#93 Global retail: size doesn’t matter, or does it?

fresh-n-easyYes, the British are leaving the United States – again. After a $1.6 billion investment, British supermarket giant Tesco announced that it may be selling it’s US “Fresh and Easy” chain. Clearly, corporate PR speak for “we are pulling out of the United States altogether”. What has happened to Tesco, which successfully operates more than 6,000 stores worldwide? On the surface, the promises of convenience and tasty, freshly prepared food sounded great, but what US customers experienced was less “Fresh and Easy” and more “Small and Strange”. In the eyes of American consumers, the stores had a limited product range (terrible for a country where the pet food aisles are often better stocked than entire supermarkets in Europe), a selection that was uniform irrespective of the neighborhood of the store (watercress salad in South Los Angeles…), unfamiliar British fare instead of the ubiquitous American brands (Marmite, seriously?), too much packaging (in a country where we want our sandwiches on sourdough, toasted on one side with non-fat mayonnaise and chopped tomato – not sliced – Dijon on the upper half, and Pepper Jack, not Swiss), and – worst of all – it made customers do their own check out!

So, it’s really the old story of standardization versus adaptation and finding the right balance between protecting the efficiencies of a proven business model and adapting it to the environment of the target market. Yes, there is a tremendous amount of change in the supermarket landscape in the US that invites new concepts and experimentation, but you certainly can’t just bomb drop an entirely new concept into a market that is as competitive as, for instance the Southern Californian. You need to get the word out, listen to consumers, and slowly educate them, instead of alienating. But then again, if the entire economics of a business model are built around a standardized approach, then the only choice a company has is simply not to enter a culturally distant market. Or leave, several years and $1.6 billion later. Even if you’re a huge company such as Tesco.

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6 Responses to “#93 Global retail: size doesn’t matter, or does it?”

  1. Melanie Stocker Says:

    Every company has to deal with the question of standardization vs. adaptation which is often not easy to answer. Market research can be a way to reduce the risk by defining the customers needs and cultural differences.
    In my opinion, Tesco lacks in this field because otherwise the problem of the limited product range or the absence of american brands would not have occured.

    Also Hofstede’s dimensions can help Tesco comparing the US and the UK. Although the five parameters are pretty identic, the uncertainty avoidance in the US is higher than in the UK. This might explain why americans like to buy the known american brands instead of british ones. Also the assosiation “small and strange” instead of “fresh and easy” can be explained by this parameter. If americans are used to big, standardized supermarkets with a wide product range, a smaller supermarket will seem too small and the product range, also if it is big enough for british people will be disappointing for americans.
    Additionally if the layout of Tesco does not fit to the layout of traditional and common american supermarkets, americans might feel confused and the store will seem “strange” to them.

    If Tesco does not want to adapt the product range and the store layout it would be better to expand into another market. Either in a country where the supermarkets are already similar to Tesco’s stores or in a country where the uncertainty avoidance is very low so that the customers are more likely to try the new system and the new products.

  2. Lehner Irene Says:

    Trying a “Fresh and Easy”-concept in a country which expects availability of every fruit or vegetable without caring whether it is in season or not, makes it hard to be on the one hand trustworthy in the transported message and on the other hand difficult to keep up with other available food providers.

    Tesco aimed to stick to their concept and tried to sell typically British brands and food combinations. This might be, in my opinion, a very successful concept in England but can be challenging to make profits in other countries. Since many years Tesco has slowly implemented an organic food part which is highly trusted and accepted among customers who demand it and are also willing to pay the price in the UK. Running a successful business in one country can often lead to the conclusion that it will work abroad too. Sometimes companies lack time to run a thorough market research or start with small adaptations. Therefor they invade the foreign market with nearly the same business strategy focusing on what they are doing without considering to whom they are selling it.

    An aspect which made everything worse was the fact that in the customer’s opinion the food did not look fresh at all and that the choice was quite similar to other local stores. Marketing a company named “Fresh and Easy” is a big promise and can be quite fatal when even both attributes aren’t visible or fulfilled in the eye of the customer.

    As America is a country with high uncertainty avoidance they like to stick to their preferred brands and expect a supermarket to store them. So when they enter a Tesco shop for the very first time it is like a cultural shock when they cannot focus their eyes on familiar images, colours or products. So shopping will take quite a while and can be frustrating if they cannot find what they were looking for. Being once in the shop and leaving frustrated mostly results in a return rate close to zero.

    Another reason why “Fresh and Easy” did not work was maybe the fact, that the individualism rate in America is very high. Before they want to care about the environment or broader aspects they rather care of their own needs and wants and which product will satisfy them. It is challenging to convince people to shop at a supermarket that also has the environment in mind and aims to act in a more ecologically sustainable way, especially when the customer has the feeling that he has to back up his expectations in favour of the environment.

    Furthermore the size of the store and the offered products seemed too small for the American market. The Masculinity aspect is considerately high in the States, which might be a reason for their big cars, big supermarkets and the range of choice they are offered in supermarkets. So if you are used to a huge variety it can be disappointing entering a store which seems tiny in the eyes of the Americans.

    Being labelled nearly immediately after opening the first store as small and strange made it hard for Tesco to change customer’s minds about the whole concept. I guess here the standardisation, by just integrating the same business model to America, did not work. It might had been better to act more similar to the located stores and try with marketing activities over years to convince customers about their own brands, inform them about better choices and lead them slowly towards the concept Tesco had in mind. It would have taken longer but Tesco might have been more accepted within competitors and a potential supermarket of choice.

    I read in another article that the working conditions also weren’t really accepted by the Americans as with an uncertainty avoidance factor of 46 it is known that the Americans like to solve their problems by themselves without interference from others. Tesco’s personal managers did not really know how to handle internal conflicts and tried to solve the problems by dismissing staff. It goes without saying that this aspect did not improve the image Tesco had by now in the country.

    This case shows that a highly successful company in one country can fail badly in foreign countries. Sticking to the known concept in treating customers and employees like they are treated in the home country can lead towards distrust and small sales numbers in other countries. It shows that the success of a company in one land does not automatically lead to success in foreign countries. Although Great Britain and the United States are both a high developed countries they have their own ways of doing business. So it is not only Tesco who struggles in America but also for example the American supermarket-chain Wal-Mart which still tries hard to invade the European market successfully.

  3. Tanja Trutschnig Says:

    #93 Global retail: size doesn’t matter, or does it?

    The first time I heard about “fresh and easy” was when I prepared a summary about new trends in retail business in California for my final exam in high school. So this was 4 years ago and by that time the retail giant Tesco was very excited to launch their new neighborhood market concept “Fresh and Easy” in California. Around this time also the governor Arnold Schwarzenegger started his campaign to create a more environmental friendly California and in general there was a big hype about healthy food, lifestyle, sustainability going on in California. Therefore a lot of people were very excited about the “Fresh and Easy” chain. But already after a short presence on the market, retailer experts predicted a very miserable future for Tesco’s American venture and also the costumers weren’t as thrilled as expected.

    With the chain “Fresh and Easy” Tesco wanted to install hundreds of small grocery stores in California that prevent shoppers with convenience, local, fresh produced and tasty, prepared foods. But instead of achieving these goals, “Fresh and Easy” had to struggle with problems like costumer confusion, costumer loyalty and the strong competition in retail business in California from the beginning on. The for American standards small stores carry a limited variety of merchandise, import British favorites instead of adapting their product range to American tastes and even invested millions in a distribution network and commissary to provide their own “Fresh and easy” prepared foods.
    In my opinion they missed out to apply some very important tools before they entered the market and also during their market presence they made some wrong decisions.
    Market research: An appropriate market research could have helped them to install a model that is targeting and satisfying costumer needs better. This is a very important factor especially because they positioned “Fresh and Easy” as a neighborhood market. You have to know your neighborhood needs and diversify the product range targeted to the consumer needs in each store to get this position also in the mind of the consumer and to be able to achieve costumer loyalty. They lacked in analyzing the strategies of their very successful competitors like Trader Joes and Whole Foods carefully. What makes them so successful? What do we have to do, offer too? What could we do even better than our competitors? How can we differentiate “Fresh and Easy” from them?

    4 Dimensions of Hofstede: In my opinion they also missed out to take a decent look at the 4 dimensions of Hofstede. In general the US and UK market is pretty similar but the uncertainty avoidance in the US is higher than in the UK. In this case meaning that the Americans prefer to buy brands they know and can trust. Okay, Tesco wanted to show the Americans some new products and British brands. But this combined with the new concept store, the size and some other new features was probably too much of “new” for the average American costumer. During their presence on the market they should have been listening to their costumer needs, behavior and feedback wisely and adapting it to improve their concept instead of investing millions in more new features like the “Fresh and Easy” prepared foods line.

    If you want to enter a new international market with a new brand, product, service or concept it’s very important to target it to the individual consumer needs of the target country, especially in the food retail industry. The Americans don’t have a very long tradition but they are very traditional when it comes to food – I experienced this by my own when I lived there. A supermarket giant like Tesco should have been aware of this fact before they entered the market or at least customize their concept it time. But now it is too late. In the first half of 2012 they already lost $ 115 million, they had to close several stores and multiple parties are already interested in buying all or parts of “Fresh and Easy”. The failure of “Fresh and Easy” is just another example of how important it’s to pay attention to intercultural aspects when entering a new market.

    Sources:
    http://articles.latimes.com/2012/dec/06/business/la-fi-tesco-fresh-easy-20121206
    http://www.freshandeasy.com
    http://abclocal.go.com/kfsn/story?section=news/business&id=8906939

  4. Jobst Esther Says:

    Tesco tried to make stores in the same way as in Britain, but this was definitely a big mistake by the reason of the different cultures in the USA and in Britain.
    It would have been a good advise to make a research before they got into the market. Then they would have recognized that Americans prefer to eat their own brands, which are in stock in every other American supermarket.
    It is difficult to make a standardized strategy in different countries.

    Furthermore the product range of Fresh & Easy in California was to small for the American market. The Americans expect to get the same products in a Fresh & Easy store as in an American supermarket.
    So by the fact of Standardization vs. Customization, it would have been better to adapt the Fresh & Easy stores to the American customer needs.

    America is a country with high uncertainty avoidance so they do not really like to try new different brands, they want to get the brands they are used to. So they will not be satisfied when they enter an Fresh & Easy store and they can not find their preferred brands. They will be frustrated about the range of good of the store and the next time they will go shopping they prefer an American supermarket.

    All in all it showed that a successful company can also fail when they are trying to implement a strategy without giving attention to different cultures.

  5. Marion Gruber Says:

    Tesco tried to transfer their whole strategy from Great Britain to the US, but that was the worst they could do. First they should have made a market research to know the preferences of the US market and not to think that the US market will be the same than the market in Great Britain. Because if they would have made a market research or even had a critical look at the US market, they would found out that these countries are totally different in this field.
    Maybe they had a look at the cultural dimensions of Hofstede. Because these two countries have similar or very close results in this ranking and Tesco maybe thought that the two countries are not so different.
    Power distance: USA – 45, Great Britain – 35
    Individualism/Collectivism: USA – 91, Great Britain – 89
    Masculinity: USA – 62, Great Britain – 66
    Uncertainty Avoidance: USA – 46, Great Britain – 35
    But maybe you can compare these two countries in other branches. But if you have a look at the supermarkets in the US you will see that they are really big – much bigger than in Europe. They sell nearly everything which you can image. They have a very big range of every product and they most times sell the goods in family-sized packs as well as a high number of convenience food.
    And if we have a look at the strategy of Fresh & Easy it is a totally different strategy. They have smaller supermarkets, a lower range of products and fresh products, where the US customers are not used to it.
    I think that maybe in some years Tesco would be successful with that strategy also in the US, but at the moment the US market is not ready for that strategy. Maybe in future when the US people recognize that they do not need that variety of food in the supermarkets and when they realize that fresh food is always better for their health, maybe such a supermarket will be successful also in the US.
    But although the ranking of Austria in Hofstede’s cultural dimensions is very different to the British ranking, (Austria: power distance – 11, individualism/collectivism – 55, masculinity – 79 and uncertainty avoidance – 70) I think that the main strategy would work for Austria. (not too big supermarkets, a manageable size of products for the customer and fresh food.) But what they need to do, they must adapt the strategy. Austrian consumers would never buy just British food. Austrian consumers want to buy Austrian food, because of the high standard they are used to it.
    As a matter of fact no company which is successful in one country, need to be successful in another country with the same strategy. A negative example is the company Wal-Mart with the vain attempt to enter the German market with the same strategy than in the US. (If Tesco would have had a look at this example they maybe would have changed something in their market entry strategy.) After several years of trying to get a foot in the German market, they realized that the German market is not the same than the US and they also had terribly losses from that try-out.
    At the end I just want to add a positive example of a company which is successful all over the world, but as a matter of fact, they adapt their strategy to every country. It is not a retailer and maybe because of that it is also again different and not really comparable, but Mc Donalds is successful all over the world with nearly the same strategy. Yes, of course they need to adapt their products, because of religious views or the flavour of the products, but they do a really good job to meet the individuality of each country and in the core they are in every country the same, the same Mc Donalds we are used to. Maybe Tesco will be well-advised to benchmark the cultural difference strategy of Mc Donalds.

  6. Christina Kern Says:

    First of all, it is very important to carry out a significant market research before deciding how to enter a new market. It is necessary to know the customers desires in order to be able to fulfill them and to get to know the culture of the new market.
    The five dimensions of Hofstede are a good way to understand the culture of a society. If you compare the levels of the dimensions in the United States and in the United Kingdom you will see, that they are very similar. One may come to the conclusion that this means, that you don’t need to adapt your business concept because of that, but one needs to be very careful here. There are a lot of differences in the habits and life style of these two societies even if they have similar scores in the Hofstede dimensions.
    As we all know, the Americans are used to huge supermarkets with a variety of products some Europeans can’t even imagine. They like to have a big choice and expect to find their personal favorite brand in every supermarket. Tesco tried to enter the market with small shops offering tasty, freshly prepared food. Due to a low level of uncertainty avoidance I think the Americans were willing to give this concept a chance, but this small product range just wasn’t enough for them. Another critical point here was that Tesco stuck to British brands the Americans didn’t know and were a bit confused of.
    I think Tesco should have paid more attention on the needs of its American costumers and the American habits in general. It would have been a good choice to adapt the business concept in the first place and it would have been necessary to adjust its strategy after a short testing phase to be successful in this market. This could have been small changes like hiring workforce for the check-out to make it more convenient or holding some well-known American brands in their product range.

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