MarketLine Blog

Another American dream over: the failure of Tesco PLC in the US

Tesco joined a growing list of failed British retailers in the US – including J Sainsbury and Marks & Spencer, as it finally disposed of its US venture Fresh & Easy in November 2013. The scale of losses the company incurred is astonishing- amounting to £1bn in just 6 years. Just how did Britain’s largest grocery retailer, with numerous international businesses, fail so badly?

The difficulties faced by Tesco’s Fresh & Easy US venture may be best understood as an interaction between macro-economic problems in the US economy and conceptual and operational issues in the business itself. The sub-prime mortgage crisis undoubtedly heavily impacted upon the geographical areas in which Fresh & Easy operated, as high foreclosure and unemployment rates in excess of 10% disrupted local communities. In a more benign economic climate, the business may well have been able to weather operational difficulties and reach profitability. In this respect, the underperformance of Fresh & Easy was thus not entirely attributable to the senior management of the business.

However, a lack of local market knowledge in the executive team severely hampered the implementation of the concept. The product range did not meet consumer expectations, as the core offering of prepared chilled ready meals is not popular in the US; whilst service innovations such as self-service only checkouts proved too large a departure from US grocery store norms and were ultimately unwelcome. The quality of the store portfolio was questionable, in terms of store location in each locality, with many stores being placed on the’ wrong side of the road’. These issues are directly attributable to a lack of local knowledge in senior management, and could have been anticipated.

A new retail concept takes a significant period of time to establish and for consumer habits to change- to switch from one retailer to another for example. The pace of store rollout is critical to success; the aggressive expansion plan of Fresh & Easy placed quantity over quality and in doing so compromised the selection of store locations.

The lessons from Fresh & Easy are applicable both to future Tesco international businesses and UK retailers abroad more generally.

For an in-depth analysis of Tesco’s US experience, see my case study.

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