Tesco Launches U.S. Invasion
British retailer Tesco opened its first chain of neighborhood convenience stores outside Los Angeles this week, as it attempts to gain a major foothold in one of the world's most competitive markets.
Cracking the U.S. market won't be easy, but analysts say Tesco has a better shot than most in large part due to its extensive use of technology.
"I'm firmly in the camp that believes they will be successful," says Mike Griswold, director of retail strategies for AMR Research. "For one, they've spent a lot of time studying the market. Two, they have a great track record for international expansion and using technology to quickly move into markets. And three, they're coming into the market with a rather unique format."
The Fresh & Easy stores are relatively small. At about 10,000 square feet, they're somewhere between a grocery store and a 7-Eleven. Tesco is calling the markets "modern grocery stores for the modern America."
One of the big differentiators is that the stores will feature a variety of pre-made meals consumers can purchase for a quick lunch or dinner. A focal point of the format is "The Kitchen Table," an area where shoppers can try free samples, find out how the pre-made meals are made, and obtain recipes.
While the store formats are small in scale, Tesco's plans for America are anything but. The company recently opened an 820,000-square-foot distribution center in Riverside, Calif., which it plans to use to feed the first 100 Fresh & Easy stores in California, Nevada and Arizona. Tesco chief executive Sir Terry Leahy has said the company has committed about $450 million to the first phase of its U.S. expansion.
Tesco will have to prove itself in the U.S. market and is sure to run up against stiff competition, says AMR's Griswold, though the company is a major player in its own right. In AMR's annual survey of the world's best supply chains, Wal-Mart ranked sixth-the top spot for a retailer. But Tesco came in just two steps behind, in eighth place. Nokia earned AMR's top marks.
Griswold says Tesco has proven itself adept at being able to take a packaged technology, customize that technology to its needs, then standardize on the platform throughout its operations. It has developed what has been referred to as "Tesco in a Box," a set of plug-and-play applications that allow it to quickly set up operations in a new market. The applications are based largely on offerings from Retalix and Oracle, including Oracle Financials and Oracle HR (formerly PeopleSoft).
Like Wal-Mart, Tesco uses a large Teradata data warehouse and a variety of business intelligence tools such as Business Objects to mine customer and supplier data. "That's one area where they've really gained an advantage," says Griswold. In the development of Tesco's loyalty program, it also worked closely with dunnhumby, a consultancy that provides customer analysis and customer segmentation profiling.