Harvard Case - Tesco's Fresh & Easy: Learning from U.S. Exit
"Tesco's Fresh & Easy: Learning from U.S. Exit" Harvard business case study is written by Christopher Williams, Chandra Sekhar Ramasastry. It deals with the challenges in the field of General Management. The case study is 14 page(s) long and it was first published on : Nov 26, 2013
At Fern Fort University, we recommend that Tesco carefully analyze the factors that led to the failure of Fresh & Easy in the U.S. market and implement a strategic approach to international expansion that addresses these shortcomings. This approach should prioritize a deep understanding of the local market, a robust product and service offering, and a sustainable business model that considers both financial viability and long-term success.
2. Background
Tesco, a leading British supermarket chain, launched Fresh & Easy in the United States in 2007 with the ambitious goal of replicating its success in the UK market. The concept centered around offering a limited selection of fresh, convenient, and affordable grocery items in smaller, neighborhood-focused stores. However, despite initial optimism, the venture ultimately failed, leading to Tesco's withdrawal from the U.S. market in 2013.
The case study focuses on the key challenges that Tesco faced in the U.S. market, including:
- Lack of understanding of the American consumer: Tesco underestimated the importance of brand familiarity and loyalty in the U.S. market, where established players like Walmart and Kroger held strong positions.
- Limited product offering: The focus on fresh and convenience failed to resonate with American shoppers who valued a broader product selection and competitive pricing.
- Operational inefficiencies: Tesco struggled to adapt its supply chain and logistics infrastructure to the U.S. market, leading to stockouts and inconsistent product quality.
- Aggressive competition: Tesco faced intense competition from established players with deep pockets and extensive distribution networks.
- Financial losses: The combination of these factors resulted in significant financial losses, ultimately forcing Tesco to exit the U.S. market.
3. Analysis of the Case Study
Strategic Framework:
To analyze the case study, we will utilize a combination of frameworks:
- Porter's Five Forces: This framework helps assess the competitive landscape and identify key industry forces influencing Tesco's success.
- SWOT Analysis: This framework helps identify Tesco's internal strengths and weaknesses, as well as external opportunities and threats.
- Balanced Scorecard: This framework provides a comprehensive view of Tesco's performance across key areas, including financial, customer, internal processes, and learning and growth.
Analysis:
Porter's Five Forces:
- Threat of New Entrants: High, due to the relatively low barriers to entry in the grocery retail industry.
- Bargaining Power of Buyers: High, as consumers have numerous options for grocery shopping.
- Bargaining Power of Suppliers: Moderate, as Tesco had some leverage in negotiating with suppliers but faced competition from other large retailers.
- Threat of Substitute Products: High, as consumers can choose from a variety of alternative food options, including restaurants and online delivery services.
- Competitive Rivalry: Very high, due to the presence of established players like Walmart, Kroger, and Target, as well as the emergence of new competitors like Amazon.
SWOT Analysis:
- Strengths: Strong brand recognition in the UK market, extensive supply chain network, experience in grocery retailing.
- Weaknesses: Lack of brand recognition in the U.S. market, limited product offering, operational inefficiencies, insufficient understanding of the American consumer.
- Opportunities: Growing demand for fresh and convenient food options, increasing online grocery shopping, potential for partnerships with local suppliers.
- Threats: Intense competition from established players, economic uncertainty, changing consumer preferences.
Balanced Scorecard:
- Financial: Tesco's financial performance in the U.S. market was weak, with significant losses due to low sales and high operating costs.
- Customer: Tesco failed to attract a significant customer base in the U.S., as its product offering and store experience did not resonate with American consumers.
- Internal Processes: Tesco's supply chain and logistics operations were not optimized for the U.S. market, leading to inefficiencies and stockouts.
- Learning and Growth: Tesco's lack of understanding of the American consumer and its failure to adapt to the local market environment hindered its ability to learn and grow in the U.S.
4. Recommendations
Thorough Market Research: Before entering any new market, Tesco should conduct extensive market research to understand the local consumer preferences, competitive landscape, and regulatory environment. This research should include:
- Consumer segmentation: Identify target customer segments and understand their shopping habits, preferences, and price sensitivity.
- Competitive analysis: Analyze the strengths and weaknesses of existing competitors and identify potential opportunities for differentiation.
- Market trends: Identify emerging trends in the grocery retail industry, including online shopping, convenience, and health and wellness.
Tailored Product and Service Offering: Tesco should tailor its product and service offering to meet the specific needs and preferences of the local market. This includes:
- Product selection: Offer a wider range of products to cater to diverse consumer needs, including both fresh and packaged goods.
- Pricing strategy: Develop a competitive pricing strategy that balances profitability with customer value.
- Store format and experience: Design stores that are appealing and convenient for local customers, with adequate parking, easy navigation, and a pleasant shopping experience.
Operational Efficiency and Scalability: Tesco should ensure its operations are efficient and scalable to support growth in the new market. This includes:
- Supply chain optimization: Develop a robust supply chain network that can deliver fresh products consistently and efficiently.
- Logistics infrastructure: Invest in logistics infrastructure, including distribution centers and transportation networks, to support rapid and reliable delivery.
- Technology adoption: Leverage technology to improve operational efficiency, enhance customer experience, and gain insights into market trends.
Strong Brand Building and Marketing: Tesco should invest in building a strong brand presence in the new market through effective marketing and communication strategies. This includes:
- Brand positioning: Develop a clear and compelling brand positioning that differentiates Tesco from competitors and resonates with target customers.
- Marketing campaigns: Launch targeted marketing campaigns to raise awareness, build brand affinity, and drive customer acquisition.
- Customer relationship management: Implement customer relationship management (CRM) systems to track customer interactions, personalize communications, and build loyalty.
Strategic Partnerships and Acquisitions: Tesco should consider strategic partnerships and acquisitions to accelerate market entry and gain access to local expertise and resources. This includes:
- Joint ventures: Partner with local companies to leverage their knowledge of the market and customer base.
- Acquisitions: Acquire existing businesses in the target market to gain a foothold and accelerate growth.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: Tesco's core competency lies in its expertise in grocery retailing, which can be leveraged to succeed in new markets. The recommendations align with Tesco's mission of providing high-quality products and services to customers at competitive prices.
- External customers and internal clients: The recommendations focus on understanding and meeting the needs of external customers while also empowering internal clients to deliver exceptional service.
- Competitors: The recommendations address the competitive landscape by emphasizing differentiation, operational efficiency, and strategic partnerships.
- Attractiveness: The recommendations are designed to enhance Tesco's attractiveness to investors and customers by improving financial performance, customer satisfaction, and brand value.
6. Conclusion
Tesco's failure in the U.S. market highlights the importance of a thorough understanding of the local market, a tailored product and service offering, and a sustainable business model. By implementing the recommendations outlined above, Tesco can increase its chances of success in future international expansion efforts.
7. Discussion
Alternatives:
- Focus on a niche market: Tesco could focus on a specific niche market, such as organic food or ethnic groceries, to reduce competition and build a loyal customer base.
- Adopt a low-cost strategy: Tesco could adopt a low-cost strategy similar to Walmart, focusing on offering competitive prices and a basic product selection.
Risks and Key Assumptions:
- Risk: The recommendations assume that Tesco can overcome its past mistakes and learn from its experience in the U.S. market.
- Risk: The recommendations assume that Tesco can successfully adapt its operations and product offering to the specific needs of the target market.
- Assumption: The recommendations assume that the global grocery retail market will continue to grow and offer opportunities for expansion.
8. Next Steps
- Conduct market research: Conduct in-depth market research to identify potential target markets and develop a detailed understanding of the local consumer preferences, competitive landscape, and regulatory environment.
- Develop a strategic plan: Develop a comprehensive strategic plan outlining Tesco's objectives, target markets, product and service offering, operational strategy, and marketing plan.
- Pilot launch: Launch a pilot program in a selected target market to test the feasibility of the proposed strategy and identify any necessary adjustments.
- Scale up operations: Based on the success of the pilot program, scale up operations in the target market by opening additional stores, expanding product selection, and increasing marketing efforts.
By following these steps, Tesco can increase its chances of success in future international expansion efforts, leveraging its core competencies and adapting to the specific needs of each market.
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Case Description
In mid-April 2013, the chief executive officer of Tesco PLC, the world's third largest global retailer headquartered in London, United Kingdom, must explain to shareholders his decision to close down the operations of the fully owned subsidiary, Fresh & Easy Neighborhoods Market Inc., in the United States. Following a December 2012 strategic review that reported that the subsidiary was not delivering acceptable returns, operations have already been discontinued and a buyer is being sought. Although the focus on fresh food to ameliorate the health care costs of obesity in the United States was a driver for establishing the subsidiary, the effects of the 2008 recession discouraged consumers from paying the higher costs of fresh food. Is exiting the United States the right decision for Tesco? How should the process of exit be managed? Are there any takeaways from the U.S. operations that Tesco can apply elsewhere in its global strategy?
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