The Unpopulated Middle: Tesco in the US
Tesco, the largest UK retailer, is coming to the US with a new format that primarily focuses on ready-to-go meals of high quality and will start in the US market. Knowing them they've thought this thru thoroughly, tested and will execute with style, discipline and customer-focus.
Where this is both interesting and a harbinger of things to come is twofold. First, just in their sector, making something like this work takes a complex blend of skills in store operations, replenishment, logistics & transportation, product development, procurement and technology. Having worked some with Tesco in years past they are as good and balanced as anybody in the world at the reach and range of these skills. In fact their logistics operations are THE critical enabler of their responsive, high-service store operations and are built with more capabilities than any other; and closely coupled to very sophisticated IT.
Second, it's a harbinger for the retail market as a whole. Which is largely split between high-end retailers where price isn't much of an object and the EDLP (every-day-low-price) cost-control mantra low-end with some examples but no major players in the middle. With a sorta of exception in Target and more so in Trader Joe's. Yet it's where the largest opportunities lie when you add up the number of people with disposable income who are ill-served.
So that makes the US entry of Tesco a great, dramatic and exciting event for some of us who find the world of business (as it is not as Dallas would have it) intriguing.
Tesco upbeat on U.S. entry Britain's largest retailer overcomes wet, cold summer weather with 19% profit rise, ready for big push into U.S. grocery segment.Tesco Plc, Britain's largest retailer, on Tuesday said first-half profit rose 19% as strong sales of non-food items and solid international growth offset a U.K. performance dampened by the wet summer weather. Outside the U.K., sales jumped 22%, driven by rapid growth in China and Eastern Europe. Margins improved markedly in Korea, Thailand and Malaysia. "I feel very good about China. And you will see us move more confidently in that market in the future," Leahy said. He said the company understands more about the shopping culture there, and the need for sites that are part of larger shopping centers. Tesco is also focused on its international expansion. The retailer will open its first U.S. stores in the coming months and plans to add 100 outlets in California, Arizona and Nevada under the name Fresh and Easy. The convenience shops will focus on healthy, ready-prepared meals. Tesco expects to open at least 50 stores by the end of the fiscal year in February. The retailer said its main office is already staffed with 200 people and it's made good progress on acquiring new sites and the recruitment and training of staff. Leahy noted that U.S. planning laws mean the rollout can be rapid.
My Marketwatch Comments:
I've worked with Tesco in years past and their UK stores were very innovative & customer-value designed, oriented and run. The closest thing we have in the US is perhaps Trader Joe's. More importantly their command of logistics, technology and product/category development were and are as good as any; and they drive the business around it. Their international growth over the years has been very careful and effective. All in all a very well-run, forward-looking company that balances strategy, innovation and execution extradordinarily well. Their logistics operations and store replenishment are as good as any in the world.
Where this is important is that there new US initiative goes for the vast sweet spot in US retailing of the middle of the Retail dumbell, that is there's the luxury end where price for alleged value is no object and the cost-control end where EDLP is the mantra. What nobody's figured out or done well is the huge middle which would like good product selection, good service, quality and fair, value-based pricing. Target is probably the best example here. What makes the middle so hard and unpopulated is that it takes a blend of skills from store ops to product development to logistics and IT. Yet it offers the best long-term profit potentials. Tesco has those skills, culture and capabilities. This will be very interesting indeed.