Tesco goes west: keeping Fresh & Easy ahead of the curve in the US

Fresh & Easy: ahead of the curve

Fresh & Easy: ahead of the curve

A new film, which charts Tesco’s entry into the US and launch of its Fresh & Easy Neighborhood Market format, is based on a four-year research project focused on retail innovation. Fiona Briggs reports

Today (14 March 2012) sees the launch of a film focused on Tesco’s launch into the US market.

‘Tesco goes west’ is based on a research project conducted by Michelle Lowe, Professor in Strategy & Innovation at Southampton University and Lead Innovation Fellow AIM (Advanced Institute of Management Research). Professor Lowe’s research was supported by the Economic and Social Research Council via its Advanced Institute of Management Research. 

The film follows the development of Tesco’s Fresh & Easy convenience format, beginning on the west coast of America in 2007, when the UK retailer planned to open hundreds of small supermarkets in southern California, Arizona and Nevada. It includes interviews with John Burry, chief customer officer at Tesco Fresh & Easy; Professor Lowe; and John Bessant, Professor of Innovation and Entrepreneurship at the University of Exeter Business School.

It explores the innovation(s) behind the launch – the scale of the investment, the long-term planning and learnings Tesco has applied in the US.

Innovative approach

“The film discusses Fresh & Easy as a real innovation, particularly in the US market, where it was a high-risk venture,” says Lowe.

Indeed, former Tesco chairman, Ian MacLaurin, is on record in 1999 saying: “When I was chairman of Tesco we looked very carefully at the North American market and found that there was a significant difference in cultural attitudes to shopping over there…after examining the situation in detail, we turned our face absolutely against going into the US.”

Under new leadership, Tesco took a different tack with the launch of Fresh & Easy but invested heavily in anthropological research, reports Lowe. Executives from the supermarket spent months studying American families; where they shopped, how they cooked and what they ate. Tesco also researched how the market was shifting in terms of the trends to local shopping, convenience and healthier foods.

“The film concludes Tesco has been incredibly good at spotting priorities ahead of the curve,” says Lowe.

To what extent the curve will catch up with Tesco quickly enough is the million dollar question, she adds.

Capturing the zeitgeist

On trend with fresh foods offer

On trend with fresh foods offer

Clearly the retailer’s fortunes in the US have not been helped by entering the market during recession.

Former Tesco CEO, Sir Terry Leahy, and Fresh & Easy CEO, Tim Mason, have both admitted that’s been “problematic” but recession has also been a double edged sword. For example, it provided real estate opportunities for the growing business.

And, the positive customer response from US customers for a smaller format (10,000sq ft) store has been borne out by talking to shoppers in the US, says Lowe.

The type of supermarket which is local, convenient, offers chilled ready meals without preservatives or artificial additives, and is in the neighbourhood, is winning traction, she says. 

It’s no coincidence then that rival Wal-Mart, now piloting Wal-Mart Express stores, looked to exploit similar trends in 2008 with the launch of its smaller Marketside format and went head-to-head with Tesco in Phoenix, Arizona (Wal-Mart closed its four Marketside stores in October 2011). 

“It looked very similar to what Tesco had done,” says Lowe. “Imitation, after all, is the sincerest form of flattery.”

There was a sense Tesco had got it right, she maintains. Fresh & Easy fitted the current mood, where cooking skills are dwindling through the generations; and it appealed to the 24-hour society, as well as to dual-career and time poor households.

From a personal perspective, Lowe says she feels “positive” about the model. It’s a favourite with her three young children who have visited stores with her across the US too.

“They always remember Fresh & Easy because of the self-scanning, the different products they have got in the US, as compared to the UK, and the kitchen table [used to sample food],” she says.

Self-checkout debut

Self-scan is an innovation highlighted by the film. At the time of launch, self-scan was not so developed in the UK, or indeed elsewhere.

According to Lowe, Tesco was brave to launch self-scan in a country allegedly renowned for customer service although future customers, like her own kids, “are not worried about that kind of stuff”.

Lowe also calls for a sense of perspective on the format’s performance to date – in the six months ending 27 August 2011 Fresh & Easy made a £73m loss – and suggestions Sir Terry stepped down partly because of the Fresh & Easy experiment.

“Whilst people pay attention to the success or failure of the Fresh & Easy business; when you scratch the surface, in terms of global business, it’s quite small beer versus Tesco PLC. It’s also been a huge upfront investment so it will take a while to build scale and profitability, but the brand has fed into a whole series of innovations elsewhere in the company,” Lowe claims.

Mason and Uwins – both marketers by background – were given a fairly free rein in California, says Lowe. That enabled Tesco to experiment at the margins of its empire but feedback to markets including the UK.

Employees or what current Tesco CEO Philip Clarke calls “talent” is one tangible feedback, with staff from the US circulating elsewhere in the global business and vice versa. Fresh & Easy COO, Jeff Adams, previously ran Tesco Express in the UK and then Tesco’s Lotus business in Thailand, for example.

Blue skies approach

Prior to Fresh & Easy, Lowe worked with Tesco in 2004, looking at the likely shape and form of new housing developments in the UK and the implications for what the UK’s urban communities might look like in 2015 and beyond. It showcased the supermarket’s forward-thinking approach. 

“It demonstrates what an innovative blue skies firm they are – not just thinking about what’s happening today,” she says.

Fresh & Easy’s ‘Campus’ development at Riverside, California, is another example. 

It houses distribution plus a kitchen to develop fresh, chilled ready meals, which were designed to set Fresh & Easy apart in the US market. Unable to find a capable local source, Tesco took two trusted UK suppliers – Wild Rocket and Two Sisters – out to the US to develop the ranges and subsequently acquired both businesses. 

Product transfer is also significant and includes the Goodness kids’ foods, developed for Fresh & Easy and now on sale in the UK; and Fresh & Easy’s The Big Kahuna wine brand, subsequently launched in Tesco stores in the UK and also in South Korea. The retailer’s Shop for Schools programme, which supports local schools with rewards based on spend, has also been introduced into Tesco’s supermarket business in Turkey, for instance.

Goodness range: launched in the UK

Goodness range: launched in the UK


Goodness range: launched in the UK

Goodness range: launched in the UK

The retailer has also been game-changing in terms of range or “choice editing”, claims Lowe. This reduces the number of lines on offer in product categories so shoppers are not overwhelmed by choice.

Further, Fresh & Easy has worked with a number of innovative US suppliers and built partnerships, such as the one with San Diego-based coffee supplier Caffe Calabria.

Despite early criticism the stores don’t offer sufficient local ranging, the offer is described as a “post melting pot” range. Lowe says this acknowledges the fact third generation, Spanish Latin American immigrants are not desperately keen to have just separately ranged, ethnic niche products. 

Marketing moves

Customer engagement with events

Customer engagement with events

On the marketing side, Tesco is now bringing the success of its Clubcard loyalty programme to the US with the roll out of its Fresh & Easy Friends card, following a trial.

Initially marketing was digital and viral and, “it was quite early again,” says Lowe. 

Uwins was blogging Fresh & Easy well before the launch and invited bloggers to store launches, to vote on their favourite products and design bags etc. The activity has spawned a raft of Fresh & Easy blogs in the US. 

Fresh & Easy is now targeting smaller, 3,000sq ft stores, more akin to Tesco Express stores in the UK, in LA and Orange County, California. Seven stores have been opened to date. 

Lowe claims this strategy makes sense for downtown locations versus existing Fresh & Easy sites, which tend to be on retail parks and at cross roads. 

As in the UK, smaller stores have the scope to provide 24-hour availability on a scale unprecedented five years ago and respond to changing shopper needs.

“One mega trip to the supermarket is not really the way people live any more,” says Lowe. “Whether it takes longer than they envisaged, they [Tesco] are shifting in the right direction.”

Recessionary impact

Recession has impacted store openings

Recession has impacted store openings

Currently trading from nearly 200 stores, Fresh & Easy aims to break even by the end of its 2012/2013 financial year.

That it hasn’t happened sooner is due to recession. In the areas where it has opened – California, Arizona and Nevada – recession hit hard.

Whole communities were abandoned and new housing developments where Tesco had acquired sites were closed. As a result, Tesco was forced to close around a dozen stores.

Sir Terry is on record as saying he doesn’t regret the strategy, but the timing, reports Lowe.

“Recession has been huge. Tesco has been quite sensible and prudent in building the brand as best as they can in the circumstances.

“The jury is still out on the long-term potential of Fresh & Easy but it’s clear that the brand has been well established and will undoubtedly have important spin offs in Tesco’s global business in the future.”

Lowe harks back to MacLaurin’s quote from 1999 that the US then was a very different animal to the UK.

“But less than 10 years later Tesco had gone in,” she says.

Just how innovative is that.

Tesco goes west video