Marketing: Custom Edition for Texas A&M University 17th Edition by William Pride,Ferrell

Exercise 30

Tesco Freshens Up Fresh Easy's Retail Strategy
Tesco, the U.K. supermarket giant, is hardly a newcomer to international retailing. It's the world's third-largest retailer (behind Walmart and Carrefour) and has nearly a century of experience in its home country. Tesco embarked on a new era of global expansion in 1995 when it opened its first stores in Hungary. Within a few years, the company had stores throughout eastern Europe, as well as in Thailand and South Korea. It has added to its retail empire with new stores in China, Malaysia, India, and Japan.
By the time Tesco ventured across the Atlantic in 2007, its marketing experts had studied the U.S. retail industry for some time. They saw 4,000-square-foot convenience stores at the small end of the store spectrum. In the middle, supermarkets offered a larger assortment of foods and household items in stores of 35,000 square feet or more. At the largest stores, 200,000-square-foot superstores offered even more varieties of food and non-food products. Between these conventional store sizes, Tesco's experts identified an opportunity. "There is a gap between 4,000-square-foot stores and 35,000-square-foot-plus [stores]," explained Tesco's store design and planning director. "In Europe, that gap is filled by discount stores, but in the U.S., this segment is underserved."
Tesco set out to fill the gap with a chain of Fresh Easy neighborhood grocery stores, each about 10,000 square feet in size. The stores would be stocked with high-quality fruits and vegetables, fresh meats, prepared meals under the store brand, and household staples carrying manufacturers' brands. Instead of fancy atmospherics, elaborate displays, and expensive shopper-reward programs, the stores would be simple, self-service, and easy to navigate for in-and-out convenience. The idea was to keep overhead costs down and pass the savings along to customers in the form of low everyday prices.
Originally, Tesco planned to open as many as 1,000 stores in the first five years. It scouted locations in California, Arizona, and Nevada and built a 1.4 million-square-foot distribution center capable of supporting an extensive store network. Even though Tesco operated everything from convenience stores to superstores in other countries, it was creating an entirely new retail brand from scratch and investing $2 billion to make it work. As part of its marketing research, the company built a prototype store inside a California warehouse to test potential shopper reaction. Only then did it finalize the retail design and begin opening stores.
However, Fresh Easy's early results didn't live up to its parent's expectations. With rising unemployment and a deepening recession, consumers were cutting back on spending, even for food and other basics. Competition was another factor. Between supermarkets like Ralph's and Vons, natural-food grocers like Trader Joe's and Whole Foods, and convenience stores like 7-Eleven, the competitive environment was extremely challenging. Still, Tesco's management believed in Fresh Easy's retail positioning and saw long-term profit potential in making its mark in the U.S. market.
One year into its U.S. expansion, Tesco slowed the rate of new-store openings as it fi ne-tuned Fresh Easy's positioning. "After customers found the stores a little sterile, we warmed up the look, adding more graphics," says an official. "Family budgets being under pressure, we introduced more promotions and value packs." In addition, the chain installed higher shelving to increase the number of items available on the selling floor and began experimenting with smaller-size stores.
With these changes in place, Fresh Easy launched its first-ever ad campaign to reinforce the message of fresh foods at low prices and used public relations to spotlight its support of its local communities and environmentally friendly operations. It connected with consumers through videos on YouTube, photos on Flickr, blog posts, and Twitter tweets. The retailer also made a special effort to reach out to Hispanic consumers with a Spanish-language website and Spanish-language advertising. Store by store, it adapted the merchandise mix to include more of the foods and brands favored by Hispanic shoppers in each neighborhood.
Now the U.S. venture is nearing the break-even point as Fresh Easy stores build a loyal customer following. The economy is improving, the chain has shifted its new-store schedule into high gear, and customer feedback is positive. Looking ahead, can Fresh Easy capture the hearts and wallets of enough U.S. shoppers to assure its long-term financial success?
A few grocery retailers offer online shopping for customers' convenience. Should Fresh Easy offer online shopping? Explain.