No Image Available

Bryan Roberts

Read more about Bryan Roberts

Why do multinationals struggle to conquer overseas markets?

pp_default1

This article was written by Bryan Roberts, Director of Retail Insights at Kantar Retail.

The unsurprising news that Tesco is planning a disposal of its beleaguered US business Fresh & Easy has added one more to the body count of UK retailers that have failed to make a successful entry into the American retail sector.

A few points might help contextualise this humbling capitulation:

Firstly, several British retreats have been wrongly described as failures in the media: both Sainsbury’s and M&S actually disposed of their moderately successful retail activities in the US market due to strategic reprioritisations of their domestic operations. Tesco’s withdrawal can be more accurately described as failure.

Secondly, it is not just British firms that have come unstuck in the American market: the two French giants Carrefour and Auchan also made remarkably underwhelming debuts in the US.

Thirdly, it is not as though the arrival of US retailers in the UK has been a relentless procession of success. For every Abercrombie or Amazon, there has also been a Borders or a Best Buy.

Finally, there are a number of UK retailers who have done a pretty decent job of establishing a foothold across the Atlantic. The most notable recent success story has been Top Shop, the increasingly global powerhouse that is part of Sir Philip Green’s fashion empire.

So what can we learn from Tesco’s American misadventure? Here are some recommendations for any other international retailers thinking of taking the plunge.

1) Research
Tesco completed a vastly impressive array of market research ahead of Fresh & Easy’s debut, including the now legendary creation of a prototype store in a warehouse and accompanying American shoppers on grocery trips and into their homes to check out their fridges. Tesco was sure it had all the answers, but in retrospect I’m not convinced they necessarily had the right questions to start with.

2) Location, location, location
One of the key shortcomings of Fresh & Easy was the poor choice of location for many outlets, as evidenced by the woeful sales densities that a number of them generated. For the American shopper, easy access from major road junctions is a non-negotiable attribute for many shopping trips. Tesco’s failure to understand this meant that F&E was hamstrung from the beginning. Walgreens might not be the greatest or most beautiful retailer in the world, but it sure as hell has a brilliant real estate team.

3) Pick your battles
F&E joined a number of other retailers, such as Walmart and Whole Foods, in striving to have a non-unionised workforce. While the merits of this approach are the frequent subject of vigorous debate, the fact that Tesco faced considerable antipathy and picketing from influential organisations such as the UFCW did not exactly help the fortunes of the fledgling retail business.

4) Local knowledge
Most of Tesco’s cross-border retail ventures have thrived because they were founded through acquisitions or joint ventures, therefore comprising finely honed local market insight from the outset. Tesco’s organic strategy in the US forced it into creating expertise from scratch, compounded by transplanting UK management into the American business. This lack of understanding of local nuances led to several strategic errors.

5) At your service
One of Tesco’s major errors was misjudging the service expectations of American shoppers. What might be considered intrusive or overfriendly in the UK is considered par for the course in US retail. Initiatives such as providing only self-checkouts left a bad taste for many shoppers who saw F&E as clinical and aloof.

6) Make some noise
The reticence of F&E to embark on a loud and proud marketing campaign led to a debilitating lack of awareness and understanding amid shoppers in California and Arizona about what F&E actually was. A belated foray into leafleting, radio, TV and loyalty marketing meant that F&E entered the market with a whimper rather than a bang.

7) Be lucky
A fairly unscientific observation, perhaps, but one that has some merit. The fact that Tesco’s market entry was met full on by the turbulence and hardship of the sub-prime crisis could not have been predicted by anyone, but it reiterates that fact that fortuitous timing can make or break the fortunes of a nascent retailer.

There’s no doubt that Tesco’s withdrawal from the US has left a substantial amount of egg on its face and the bill for exiting the venture is equally sizeable. Tesco’s attempt to pioneer its way into the competitive US grocery market was a courageous attempt beset by bad luck and several strategic oversights. It is often said, in life, that it is better to regret the things you have done rather than the things you did not. I’m minded to think that this is true in retail too. Tesco’s courage and innovation in other areas is impressive and the Fresh & Easy fiasco will be regarded over time as a regrettable, albeit expensive and distracting, blip in the company’s history.

Newsletter

Get the latest from HRZone.

Subscribe to expert insights on how to create a better workplace for both your business and its people.

 
 
 
 

Thank you.