Tesco Takes On U.S. Shoppers

The British retail giant is bringing its concept of midsize, urban grocery stores to the Southwest. After all the research, can it succeed stateside?

by Christopher Palmeri

They're hoisting the friendly green and white signs, plugging in the energy-efficient refrigerated cases, and training the checkout clerks. One of the most closely watched new grocery-store concepts in decades will be unveiled on Nov. 8 when British retail giant Tesco (TSCO.L) opens the first six of its new Fresh & Easy Neighborhood Markets in the Los Angeles area.

It's a big gamble, even for Tesco, which books $86 billion a year in revenue. The company, the largest retailer in Britain and among the largest supermarket chains in the world, already has announced 122 planned store locations in Phoenix, Las Vegas, and Southern California. It has committed to invest $2 billion over the next five years on the venture.

But before the first outlet is even open, local unions and community activists are pressuring the company to live up to its promises—including paying decent wages, minimizing environmental impact, and locating stores in underserved areas. Tesco also must stare down the ghosts of previous, failed attempts by British merchants to cross the pond. "The U.S. is regarded as a graveyard for British retailers," says Neil Saunders, director of Verdict Research, a London-based consultancy. "They've had to withdraw with egg on their faces."

Customers the First to Know

Tesco's effort has been cloaked in secrecy. The company set up a mock grocery store in a Los Angeles warehouse and trotted in more than 200 would-be shoppers to give their opinions, posing as Hollywood producers constructing a movie set. Tesco has refused media requests to see the model store or tour any of the shops presently under construction.

It isn't sharing many specific details about pricing and products either. "I'd rather our customers were the first to find out how great our prices are," says Simon Uwins, a 23-year Tesco veteran serving as chief marketing officer for the new venture. "You'll have to wait and see."

Here's what Tesco has let out so far. Fresh & Easy stores will each be 10,000 square feet—roughly four times the size of a typical convenience store and one-third as large as a traditional supermarket. This mimics the format of the chain's highly successful Tesco Metro outlets in Britain, which dot the country in urban locations too small to support a full-size supermarket.

Shopping with Americans

Taking cues from consumers who said they were overwhelmed by choices, Fresh & Easy will offer an edited assortment of items—everything from freshly bottled fruit juices to detergent—at prices lower than convenience stores. At the center of each outlet will be a space called Kitchen Table, where customers can sample products. "It's something like a Whole Foods (WFMI), but with more competitive prices," says Deloitte & Touche retail consultant Ira Kalish.

Tesco began plotting the launch in 2005. The company dispatched Tim Mason, head of its pace-setting online operation, Tesco.com, and the mastermind of Tesco's well-regarded loyalty card program, to oversee the venture. Mason and his team spent months shopping with consumers, poking around their pantries, and watching them prepare meals. What they found was that Americans often go to several different stores a week—a supermarket for meat and cereal, a specialty grocer for produce, a warehouse store to stock up on detergent and paper towels, and a convenience store for milk and ice cream.

"We heard a fair amount of frustration," Uwins says. "That products weren't fresh, or affordable, or that they had to travel far to get them." The strategy was crystallized by one mock shopper who, while walking the aisles of the model store, asked: "Why do I have to choose between 15 different types of tuna? Tuna is tuna."