Question

Which entry method did Tesco use to enter the U.S. market? Why was this method chosen over others?

Tesco’s new stores in the United States are called Fresh & Easy markets. Why did Tesco adopt the new name for its stores?

Tesco has conducted extensive research on the habits of American shoppers. Why was the research important to Tesco? How will it help the company succeed in the United States?

Tesco prefers to hire local managers rather than use expatriates to run its foreign operations. How might this strategy help the firm succeed in the United States?

Answer 1

TESCO is the largest retail chain in Britain founded by Jack Cohen in 1919. Its headquarters is in Cheshunt, London. It is the largest retailer in terms of sales and domestic shares in Britain with profits exceeding 3 billion euro dollars. It is the third largest retailer in the world in terms of revenue behind Wal-Mart and Carrefour and second largest in terms of profit behind Wal-Mart.

Growth Strategy:

1. Improving its non-food business

2. To provide customers with new retailing experience

3. Growth in the Core UK business

4. Expand by growing internationally

Many British retailers have flopped in the US but few have done so as expensively as Tesco. Fresh & Easy was meant to be a controlled experiment, a low-risk way to discover whether there was room in the US grocery market for a new style of store.

Approach to US market:

The US market was markedly different from the various other markets that Tesco had targeted in its spate of increasing its international presence. USA was a saturated and a mature market with large players and intense competition in the urban as well as semi-urban/rural areas. The demography and infrastructure though supported an inflating retail sector business; survival would be difficult given the circumstances. A lot other players from Europe and especially from UK had failed to make an impact and were forced to fold up operations. Big players had already made inroads into areas less explored and didn't leave any scope for another player to start operations in those markets without earning substantial losses in both short and long terms. It was purely a game of first mover advantage. Moreover, the buying practices of US customers were markedly inclined towards brands and they did not really care about proprietary products of the retail companies. Brand consciousness was a major hindrance in the price game for a new player in the turf of USA and would create obstacles to sustenance on an even level playing field. In such a scenario the following strategies could be considered.

Tesco's Strategy in USA:

Tesco entered the US market in 2007 by opening a chain of grocery stores in West Coast namely Fresh and East. Tesco had carried out extensive research in the US market and came up with the fact that US shoppers looked for neighbourhood stores that stocked fresh, healthy and inexpensive food. Hence it was decided that Fresh & Easy would differentiate itself from other retailers on convenience, freshness, and affordability.

Strategy Adopted:

Transnational Strategy - Tesco did adopt a transnational strategy as suggested earlier and this helped it to gain local responsiveness while leveraging on its unique global experience and strategy. It bought its suppliers from UK to the US soil but asked them to source materials from local regions. They adopted a "Farm to Store" sort of an approach whereby local tastes were addressed by locally grown food that was provided fresh and healthy. This strategy has also helped them get substantial financial leverage to fund their international expansion via the capital investment route due to enhanced reputation.