Tuesday, July 10, 2007

Tesco's Foray Into American Food Marketing

The Wall Street Journal article about British grocer Tesco's entry into the US market, and its interview with the company's CEO, Terry Leahy, was a pleasure to read at the end of last month.

In the Thursday, June 28th issue of the paper, Leahy described how and why Tesco is preparing to enter the brutal, margin-crushing world of US grocery retailing, opposite, among others, Wal-Mart.

In part, the article stated,

"Mr. Leahy has studied how Americans shop, and he is hoping his new design for smaller stores with fresher food will differentiate his stores from competitors'. To develop his model, he sent Tesco teams to live with American families. One finding: Americans visit many stores; they're not one-stop shoppers after all."

I absolutely adore and respect companies, CEOs, executives, who do this type of research. Similarly to the new CEO of Kraft, Irene Rosenfeld, whose ground-level customer research I noted in this February post, Leahy is beginning at the most basic level- observing consumer behavior in action firsthand.

His conclusions ring true, by the way. Certainly for me. My daughter and I typically visit two stores to complete our grocery shopping. Meat is better at one, while produce is more available and less expensive at the Stop & Shop where she prefers to buy our groceries. When it's working well, we find the S&S self-checkout to be a godsend. It even varies by S&S store, with one outlet's scanners routinely balking at the same barcodes, while those in another S&S do just fine.

Back to Leahy and Tesco. The article further stated,

"Mr. Leahy still likes sitting on customer panels and making unannounced store visits."

To me, this is the mark of a truly insightful and passionate CEO.

As I began to write this piece, I wondered why anyone would want to enter the US grocery business opposite Wal-Mart. You'd think that the margins would be too low, the prospect of such crushing competition too intimidating.

On the contrary, as I suspected, Leahy noted that the US grocery margins are higher than elsewhere in the world, and, in his opinion, the American market rewards innovation. Tesco plans to open stores that are smaller than supermarkets, but larger than higher-priced convenience stores. When asked why Tesco didn't just buy an existing American grocery chain, Leahy replied that they wanted to turn their weakness- no market presence- into an advantage-

"research and design the perfect store for the American consumer in the 21st century."

This makes a lot of sense. Witness Whole Foods' growth. Although currently running into some troubles, the chain experienced enormous growth in this oft-dismissed category.

From my own marketing background, I find myself thinking that any buying activity which is so frequent and necessary as food buying will probably lend itself to well-considered, innovative service and product advances. When you spend so much time and energy buying food, and you want to like what you buy, it makes sense that Tesco could make major inroads by rethinking the traditional American grocery model, and providing more pleasing, efficient and value-oriented solutions to shopping issues we might not even know we have.

Again, from my marketing training, I know that these types of improvements are often the best. It's an old adage that nobody asked the Wright brothers to invent airplanes, so consumer research doesn't really lead to the right new solutions. But it depends on the questions you ask. By studying American family shopping behaviors in their homes and as they shop, I think Tesco will acquire some valuable insights that allow them to invent new, attractive features in their grocery stores.

Their chain's debut is slated for California and a few other western states. Stay tuned.

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