Tesco’s £billion brand ego trip to America
Tesco has just confirmed its its exit from the US market, with Fresh & Easy's failure costing a hefty billion pounds according to reports here. This led to the first drop in Tesco's full year profits for 20 years.
I first posted on Tesco's problems with Fresh & Easy back in Sep 11, and again here last December. I thought it was worth re-posting some of the lessons from the failed US launch, an example of what I call a "brand ego trip", when a brand gets too big for its boots, over-stretches and pays the price. In this case the stretch was from its core market in the UK to the notoriously difficult US market.
1. Over-relying on research
Tesco spent a fortune on pre-launch consumer research, including doing extensive in-home studies and famously building a fully mocked up store, disguised as a film studio. However, nothing beats actually in-market prototyping, as I posted on here. It was only after launching and expanding the chain that problems with Fresh & Easy really came to light. US customers didn't like having slef-checkouts and having to pack their own bags, and the smaller store format didn't fit well with the habit of doing big shops. Also, Fresh & Easy failed to pick up on the importance of discount coupons as part of the core offer.
2. Under-estimating the competition
It seems that Tesco didn't fully respect the competitive retailers who already had a foothold in the US cities where Fresh & Easy launched, and failed to add enough value versus the existing offer in the market. These included the Trader Joe's chain, owned by Aldi. Reports here suggest that "The Fresh & Easy stores were far more downmarket. Even the buildings disappointed – cold and antiseptic, they more like aircraft hangars than cheery, pleasant places to shop."
These established competitors also meant that Tesco didn't always have the best locations for stores. Bryan Roberts, a Kantar Retail analyst said here: "Half of the stores are in less than ideal locations.”
3. Diverting attention from the core
One of the problems with brand ego trips is that they divert time and talent from the core business, in this case Tesco's UK supermarket business. This core is suffering badly, as I posted on here. Fresh & Easy was headed up by one of Tesco's most talented marketers, Tim Mason, who played a leading role in Tesco's earlier success in the 90's and 00's. For the last five years he's been running the US business, not helping sort out the core UK business. And now he's paying the price for the failure of Fresh & Easy with his job.
In conclusion, Tesco's US troubles are a stark reminder of how hard it is to stretch from the core into a new market, with a need to add genuine value versus established competition. Research will only get you so far, with a better approach to test, learn and refine in market.