Why Tesco Marketing Strategy Failed To Make A Dent In The United States Retail Space?
Task: Prepare a report on topic “Why Tesco marketing strategy failed to make a dent in the United States retail space?”
The report examines the foray of Tesco PLC and also the implementation of Tesco marketing strategy in the United States. The company is one of the most prominent players in the retail space in the United Kingdom. The report lauds the company’s introduction of a new brand christened Fresh & Easy Neighbourhood Markets in the United States in 2007 and its subsequent withdrawal in 2013. It examines what went wrong and what might have been done to avert such a disaster.
Company Background –
Based in the United Kingdom, Tesco PLC operates in the retail space. The retailer is involved in providing retail and ancillary services to its customers, along with retail banking and insurance. Tesco PLC’s business segments are - UK & ROI – This consists of the United Kingdom and the Republic of Ireland; International – This consists of the countries of Czech Republic, Hungary, Poland, Slovakia, Malaysia and Thailand; and Tesco Bank – This includes of the retail banking and insurance services through Tesco Bank in the United Kingdom. Brands like Fox & Ivy run Tesco PLC's business; Finest; Exclusively at Tesco; and F&F(Tesco.com, 2019).
Tesco’s story in the United States how it ended –
The United Kingdom-based retailer in 2013 declared that its bottom line has shrunk for the year ending February 23, 2013, versus the previous year. The year over year was the first time for the company in the past two decades (Vaughan, 2019). The downside was big with net profit decreasing by almost ninety-six per cent year over year from £ 2.81 billion to a mere £ 120 million. The primary reason mentioned in the study of Tesco marketing strategy was the disappointing turn out of the retailer's United States foray. The books of accounts recorded a one-time write-off item worth £ 1.2 billion from its dismal United States business.
Now the question arises why did Tesco PLC fail in the United States. The retailer before its foray in that country in November 2007 undertook considerable time and effort in research. It disbursed significant sums of money in conducting market research on the United States retail space for three years before its entry. Tesco in 2006 sent an assortment of around fifty employees from its United Kingdom operations to stay with families in the United States. The motive behind such a move was to monitor the consumption and purchase pattern of these families. The retailer based on the research started its foray in the United States with small-format grocery stores called Fresh & Easy. Those stores were customised to meet the requirements and match the tastes of the average United States consumer which ultimately leads to the failure of Tesco marketing strategy. Using extensive research to implement an effective Tesco marketing strategy, the layout of those retail chain stores was made friendlier for consumers. The target consumer was the time-pressed customer with short errands. This was in line with the company's practical and pioneering Express concept. The shop layout was in a simple format with straight lines to make moving easier. Management also kept the design of every Fresh & Easy store same with eight corridors with a uniform width of nine feet (Peterson, 2017). The first three corridors catered to fresh food merchandise while the rest engages in dry merchandise. Also, in every store, approximately twenty-four feet were kept separated for making new ready to eat food. The size of the stores was deliberately kept small by the management to making an exit and entry easy for consumers.
Tesco's foray in the United States was through the western coast, which was named as Fresh and East. According to the Tesco marketing strategy, management was confident in its findings that the United States Customers were looking for retail shops which provide cheap and fresh food items. The health consciousness of the customers was also factored in. However, the whole venture failed, and in 2013 the retailer announced that it would dispose of all the one hundred and ninety-nine Fresh & Easy stores would either be divested or closed. At first glance, the Tesco marketing strategy of the retailer was sound as after extensive research. They positioned those stores as a personalised smaller substitute to the average United States retail stores. Those stores unique selling point was the freshness of its offerings and ready to eat food items. The ready to eat food items offered a diverse menu of dry grocery foods; wrapped food items; and cold ready to eat foods. The retailer did extensive market research and placed those shops in areas with little competition. As per the estimation obtained from the Tesco marketing strategy, the company was sure of its research invested a billion pounds on the stores and the distribution centres in the United States (Peterson, 2017). The retailer had plans to grow its chain of 199 stores to more than a thousand all over the United States. However, although the management that followed the Tesco marketing strategy was confident of its multi-million research data, the reality was that its novel chain stores neither were able to meet customer satisfaction nor the administration was pleased with the outcome. The average United States customer feedback was negative pointing out the stores focus on private labels; automated checkout; a limited collection of items; and no difference in issues with the location. Thus, the Fresh & Easy chain stores were unsuccessful against big supermarket chains. Also, the small size of the Fresh & Easy chain stores made its market positioning confusing, making it challenging to identify the consumer segment it wanted to target. Further, the United States economy at that time was going through a recession precipitated by the subprime crisis, which decreased consumer spending. Lower consumer spending had a profound effect on the consumer spending pattern on the Fresh & Easy chain stores.
As per the information used to develop this study of Tesco marketing strategy, the management of Tesco, however, tried to reverse the adverse scenario and decided to take a host of corrective actions. This consisted of raising the variety of products at the stores; changes the decoration of the stores to a brighter shade, and raised the level of marketing. Albeit all these efforts were in vain and the United States business continues to incur a loss. Management also resorted to actively seeking consumer feedback and added a host of items in its shelves. Also, to counter the shocks of recession, the retailer stocked both branded and budget merchandise. Also, in matters of perishable items like vegetables and fruits, the retailer initially sold them only in a packaged form. But later on, this practice was discontinued. The management then thought to prudent to halt its successful store expansion plans in the United States (Noseda, 2017). The decision was taken as its core United Kingdom operations were showing signs of slowness. Given such state of affairs, the management decided to exit from the loss-making United States venture.
How Tesco marketing strategy help to avoid the situation?
The question now arises what could have been done by the management of Tesco to avert this disaster. The focal point one should remember that the market of the United States is distinct from other countries. Although Tesco has a presence in other parts of the globe, the nature of the United States market cannot be categorised with them. The main distinction with other parts of the world for the United States market is that it is a mature market with limited growth opportunities (Gall, 2017). Also, the United States market is characterised by stiff competition in both the urban and rural geographies. Given a host of players vying to survive in this slow-growing sector, several companies other than Tesco have earlier wind up their operation. Given the maturity of the industry, virtually any areas are remaining untapped for a new retailer to start its business operations (Peterson, 2017). The in-thing is a unique retailer would have to invest a considerable amount of capital for starting operations in the retail space in the United States. Even then, the gestation period for a new retailer would be quite long before it starts to make any profits from its operations. This shows in the United States market the first mover gets a distinct advantage over its peers.
Further, the consumer psychology of the United States consumers is markedly different from other parts of the globe. This is illustrated by the fact that the average United States consumer preference is tilted towards brands from well-known companies rather than unbranded substances from the retail store. Brand awareness in such a scenario is a significant impediment for a new retailer like Tesco, which raises the cost overhead significantly.
Tesco has made an inherent mistake in entering the United States market single-handed. A prudent idea would be to enter into a strategic partnership with another retail player already operating there. Management of Tesco has made a significant investment to get a first-hand idea about the dynamics of the market. But the cost on this front could easily have been minimised if it entered the market in strategic partnership with a local retailer (SPARKS, 2018). The local retailer, apart from passing on first-hand information about the dynamics of the United States market, would have aided in formulating the proper business plan for the United States market. This is of foremost importance as Tesco arrived in the United States to win market share from competitors not create from scratch.
The company’s retail stores failed to make any dent because Tesco marketing strategy did not offer anything unique to the customer base (Kukreja and Gupta, 2016). Theoretically, a retailer can do this either through providing a unique product or by lower cost. Of this given the cut-throat competition at the retail space in the United States, the scope of offering more discount was slim. Tesco could only have gained from providing uniqueness to its product portfolio. Further brownie points could have been earned by giving consumers more shopping space and choices. Lastly, on the servicing aspect, the retailer Tesco could have introduced something novel.
Tesco to succeed in the saturated United States retail space should focus on identifying and segregating demand areas which are not yet tapped. Therefore, the company needs to follow a good Tesco marketing strategy to reach their goal. The retail space is enormous, and Tesco could have played it smartly if it could have detected any small areas to segregate and grow catering to a new demand. The retailer could have researched on an ethnic community and found out its specific needs which are yet to be fulfilled in the United States.
Tesco is a big shot retailer in the United Kingdom. However, consumer preference and business practices are abysmally different in the two countries. The mindset of the management has to change in accepting the fact that time tested methods successful in the United Kingdom will not be so successful in the United States. The company has to originate new ideas in this respect. Tesco could procure its goods from domestic companies which know the local customs and preferences more. Also, they could assign some aspects of the business cycle to a strategic partner more adept at doing business in the United Kingdom.
In the United States, retail customers are extremely well aware of every retailer’s product details and offers; amenities provided at outlets; the way goods and merchandises are displayed at the stores (Evans and Mason, 2018). To successfully implement Tesco marketing strategy, the company had to introduce something unique to be it in its product catalogue or its relationship with consumers.
Tesco’s exit from the United States retail space is not an isolated case. The United States retail space has proved to be unsuitable other big names in this field like Sainsbury's and Marks & Spenser. However, Tesco’s United States business wasn’t a failure from the start. Given its brand name and track record, the retail space was under apprehension about more competition on the block. However, given its confused positioning of the market with its chain of Fresh & Easy outlets, the burden on its competitors became less. In a roundabout way, Tesco's chain of outlets offered products which put them in direct competition with supermarkets, restaurants, convenience stores, etc. This effectively made the chain store competing with various business segments at the same time. The Tesco marketing strategy at first was copied heavily by other retailers. This includes big names like Ralphs, Albertson's, Safeway, Trader Joe's, Gelsons, Whole Foods, and Wal-Mart. All of them broadly expanded their variety of goods and supplemented new pieces of stuff at their ready to eat business. But this new phenomenon of small retail outlets did not take off and closed shop one by one. On an end note, we can say that capturing market share in a saturated market is never easy. Tesco might be at a firm footing if they have entered the United States market through acquisition rather than by following the Greenfield route.
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