I am intrigued by the UK's largest supermarket chain Tesco and its efforts to crack the US market with its fresh & easy stores (notice the oh-so-trendy but grammatically annoying small caps). As a pence-pinching PhD student, I have come to rely on Tesco's vast variety of ready meals during times when I need a quick lunch or dinner. Given how dear the pound is at the moment, I'm sure you can appreciate my frugality. However, rest assured that these ready meals are far more sophisticated than your typical American TV dinner fare. It turns out that Tesco's plans to take on the US market very much involve these ready meals. Here is a snippet from the Economist on Tesco's plan of attack:As for products, Tesco's second innovation will be a range of preservative-free “ready meals” that are familiar to British consumers yet barely exist in large parts of America. “There's a big hole in the American market,” says Rajiv Lal, of Harvard Business School. “American supermarkets have not been innovative with prepared foods. You can't eat them more than three days in the week without eating the same stuff. But I suspect there are people in Britain who live off prepared meals from Marks & Spencer for three weeks on end.”
So why have British supermarkets led America's in easy meals? Generals like to say that amateurs study tactics and professionals study logistics. The same is true for retailing. In trying to compete with discount retailers such as Wal-Mart and Costco in a large country with good roads and cheap land that lends itself to big-box retailing, America's supermarkets have concentrated mainly on trying to take costs out of their supply chains. Labour is also cheaper in America. This has encouraged supermarkets to make two sorts of food: that which lasts long because it has been dried, canned, frozen or otherwise preserved, and that which is prepared from raw ingredients on site.
Now, the rollout of Tesco's US stores has garnered much attention, especially in California where some are protesting its potentially Wal-Mart-like effects on small local businesses [1, 2, 3]. The Financial Times has a slideshow as well on this long-awaited opening which I highly recommend. Will fresh & easy be the Beatles or just the Super Furry Animals Stateside? Given Tesco's track record here in Blighty, don't count out the first possibility. From Marketwatch:
After nosing around U.S. kitchens and refrigerators for nearly three years, Britain's biggest food retailer is putting its conclusions -- along with American shopping habits and meal preferences -- to the test in bringing a new grocery-store format to the western U.S. this month.Tesco is opening 11 Fresh & Easy Neighborhood Market stores, with six Los Angeles-area stores debuting Thursday, followed by five Las Vegas stores Nov. 14. Other openings are slated for San Diego and Phoenix by year-end.Industry observers are labeling the Fresh & Easy launch the most closely watched grocery opening in years, with the arrival of the new concept potentially impacting a wide range of food retailers."It is without question the most widely anticipated concept to come into retailing since Wal-Mart opened their supercenters," said Neil Stern, senior partner at McMillan Doolittle, a retail consulting firm. "It's got everybody apprehensive, from convenience stores to drugstores to supermarkets."
To woo customers, the Fresh & Easy playbook calls for ready-to-eat meals, fresh products, affordability and convenience.
Fresh & Easy plans to sell a number of fresh-prepared meals under its own label, a growing trend in U.S. grocery stores. At the same time, a select number of staple items will be available, such as produce, meat, dairy and even household cleaning supplies.
Shoppers can select a 17-ounce Pad Thai for $3.99, a fully cooked 16-ounce chicken breast for $4.99 or 17-ounce heat-and-serve macaroni and cheese for $2.99. Also on the shelves: sushi, pizza, salmon, smoothies, coffee, wine and guava juice, according to a sample list and short video on the Fresh & Easy Web site.
And to speed things along, shoppers are to use self-service checkouts similar to those at Wal-Mart stores. "The desire here is to make life easier. I think they are on target with that," said Harry Balzer, who tracks eating habits for market researcher NPD Group.Tesco is going big in its first U.S. foray, with 250 stores on its radar. The price tag for the venture -- at least 30 months in the making -- is more than $500 million for this year alone.The retailer has unveiled 122 planned store locations to date, with 30 slated to open by year-end, including unnamed sites in San Diego and Phoenix. Trucks will ship goods to the stores from a solar-powered distribution center located just east of Los Angeles in Riverside, Calif.Fresh & Easy will contrast with traditional supermarkets in store size and the number of items in stock. Stores will be compact, around 10,000 square feet. The average footprint of bigger grocers, such as Safeway, is around 45,000 square feet.
In a bid to keep costs low, Fresh & Easy will sell far fewer items -- approximately 3,000, versus the 30,000 to 40,000 on the shelves of a typical U.S. supermarket -- also playing on shopping trends. Herb Sorensen, who has tracked the supermarket business for more than three decades, said Fresh & Easy is consciously pursuing quick-trip shoppers. "They are looking to get frequent traffic and smaller baskets," said Sorensen, who studies shopper insights at TNS North America. "Short trippers spend money rapidly."Fresh & Easy's approach isn't entirely novel.
Ahead of its launch, Fresh & Easy is drawing comparisons to privately held Trader Joe's, the value-conscious operator of 280 stores in 23 states, which shares ownership with the relatively downmarket German-based chain Aldi.
Trader Joe's, where employees sport Hawaiian-style shirts and an easygoing vibe, sells a range of prepared meals and fresh foods, mostly buying directly from suppliers, eliminating middlemen. It also emphasizes organic foods, hormone-free meat and poultry.
In recent years, traditional supermarkets have been moving more in the direction of fresh, prepared meals and selling organic goods, especially with the rise of Whole Foods Markets Inc. , which acquired rival Wild Oats Markets in August.
Florida's Publix Super Markets unveiled its Apron's Make-Ahead Meals program at one of its Jacksonville, Fla., stores this month. Shoppers can prepare their own meals using Publix ingredients and recipes at meal-assembly stations. A package of six dinners starts at $120.And Wal-Mart is said to be weighing smaller-store concepts to sell groceries, particularly in California, where it has faced problems finding real estate for its outsized retail stores.So far, Fresh & Easy said it has hired more than 1,000 employees. It's offering health and retirement benefits to workers, with entry-level positions starting at $10 an hour. Fresh & Easy also is using LED lighting to cut its energy output by about 30%.
