Will Tesco's New Fresh & Easy Concept Change US Grocery Retailing?

Implications: Fresh & Easy's inventory mix reads more like a restaurant menu than a grocery store list of ingredients. That key difference my change grocery retailing in America.  Here's why.

Analysis:  

Tesco 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 Angles. 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.

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.

Convenience and accessibility are more important than ever before to consumers. Everyone wants good food, but shopping has become more expensive with increasing energy prices and few have the time to prepare it. Most people would prefer to have a food replicator like the one featured the TV series Star Trek. Just describe the food you want and it’s instantly ready to eat. That’s science fiction. But in its absence, Fresh & Easy may be the next best 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’s 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 Marriott’s airline food preparation business with an Albertson’s grocery store. That doesn’t sound too tasty, but you get my point. In any event, if Fresh & Easy is successful, investors may have to endure a lengthy leaning 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.