Was Tesco’s US launch a “brand ego trip”?

Tesco has admitted defeat on its attempt to grow a
US business with the Fresh & Easy chain, after five years and eye-watering cumulative losses of £900 million. Yup. Almost a billion pounds blown.
CEO Philip Clarke, the
chief executive, said here: “It’s likely but not certain that our presence in
America will come to an end.” 

Screen Shot 2012-12-09 at 12.06.33
I suggest that Tesco's failed US launch is 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.

What can we learn from Tesco's troubles?

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 verus 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

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 in to 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.