The Next Idea, Food Innovations & Restaurant Consultants was delighted to see the arrival of TescoTesco opened the first of what will be a fifty store roll-out of its new Fresh & Easy stores. The six stores were located in Los Angeles. Heralded as the biggest grocery retailing event in recent times, the launch pits world class grocery store operator Tesco against the likes of Wal-Mart, Kroger, and Albertson in the US. Short term, fifty Fresh & Easy stores can’t have much impact on the market share of the biggest US grocery chains; at least not in the beginning. But if their smaller, convenience focused format works, 1,000 or more stores is a possibility over the next decade.

It is important to recognize who Tesco actually are, and what they have achieved. In the UK a primary performance measure is Sales Per Square foot of retail space, Tesco has the highest, other measures include Comparative sales on previous year, Labor cost ratios, Margins and so on – guess what – Tesco has the highest in every category. In fact Tesco, while not the largest supermarket chain in the world, may possibly be the most successful. It has utilized the EDLP (Every Day Low Price) strategy for over 10 years, and has successfully engaged its customers into many other services including instore cafes, financial services, apparel, consumer goods, and so on.

Just what has Tesco done? If first impressions mean anything, it seems they have combined low price, quality ingredients, easy to prepare, healthy food, into one offer that will appeal to time starved consumers. If true it means they will have jumped years ahead of their US competitors. According to the announcement, about 50% of the product will be made in Tesco’s own kitchens which give Fresh and Easy a price advantage and product exclusivity too.

The inventory mix reads more like a restaurant menu than a grocery store list of ingredients. That’s a key difference between them and traditional US grocery stores. While, the likes of Wal-Mart have been rolling out a new generation of better quality frozen dishes, meal kits, and pre-cooked meats to simplify meal preparation, Fresh & Easy has taken the prepared meal concept one step further; adding the elements of freshness, health (organic and green), and convenience.

Robert Ancill, CEO of The Next Idea, Food Innovations & Restaurant Consultants, strongly believes that Tesco has got it right: He reported that: ‘Convenience and accessibility are more important than ever before to consumers. Everyone wants good food, but retail food shopping has become more expensive with increasing energy prices and few have the time to prepare it. As demonstrated by Wholefoods, the consumer clearly wants fresh food which is portable and ready to eat, in addition to being affordable and (imagine), Fresh!.’Fresh & Easy may just be that alternative; at least that what Tesco wants consumers to believe as they strategically locate their smaller, environment friendly stores in key urban and suburban locations.

Tesco has the experience to integrate both the grocery and food preparation business into one offer. In contrast, none of the large US grocery chains have either the experience or the infrastructure to replicate the Tesco model. The US equivalent might look like a merger of Sky Chef's airline food preparation business with an Albertson’s grocery store. Put into basic terms: If Fresh & Easy is successful; investors may have to endure a lengthy learning curve as US competitors play catch up. The question for the competition is how to respond. If they wait and Tesco gains traction, they will lose top of mind awareness; making Fresh & Easy’s success even more likely. If they respond now, it will partially mitigate Tesco’s strategy, but leave them in a catch up mode. The only good situation for US grocers is either Tesco’s strategy fails or they decide to refocus their attention on underdeveloped markets like China and India which is exactly what ‘The City’(London’s equivalent of Wall Street) would like them to do.However, given Tesco’s eagerness to enter the US market, the time it has committed to developing the concept, and it willingness to absorb years of loses to build the business, it’s unlikely the company will either vacate the market or outright fail. So, in effect, the US grocery industry may already be playing catch up.

Equally, Tesco will not be satisfied with just one store model. As it succeeds it will begin to adopt its UK store business model in the US, probably with great success. This will include direct competition with Walmart, Target, Kroger, etc, as the British retailer will offer improved pricing on groceries, better and clearer rewards programs, and additional categories such as apparel, etc.

Ancill says: 'The best thing the large US retailers can do is hop on the next Virgin flight to London and look at what they can copy'! Or call us!