Unfortunately, the urban ‘food desert’ locations tend to be made up of another demographic with different shopping habits.  Similarly, while the fresh ready-made-meal is a staple of British grocery shopping baskets, in America it is not.  Remnants of the 1950’s innovation, the TV-dinner and associations with weight-loss packaged meals are cultural barriers that have enabled only a few familiar brands to put ready-made-meals into American shopping carts.

Lesson #2:  Focus

The US is such a vast and diverse marketplace – 50 different states make up this union.  This creates some complexity, but it also creates tremendous opportunity to find the best-fit market through which to launch your brand onto the American stage.  The company’s Tesco Express experience tells them that small grocery stores located near train stations and transit hubs work well – at least in the UK.  In California however, people drive everywhere and mass transit is not used as much as in other areas of the country – such as the East Coast metropolitan areas of NYC, Boston, and Washington DC.  Perhaps these cities may have been a more appropriate geographic focus for Tesco’s debut?

Lesson #3:  Adapt or Die

Adaptability is crucial to any business, and it is especially critical to companies in a foreign market.  Even the best-laid plans may need to be changed due to economic factors, market changes and ‘learnings’.  In five years Tesco opened a lot of stores sticking to their initial model and pace in spite of early indications of trouble – both in the global economy and the concept itself – charging full-speed ahead under shareholder pressure.  It takes necessary courage to change course or slow down if business is not performing to plan.

Lesson #4:  Be Wary of the Cousin Connection

One of the reasons British businesses have trouble crossing the Pond is that many underestimate America’s diversity – both in its difference from the UK market, and the variation within the country itself.  After all, we share a similar language and much shared heritage and kinship.  How different can it be?  Indeed.  Foreign businesses should check assumptions at the door and question everything.  “Because that’s the way we do it in the UK” should never be uttered as a business reason for justifying a go-to-market strategy.  Tesco found through experience that American shopping habits are significantly different to those in the UK.  Both in retail and grocery Americans tend to shop less frequently but spend more per visit, and value service as a part of their experience.  And while loyalty programs and online engagement are the status quo in the UK and trending in US retail, this has not yet extended to US supermarket shopping in which cut-out coupons and hardcopy flyers are still the norm.  Tesco’s small market concept, with self-check-out and online loyalty program unfortunately missed the mark for this point in time within the US market – particularly in their chosen locations.

Lesson #5:  Be Realistic

Success in a new market does not happen overnight. While in business the wisdom in Aesop’s the tortoise and the hare does not often apply, it often makes sense in new market entry. ‘Learnings’ (often resulting from mistakes) are an important part of business, especially during the initial phase of market entry when businesses inherently experience a flood of ‘learnings’ in a short amount of time.  By taking the time to pace yourself and react to this market feedback, businesses better position themselves for mid-to-long term success.  Similarly, change does not happen overnight either.  Innovation is the spark of our capitalist economy and drives competitive differentiation and eventually market evolution.  However introducing too many net new models to a market – particularly in a single concept – is risky.  And while some of their innovations have been adopted within the industry – the self-check out option, for example – Tesco’s CEO’s ambition to “revolutionize how Americans shop” proved too ambitious.

Today Prêt a Manger is heralded as a trans-Atlantic success story, but it took time. One of the keys to their success was engaging local expertise to educate them about the market and to be their eyes and ears on the ground, enabling them to identify and respond to market ‘learnings’. They began in a single city +10 years ago, and shaped and massaged their model and offer over time, only recently hitting the expansion accelerator once achieving good market fit.

Tesco’s Fresh & Easy should not be a tombstone to British businesses with US ambitions – but an important sign posting along the way.