Professional Documents
Culture Documents
management
Tesco/Fresh
&
Easy
University
of
Groningen
Faculty
of
Economics
and
Business
Msc.
Business
Administration
Marketing
Prof.
L.
Voerman
December,
2011
Group
A02
Harold
Dijkstra
S1455362
Joyce
Gussenhoven
S2032910
Perry
Nauta
S1774441
Robin
Papa
S1785613
Abstract
The
purpose
of
this
research
was
to
investigate
how
Fresh
&
Easy
can
become
a
success.
Tesco
is
a
success
in
the
United
Kingdom,
Europe
and
Asia,
but
since
Tesco
opened
a
Fresh
&
Easy
store
2.25
years
ago
in
the
United
States,
this
stores
have
had
disappointing
results.
In
this
report
we
only
look
at
the
grocery
retailing
market
in
Arizona,
California
and
Nevada,
states
in
the
southwest
of
the
U.S.
The
research
question
is:
How
can
our
Fresh
&
Easy
venture
still
become
a
success
before
the
end
of
the
original
five-year
plan?
Before
looking
forward
to
the
future
of
Fresh
&
Easy,
an
important
question
we
want
to
answer
is:
Are
the
disappointing
results
of
Fresh
&
Easy
in
the
past
2.25
years
a
consequence
of
the
economic
recession
in
the
western
U.S.,
a
wrong
strategy
or
bad
implementation?
Finally,
following
from
the
external
analysis,
and
in
particular
the
consumer
analysis,
and
previous
implementation
adjustments
without
the
desired
result,
another
sub
question
we
identified
is:
How
can
Fresh
&
Easy
adjust
better
to
customer
needs?
To
find
answers
on
these
questions,
an
internal
and
external
analysis
is
done,
followed
by
a
confrontation
matrix,
options
and
the
implementation.
The
results
show
that
the
disappointing
results
of
Fresh
&
Easy
are
a
consequence
of
some
missing
opportunities
in
the
current
strategy
to
gain
a
competitive
advantage.
To
better
meet
the
customer
needs
and
to
become
a
success,
these
opportunities
need
to
be
implemented
in
the
current
strategy.
The
opportunities
are
increase
operating
hours,
reduce
shelf
stock
outs,
offer
more
familiar
brands,
location
convenience
and
loyalty
program.
This
way,
Fresh
&
Easy
becomes
a
success
before
the
end
of
the
five-year
plan
by
implementing
these
five
opportunities.
Key
words:
Fresh
&
Easy,
Tesco,
strategy,
opportunities,
implement
Research
theme:
How
can
Fresh
&
Easy
become
a
success?
Seminar
supervisor:
L.
Voerman
Table of contents 1. Introduction .......................................................................................................................... 4 1.1 Market definition............................................................................................................ 4 1.2 Problem statement ......................................................................................................... 4 2. Strategic retail planning....................................................................................................... 5 2.1 Business mission ............................................................................................................ 5 3. External analysis .................................................................................................................. 5 3.1 Customer analysis .......................................................................................................... 5 3.2 Competitive factors ........................................................................................................ 6 3.2.1 Competitive rivalry ................................................................................................. 6 3.3 Market factors ................................................................................................................ 7 3.3.1 Growth ..................................................................................................................... 7 3.3.2 Seasonality ............................................................................................................... 7 3.3.3 Business cycle .......................................................................................................... 8 3.3.4 Porters Five Forces model ...................................................................................... 8 3.4 Environmental factors ................................................................................................... 9 3.4.1 Technology............................................................................................................... 9 3.4.2 Economic .................................................................................................................. 9 3.4.3 Regulatory................................................................................................................ 9 3.4.4 Social ........................................................................................................................ 9 3.5 Conclusion....................................................................................................................... 9 4. Analysis of strengths and weaknesses ............................................................................. 10 4.1 Financial resources ...................................................................................................... 10 4.2 Management capabilities ............................................................................................. 11 4.3 Locations ....................................................................................................................... 11 4.4 Operations .................................................................................................................... 11 4.5 Merchandising capabilities.......................................................................................... 11 4.6 Customer loyalty .......................................................................................................... 11 4.7 Conclusion..................................................................................................................... 12 5. Issues ................................................................................................................................... 12 5.1 Consumer demands ..................................................................................................... 12 5.2 Awareness ..................................................................................................................... 12 5.3 Invest or divest? ........................................................................................................... 13 6. Strategic Options ................................................................................................................ 13 7. Evaluation of strategic options.......................................................................................... 14 8. Strategic opportunities ...................................................................................................... 15 8.1 Increase operating hours ............................................................................................. 16 8.2 Reduce shelf stockouts ................................................................................................ 16 8.3 Offer more familiar brands .......................................................................................... 16 8.4 Location convenience .................................................................................................. 17 8.5 Loyalty program ........................................................................................................... 17 9. Conclusion ........................................................................................................................... 17 10. References......................................................................................................................... 19 Appendix I SWOT matrix .................................................................................................... 20 Appendix II - Confrontation matrix ...................................................................................... 21
1.
Introduction
Confident,
because
of
the
domestic
success
of
Tesco
in
the
United
Kingdom
and
its
successful
international
expansion
to
Europe
and
Asia,
Tesco
opened
our
first
Fresh
&
Easy
store
in
the
United
States
about
2.25
years
ago.
Based
on
an
ambitious
five-year
plan,
Tesco
intended
to
gain
a
significant
market
share
in
the
states
of
California,
Arizona
and
Nevada
in
the
United
States.
However,
results
of
the
Fresh
&
Easy
venture
are
disappointing.
Targeted
sales
are
not
achieved,
impact
on
the
revenues
of
competitors
is
low
and
sales
growth
forecasts
are
marginal,
even
after
corrections
to
the
original
plan
during
the
past
year.
As
the
responsible
management
team
of
the
Fresh
&
Easy
venture
in
the
U.S.,
our
task
is
to
inform
the
management
of
Tesco
about
the
underlying
reasons
for
the
disappointing
results
and
provide
them
with
advice
regarding
the
future
of
Fresh
&
Easy.
1.1
Market
definition
Since
our
Fresh
&
Easy
stores
in
the
U.S.
are
considered
as
a
distinct
venture
of
Tesco,
although
not
mentioned
as
a
distinct
subsidiary,
this
analysis
will
be
described
from
the
perspective
of
the
Fresh
&
Easy
venture
instead
of
Tesco.
Consequently,
strengths
and
weaknesses
with
regard
to
Tesco
will
only
be
included
in
the
internal
analysis
when
they
are
relevant
to
Fresh
&
Easy
in
the
U.S.
Our
market
can
be
defined
as
the
grocery
retailing
industry
in
Arizona,
California
and
Nevada,
states
in
the
south-west
of
the
U.S.
Since
the
five-year
plan
prepared
in
2007
focused
on
these
three
states
and
there
is
no
information
available
about
other
parts
of
the
U.S.,
we
will
limit
our
analysis
to
this
geographical
market.
Our
market
definition
includes
all
grocery
retailers,
ranging
from
convenience
stores
to
supercenters.
Concerning
the
customer
need
dimension
of
a
market
definition
(Abell,
1980)
it
can
be
found
that
other
retailers
also
are
increasingly
offering
groceries
in
addition
to
the
typical
supply
in
their
stores.
Although
this
is
relevant
as
a
market
trend
for
Fresh
&
Easy,
and
therefore
will
be
included
in
the
market
analysis,
the
core
products
these
retailers
sell
are
not
relevant
to
Fresh
&
Easy
in
the
current
situation.
Therefore,
these
retailers
will
not
be
included
in
the
market
definition
and
hence
the
market
definition
will
only
focus
on
the
grocery
retailing
industry.
1.2
Problem
statement
Stemming
from
the
disappointing
results
in
the
first
2.25
years
of
our
Fresh
&
Easy
stores,
the
following
main
problem
is
identified:
How
can
our
Fresh
&
Easy
venture
still
become
a
success
before
the
end
of
the
original
five-year
plan?
Before
looking
forward
to
the
future
of
Fresh
&
Easy
an
important
question
we
want
to
answer
is:
Are
the
disappointing
results
of
Fresh
&
Easy
in
the
past
2.25
years
the
result
of
a
wrong
strategy
or
bad
implementation?
Finally, following from the external analysis, and in particular the consumer analysis, and previous implementation adjustments without the desired result, another sub question we identified is: How can Fresh & Easy adjust better to customer needs?
3.
External
analysis
Our
external
analysis
provides
insights
in
the
market
and
trends
of
the
U.S.
grocery
retail
industry.
This
is
based
upon
Levy
&
Weitz
(2009)
who
argue
that
an
external
analysis
exists
of
market
factors,
competitive
factors
and
environmental
factors.
In
additions,
Aaker
(2007)
is
used
for
some
additional
information,
primarily
for
the
customer
analysis
because
in
our
opinion
it
is
important
to
take
a
close
look
at
your
customers
and
we
believe
that
this
is
not
clear
done
in
the
strategy
of
Levy
&
Weitz
(2009).
3.1
Customer
analysis
The
information
collected
in
the
previous
2.25
years
is
minimal.
What
we
know
is
that
the
U.S.
customer
can
be
described
as
not
tolerant
towards
stock
outs,
because
when
they
encounter
stock
outs
they
are
more
likely
to
shop
elsewhere.
There
is
also
a
low
consumer
demand
and
willingness
to
experiment
with
a
new
store
brand
in
the
U.S
and
they
are
also
concerned
about
the
lack
of
familiar
brands
at
Fresh
&
Easy.
Before
opening
our
first
shop,
some
extensive
research
was
performed,
for
example
by
putting
50
senior
managers
to
live
with
families
in
California
for
a
month
to
experience
how
Americans
ate,
shop
and
spent
their
leisure
time.
However,
conclusions
from
that
initial
research
obvious
are
not
sufficient,
since
actual
sales
figures
are
far
below
targeted
sales.
Therefore,
we
need
more
information
about
the
lifestyle
of
the
citizens
of
California,
Arizona
and
Nevada,
to
better
segment
the
market
to
fulfil
their
specific
needs.
However,
we
did
find
some
important
trends
regarding
these
consumers
already:
Interest
in
wellness,
health
and
conscious
food
choices
A
continuing
trend
towards
on-the-go
consumption
Time-pressured
consumers
are
interested
in
both
fresh
foods
and
ready-to-eat
meals.
These
trends
are
particularly
evident
in
California.
In
California
there
are
35million
people.
In
addition,
customers
regret
that
we
do
not
offer
a
loyalty
programs
and
therefore
they
might
get
loyal
to
competitors
who
do
offer
a
loyalty
program.
After
analysis,
initial
plans
were
to
target
an
underserved
niche
in
the
marketplace,
with
our
neighbourhood
markets,
to
avoid
the
competition
of
large
chains.
It
is
believed
that
there
is
an
unmet
need
between
the
convenience
stores
and
the
supermarkets.
The
convenience
stores
are
small
stores
where
people
only
buy
some
products
like
cigarettes,
newspapers,
etc.
and
supermarkets
are
big
stores
which
people
visit
once
a
week
and
fill
up
there
trolley.
With
Fresh
&
Easy
our
assortment
is
wider
than
convenience
stores
were
we
also
sell
fresh
products
and
time-pressured
consumers
can
buy
their
products
easily.
However,
since
customers
of
convenience
stores
typically
shop
for
other
product
types
than
we
offer,
and
demand
and
willingness
to
experiment
with
new
store
brands
is
low,
consumers
do
not
adopt
our
neighbourhood
market
concept
very
fast.
To
get
a
better
insight
in
consumer
demands
and
segments,
more
insight
is
needed
in
their
shopping
behaviours.
Future
research
is
recommended
to
reveal
how
consumers
in
California,
Arizona
and
Nevada
shop,
and
how
that
differs
between
different
consumer
groups.
For
example,
more
information
regarding
differences
between
customers
of
different
ethnical
origins
or
with
different
income
levels
could
provide
a
better
guideline
for
positioning
our
stores
with
regard
to
a
target
group.
3.2
Competitive
factors
Aaker
(2007)
described
barriers
to
enter
and
the
bargaining
power
of
vendors
in
the
market
analysis
and
Levy
&
Weitz
(2009)
described
this
in
the
competitor
analysis.
As
one
of
the
forces
of
the
five
forces
of
Porter
(Porter,
1979),
we
decided
to
put
them
in
the
market
analysis,
because
in
our
opinion
they
are
primarily
relevant
to
the
market
instead
of
competitors.
In
the
competitor
analysis
we
only
describe
the
competitive
rivalry.
3.2.1
Competitive
rivalry
The grocery retailing industry in the U.S. includes many kind of formats from small convenience stores through supermarkets to big supercentres. In the U.S. there are about 35.000 supermarkets and almost every retailer sell some grocery items. Some analysts believe that the U.S. was over-stored. The result is intense price competition. But as described earlier, we noted a possible gap between convenience stores and supermarkets. The grocery retailing in California, Nevada and Arizona was not dominated by one chain. Important competitors groups for us are: Convenience stores: There are several thousand convenience stores in California (and Nevada and Arizona), including 1200 operated by 7-Eleven. Patrons of convenience stores were typically seeking out beer, cigarettes or a newspaper, rather than a salad. Supermarket chains: the most important supermarket chains in the U.S. are Kroger, Safeway and Supervalu, none of which commanded more than 15% of U.S. grocery sales. Kroger and Supervalu opened a lot of stores in 2009. An average supermarket has 47.000 items were families fill their trolley weekly.
Fresh
&
easy
is
closer
in
size
to
convenience
stores
that
regular
supermarkets.
Some
additional
information
about
the
leading
players
in
grocery
retailing
in
Southern
California,
where
we
want
to
launch
Fresh
&
Easy,
is:
Ralphs:
a
unit
of
Kroger
with
263
supermarkets
and
100
additional
stores
Vons:
a
unit
of
Safeway
with
260
stores
Albertsons:
a
unit
of
Supervalu
with
135
stores
Stater
Brothers:
with
165
stores
Also
important
competitors
are
Whole
Foods
and
Trader
Joes.
In
California,
Nevada
and
Arizona
Wal-Mart
has
a
lower
penetration
then
in
other
states
of
the
U.S.
Most
competitors
in
the
U.S.
depended
on
separate
deliveries
from
multiple
suppliers,
but
we
decided
to
use
our
own
truck
fleet
to
receive
deliveries
from
just
a
few
sources.
Wal-Mart,
regarded
as
a
logistic
expert,
employed
a
similar
centralized
model.
Collecting
more
insight
in
the
relative
strengths
and
weaknesses
is
recommended
in
order
to
gat
a
better
understanding
of
their
competitive
advantages.
Concluded
can
be
that
Fresh
&
Easy
has
different
kind
of
competitors
to
keep
in
mind
when
we
position
our
stores
in
California,
Arizona
and
Nevada
to
gain
a
competitive
advantage.
However,
the
reported
impact
of
our
stores
on
revenues
of
competitors
so
far
is
low.
3.3
Market
factors
In
this
section
we
will
give
an
overview
of
the
market
factors,
growth,
seasonality
and
business
cycle
used
by
Levy
&
Weitz
(2009)
and
the
five
forces
of
Porter
described
by
Aaker
(2007).
3.3.1
Growth
Other retailers: almost every retailer from drugstore to home improvement centres sold some grocery items.
The
grocery
market
of
the
United
States
was
estimated
to
be
worth
$600
billion
in
2005
and
was
still
growing.
There
is
no
specific
information
about
the
growth,
but
because
of
the
rapidly
growing
population
and
the
relative
price
inelasticity
of
this
market,
it
seems
reasonable
to
assume
that
the
grocery
retailing
market
grew
right
along
with
the
population.
Due
to
a
lack
of
information
about
the
states
Nevada,
Arizona
and
California,
we
have
to
assume
that
the
same
trend
of
growth
also
takes
place
there.
Based
on
the
size
of
the
population
of
the
United
States
and
of
the
three
states
of
Arizona,
California
and
Nevada
in
2005
and
2011,
we
value
the
grocery
market
of
these
states
around
$94
billion.
3.3.2
Seasonality
Since we focus primarily on fresh produce, seasonality may be an issue for some products. Although we build upon a relationship between Tesco and two of its established U.K. suppliers, we should account for this seasonality factor particularly with 7
regard
to
local
supply.
Therefore,
more
insight
is
required
in
the
seasonality
effects
of
the
different
product
groups.
3.3.3
Business
cycle
The
grocery
retailing
market
in
its
whole,
does
not
suffer
a
lot
from
the
economic
recession.
Economic
analysts
even
believe
that
food
retailers
are
relatively
immune
to
economic
conditions.
However,
a
shift
within
the
market
from
the
premium
to
the
discount
stores
can
be
observed.
Extreme
discount
retailers
benefited
significantly
from
the
new
sense
of
frugality
among
American
shoppers.
Chains
like
Dollar
General,
Dollar
Tree
and
Family
Dollar
were
planning
ambitious
store
openings
for
2010.
3.3.4
Porters
Five
Forces
model
The Market profitability is analyzed using Porters Five Forces model (Porter, 1979): The threat of the entry of new competitors is rated as moderate. While entry barriers are high for complete chains, because of the enormous initial investment costs and high amount of required capital, they are relatively low for a single convenience store. The threat of substitute products is low. Almost all companies who are active on the grocery retail market are within the market definition. Only stores like gasoline retailers and drug stores are not part of our defined market, but their market share is relatively low. The bargaining power of customers is low. As said, there are no real alternatives to the grocery retail market and customers are relatively price insensitive: They need groceries. The bargaining power of suppliers is moderate. Since we use two established U.K. suppliers that have a good relationship with Tesco, their bargaining power is higher than the power of local suppliers in the current situation. The intensity of competition is high. A huge number of different types of stores and companies compete on this market and there are almost no sustainable advantages, because the current concepts can be copied easily. Overall, the market profitability is relatively low. The average operating profit a U.S. supermarket realized was 2% to 3%. Looking at the analysis of Porters Five Forces in the grocery retail market, both low-cost structures and higher cost-structures can be successful. The distribution channels in the grocery retail market are the stores. There are a number of different types of stores, as is mentioned in the competitor analysis. These are convenience stores, supermarket chains and other retailers. In this market a number of trends can be recognized: The market is growing rapidly Due to economic recession, customers change from premium chains to discount chains, like Dollar General, Dollar Tree and Family Dollar Intense price competition going on
3.4
Environmental
factors
Levy
&
Weitz
(2009)
give
four
environmental
factors,
which
are
used
in
the
environmental
analysis:
3.4.1
Technology
In
the
beginning
of
2010
the
economic
recession
continued
to
hit
the
western
U.S.
hard.
There
is
a
lot
of
unemployment
and
most
retailers
were
hurting
in
the
economic
downturn
of
2008
and
2009.
Only
food
retailers
should
be
relatively
immune
for
the
recession.
The
recession
might
have
decreased
consumer
demand
and
willingness
to
experiment
with
a
new
store
brand.
Retail
spending
was
only
increasing
in
2010
among
wealthier
Americans.
Besides
this,
the
recession
also
reduced
the
cost
of
site
leases
and
new
stores
construction.
3.4.3
Regulatory
WIC
vouchers
(Women,
Infants
and
Childrens
government
nutrition
program)
could
Influence
the
choice
of
consumers
for
a
specific
chain,
where
these
vouchers
are
accepted.
3.4.4
Social
The population of California, Nevada and Arizona is rapidly growing and diverse, as demonstrated in the following demographic figures of the population in California of over 35 million people: o Caucasians: 40 % o Hispanic-Americans: 37% o Asian-Americans: 12% o African-Americans: 6% These three groups have a median household income well above the average income in the U.S. 3.5 Conclusion Some important opportunities derived from the external analysis are: There is an increasing consumer interest in wellness, health and conscious food choices. There is a growing diverse population with a trend towards on-the-go consumption. We target an underserved niche with Fresh & Easy to avoid the competition. In these three states, California, Nevada and Arizona, there is no dominance by any one chain and the Wal-Mart penetration is lower in these states than in other states of the U.S. Relatively low cost of site leases and new store construction and easy to obtain sites and planning permits for Fresh & Easy format stores. 9
Important threats are: Intense price competition in U.S. because of large amount of stores Economic recession in U.S. Relatively low consumer demand and willingness to experiment with a new store brand and customers are concerned about the lack of familiar brands at Fresh & Easy. U.S. shoppers are not very tolerant to stock outs and do not perceive prepackaged products a very fresh. Since customers value loyalty programs, they might get loyal to competitors offering a loyalty program See appendix 1 for a complete overview of the opportunities and threats in the SWOT matrix.
10
4.2 Management capabilities In addition to access to Tescos resources, we also have access to the capabilities and experience at Tesco. Following from their experience as a market leader in the U.K. and from successful international expansion to other countries, their capabilities and experience can be considered as a strength to our venture as well. 4.3 Locations With 126 stores, an ambitious plan to open more stores and a new a $100 million, state- of-the-art, distribution center that is able to supply 500 stores in the three states, location is an import aspect with regard to our future plans. However, more insight is needed to reveal customer perceptions of the locations of our stores. 4.4 Operations Regarding the operations of our stores, it can be considered as a strength that the average Fresh & Easy store uses 30% less energy than a comparable traditional store. We also can build on a centralized logistics model, with an own truck fleet, that is believed to be state of the art since logistic expert Wal-Mart uses a similar model. In addition, since we focus on a ready to sell approach, with prepackaged produce and meat, and shelf-ready container, this will result in smooth operations. However, since our orientation is focused more towards operational excellence and capabilities and experience at Tesco are more based on an emphasis on market leadership, there is incongruity between our strategic orientation and the strategic orientation of Tesco. This means that we cannot readily adopt Tescos management philosophy at our stores and may eventually lead to friction with regard to our internal organization. 4.5 Merchandising capabilities We did get positive customers reactions on our product quality and low prices, also for our private labels. Our assortment has a strong emphasis on private labels, fresh produce and prepared meals. In addition, we build on the good relationship between Tesco and U.K. suppliers Wild Rocket and 2 Sisters for a large part of our supplies. 4.6 Customer loyalty Customers of the Fresh & Easy mention that the stores have a hospital-look, because of the stark dcor, the polished cement floors and white walls. Furthermore, we could not accept American Express and we have no customer loyalty program, something our customers disliked. Since we do not invested in information technology in our stores we currently have no insight in customer loyalty figures. When employing information technology such as a loyalty program we will likely be able to get better insight in consumer behavior. We already responded to some feedback received and for example adjusted store interior during last year. Moreover, we started promotions and displays in the stores and advertised on billboards, buses and radio programs, so we are putting effort in enhancing awareness already.
11
4.7 Conclusion Following from this internal focused analysis of the retail planning process, we derived the following key findings with regard to our strengths and weaknesses. A complete overview of the strengths and weaknesses can be found in the SWOT matrix in Appendix I. Key strengths: Access to Tescos resources, capabilities and experiences and relationship with U.K. suppliers Advanced distribution center, own truck fleet and a proven logistics model High perceived quality and low perceived prices Key weaknesses Disappointing sales No alignment between strategic orientation of our venture and the strategic orientation of Tesco No insight in customer loyalty
5.
Issues
The
issues
described
here
are
based
on
our
current
position
and
the
trends
we
found
in
regarding
the
external
factors
of
our
analysis.
Following
from
our
analysis,
a
SWOT
matrix
and
a
confrontation
matrix
are
used
in
order
to
reveal
what
are
relevant
issues.
These
matrices
can
be
found
in
Appendix
I
and
II.
5.1
Consumer
demands
Before
opening
our
first
store,
Tesco
did
some
comprehensive
field
research
and
pre- testing
in
California.
However,
now
more
than
2
years
later,
we
found
that
we
do
not
sufficiently
meet
consumer
demands
which
results
in
sales
figures
far
below
targeted
sales.
Even
after
our
corrections
during
2009,
our
stores
still
have
only
a
small
negative
effect
on
the
revenues
of
competitors.
Customers,
for
example,
are
not
very
satisfied
with
our
limited
operating
hours,
whereas
a
lot
of
other
U.S.
retailers
are
opened
24- hours
a
day.
Better
meeting
customer
demands
will
in
more
favorability
of
our
stores
in
the
perception
of
customers
and
therefore
in
higher
revenues.
In
addition,
more
insight
in
the
positioning
is
also
relevant
with
regard
to
this
issue
in
order
to
see
how
they
position
themselves
with
regard
to
customer
demands.
5.2
Awareness
In
order
to
increase
revenues,
people
have
to
become
more
aware
of
our
Fresh
&
Easy
neighborhood
markets.
Although
advertising
was
already
increased
during
2009,
customers
are
likely
still
not
very
aware
of
our
concept.
Since
customers
are
not
that
inclined
to
experiment
with
new
store
brands
because
of
the
recession,
growing
awareness
of
our
Fresh
&
Easy
will
likely
take
some
time.
In
addition,
whereas
12
customers of convenience stores usually shop for beer, cigarettes and newspapers, they do not very fast adopt the concept of fresh food in our convenience-like neighborhood markets. Moreover, with our strong focus on our high quality private-label products, customers are concerned about familiar brands in our stores. 5.3 Invest or divest? Since sales are disappointing and the planned number of operating stores is not achieved, the question is whether to continue our Fresh & Easy venture or try to sell it. Earlier attempts by British competitors of Tesco to enter the U.S. market did not succeed, and they sold their U.S. subsidiaries. On the other hand, since California, Arizona and Nevada are growing markets, which are not dominated by a large supermarket chain, our Fresh & Easy venture may still be an opportunity to improve our current situation.
6.
Strategic
Options
Following
from
the
issues,
we
derived
three
strategic
options
as
described
in
this
section.
Option
1:
Stop
Fresh
&
Easy
W1,
W2,
W3,
T1,
T2,
T4,
T5,
T10
The
first
option
is
that
we
stop
our
operations,
and
try
to
sell
our
venture.
Of
course,
the
ultimate
decision
with
regard
to
whether
to
continue
or
quit
is
the
responsibility
of
Tescos
management.
When
they
decide
to
leave
the
U.S.,
Tesco
could
use
the
resources
now
allocated
to
our
venture
for
other
projects.
British
competitors
of
Tesco
previously
failed
to
get
a
sustainable
share
in
the
U.S.
market,
and
since
the
disappointing
results
of
our
stores
we
now
should
consider
it
as
an
option
that
Tesco
should
stop
this
attempt
as
well.
Although
we
are
nowadays
faced
with
a
recession,
food
retailers
are
believed
to
be
relatively
immune
for
these
economic
conditions.
However,
our
targeted
sales
are
not
achieved
and
we
have
little
impact
on
the
sales
of
competitors.
Adoption
of
our
neighborhood
markets
concept
and
awareness
are
low.
In
addition,
the
U.S.
retailing
market,
including
the
local
grocery
retailing
market
we
operate
in,
is
characterized
by
fierce
price
competition.
Moreover,
our
format
requires
a
different
strategic
orientation
than
Tescos
market
leadership
orientation,
which
might
be
inconvenient
for
Tesco.
Option
2:
Continue
with
the
Fresh
&
Easy-formula
and
introduce
further
improvements
S1-S7,
W4,
O1-O3,
O8,
O9,
T5-T9
The
Fresh
&
Easy-formula
has
a
number
of
great
strengths,
knowingly
the
high
quality
products,
the
low
prices
and
the
state-of-the-art
distribution
center.
On
first
sight,
these
strengths
should
lead
to
a
successful
entry
into
the
U.S.
market.
In
reality,
Fresh
&
Easys
entry
was
not
that
successful,
but
by
gathering
customer
feedback,
a
number
of
problems
stood
out:
limited
opening
hours,
the
frequency
of
shelf
stock
outs,
the
lack
of
a
customer
reward
program
and
low
perceived
freshness
of
prepackaged
produce
and
meat.
When
better
meeting
customer
demands,
we
are
likely
to
better
exploit
our
13
strengths. Since we have access to the resources, capabilities and experience of Tesco, we could use for example its information technology in order to start a loyalty program at our stores to increase customer loyalty and to collect consumer purchase data to improve even more on meeting customer demands. Regarding consumer trends showing an increasing interest in wellness, health, conscious food and on-the-go- consumption, we should invest in convincing consumers that we offer what they want. Therefore, we should improve our concept to better suit customer needs, for example by obtaining new stores on convenient locations for customers. In addition, we should also increase our advertising budget in order to grow awareness of our store brand. Moreover, it is recommended that we establish a loyalty program to increase customer loyalty and gain more insights in customer behavior. Option 3: Change our formula S2, W1, W3, O3, O4, O6, O7, O10, T4, T5, T10 The last option is to stay active on the U.S. market, but with a new formula. Our Fresh & Easy-name has been out there for almost two and a half years and its brand image might have been negatively affected because of disappointing sales and customer complaints. Also, the gap between convenience stores and supermarkets that we intend to fill is likely not as large as expected earlier, which is also mentioned by analysts in the market. There is relatively low consumer demand and willingness to experiment with a new store brand and customers of convenience stores showed to be mainly interested in beer, cigarettes and newspapers instead of fresh food. Although perceived quality and low prices are positive among customers, our stores only had a small effect on competitors revenues. Therefore it can be concluded that the current concept did not had the expected effect. In addition, the strategic orientation of our formula does not match the strategic orientation of Tesco. Possibly there will be better synergy between our stores in the U.S. and Tesco when our strategic orientation is better aligned to the general orientation of Tesco. Moreover, forecasts show increasing retail spending in 2010 only among wealthier American, indicating an opportunity to change gears and approach the grocery retailing market in California, Arizona and Nevada from another perspective. Regarding the relatively low Wal-Mart population and lack of a dominant chain in this geographic market, this market may be still attractive for a new concept. Finally, the fast growing population in these states is becoming increasingly diverse, providing even more opportunities for other formulas that might work. Having access to Tescos resources, changing our concept to a different formula is feasible.
important, because this aspect is most relevant to the main problem and the sense of urgency in the current situation. With access to Tescos resources, feasibility is least important and more emphasis is placed on suitability. Criteria (weighted) Feasibility Profitability Suitability Total score (0.2) (0.5) (0.3) Stop 7.5 5 5 5.5 Improve 9 7 8 7.7 Change formula 5 8 6 6.8 Table I: evaluation of strategic options (scores on a scale of 1 to 10) Stopping with our Fresh & Easy venture is a feasible option, because no substantial investments are required and no new positioning is involved. Whether this option is profitable is questionable since it is likely that competitors or other investors will not pay a premium price at an acquisition. With regard to our problem statement, this option is also not really suitable, but this depends on the selling price of our concept. Improving our current concept is highly feasible, since no substantial changes in our current concept are required although we are improving in better meeting customer needs. This option is also a profitable option, since better meeting customer demands will result in higher revenues. Moreover, this option is also very suitable to our problem statement since it is based on our current concept and is likely to turn this concept still in a success. Regarding the third option, we believe it is less feasible, since implementation will require significant investment. In addition, we also believe that a new formula that fills a larger and more evident gap in the grocery retailing market in California, Arizona and Nevada will result in higher profits than the other options. However, this strategic option is likely less suitable in the current situation since more market research is required first to come up with a new formula. In conclusion, we think that in order to make Fresh & Easy venture still a success before the end of the original five-year plan we should focus on improving our concept in order to better meet customer demands. With a total score of 7.7 in our evaluation, this strategic option is the most attractive option to implement.
8.
Strategic
opportunities
As
shown
in
the
evaluation
of
the
strategic
options,
we
recommend
continuing
with
our
current
formula
and
implementing
a
number
of
improvements
to
gain
a
competitive
advantage.
The
analysis
shows
that
this
is
the
best
option
in
the
long
run,
compared
to
leaving
the
U.S.
market
or
starting
over
with
a
new
formula.
To
implement
this
strategic
option,
a
number
of
strategic
opportunities
were
created.
After
consideration,
five
strategic
opportunities
stood
out:
Increase
operating
hours
Reduce
shelf
stockouts
Offer
more
familiar
brands
15
Location convenience Loyalty program 8.1 Increase operating hours Consumers mentioned the limited opening hours of Fresh & Easy as a reason not to shop at Fresh & Easy. Fresh & Easy-stores are typically open from 8 a.m. to 9 p.m., while most U.S. retailers are open 24 hours a day. This opportunity is relatively easy to implement and can persuade consumers to do their shopping at Fresh & Easy. The current staff has to be convinced to work during these hours and new staff has to be found. Also, the distribution of goods has to be altered, which will be described next. The objective of this opportunity is to get more customers into the store and increase sales. We can measure this by looking if the amount of customers and the amount of sales is increasing when we are open for 24 hours instead of 13 hours a day. The investment we have to do for this opportunity is mainly for employees. We can introduce this opportunity within one month when we have arranged it with the employees. When we are open for 24 hours a day, we can directly start with the measurement and look at the results after one month. 8.2 Reduce shelf stockouts Another disadvantage of the current Fresh & Easy-stores are the relative high frequency of shelf stockouts. This follows from the British way of doing, where the store is restocked after opening hours. British customers accept this and go back a day later to get their products, but U.S. shoppers dont. As mentioned before, Fresh & Easy should also change their opening hours and be open 24 hours a day. This has important implications for the way and time of restocking. Goods should be coming in from the distribution centre and be put on the shelves all day long, not just at night. This way, the frequency of shelf stockouts should be reduced significantly. Because Tesco persuaded one of its U.K. suppliers, Wild Rocket, to set up a distribution centre near our stores, and Tesco has strong ties of with this supplier, it should be possible to change the way and times of distribution from Wild Rocket to our distribution centre. We have our own truck fleet, which makes it easier to deliver goods to the stores at the right times. Possibly, a JIT-strategy could be implemented, thereby reducing both shelf stockouts and storage costs. At first, the implementation of this opportunity might not have a great effect, but in time it will persuade customers who left because of the frequency of shelf stockouts, to come back to the Fresh & Easy-stores. The objective is to reduce shelf stockouts and this keeps customers. Some solutions for this problem are already given, but this takes some time to solve this opportunity. We would like to achieve this as soon as possible. 8.3 Offer more familiar brands Research has shown that consumers long for a fit of products with personal preferences (Clemons & Nunes, 2011). A supermarket with a long tail, in other words a high variety of produce, has a greater chance of attracting a customer looking for a certain brand of 16
produce. We believe that when we increase brands that are more familiar at our Fresh & Easy stores, and thus increase the long tail of our assortment; we will be able to sell more of our private-label and fresh produce. We do not believe that the assortment should be increased in a way that all focus moves away from our own brand, but an expansion of the assortment with brands that are often sought for in competitors stores can help to bring customers in. Also Ailawadi (2004) stated that it is important for retailers to retain a balance between store brands and national brands to attract and retain the most profitable customers. We want to offer more familiar brands within six months, but a lot of investments need to be done. For example, familiar brands need to be bought, but more important are the promotion cost. When more familiar brands are in the shop, we can measure if this influences the amount of customers and their spending. 8.4 Location convenience What are the three most important things in retailing? Location, location, location (Levy & Weitz, 2009). To be successful, the location of a store is of great importance. To make Fresh & Easy a success, we have to put a lot of effort in choosing the right locations for our stores. Previously, in some cases, Fresh & Easy took over vacant pre-existing drugstore locations, because it was convenient and relatively cheap. However, its reasonable to doubt if these locations really fitted our strategy. In the future, Fresh & Easy should choose specific locations that fit the strategy. Research should be done, by using geodemographic data, to see which locations perform best on factors like accessibility, traffic flow, distance to consumers and quality of the environment (Campo & Gijsbrechts, 2004; Levy & Weitz, 2009). This opportunity does not need extra investments only some extra costs in doing research about where to open a new store. When we want to buy new sites to open Fresh & Easy stores, we have to do research about what is a good place. This will take some time, but can be used for other times, when we want to open a new store. 8.5 Loyalty program A good opportunity to develop a competitive advantage is to start a loyalty program. Loyalty programs are part of an overall customer relationship management program. Members of loyalty programs are identified when they buy, because they use some type of loyalty card. The purchase information of these customers is stored in a huge database and from this database we can analyze what types of merchandise and services certain groups of customers are buying. With this information we can better meet the needs of our customers (Levi & Weitz, 2009). It will be costly to introduce a loyalty program and it will take some time to develop this program. The goal is to have a loyalty program within eight months.
9.
Conclusion
Our
first
Fresh
&
Easy
store
in
the
United
States
was
opened
about
2.25
years
ago.
Unfortunately
the
results
of
the
Fresh
&
Easy
venture
are
disappointing.
Targeted
sales
are
not
achieved,
impact
on
the
revenues
of
competitors
is
low
and
sales
growth
forecasts
are
marginal,
even
after
corrections
to
the
original
plan
during
the
past
year.
In
17
order to find an answer on these disappointing results we developed the following problem statement: How can our Fresh & Easy venture still become a success before the end of the original five-year plan? To find an answer on this question we first did an internal and external analysis. During the analysis, we found an answer on the following question. Are the disappointing results of Fresh & Easy in the past 2.25 years a consequence of the economic recession in the western U.S., a wrong strategy or bad implementation? The answer we found is that the disappointing results is not a consequence of the economic recession, but we miss some important opportunities in the current strategy in the retail industry in the U.S to gain a competitive advantage. The analysis resulted in a confrontation matrix and three options; stop with Fresh & Easy, continue with Fresh & Easy, but improve some points, or start another formula. It is recommended to continue with Fresh & Easy, but we have to implement the opportunities that will gain a competitive advantage. This gives us an answer on the third question. How can Fresh & Easy adjust better to customer needs? The five opportunities we have to implement to better meet the needs of the customers and gain a competitive advantage are; increase operating hours, reduce shelf stock outs, offer more familiar brands, location and loyalty program. So, Fresh & Easy becomes a success before the end of the five-year plan by implementing these five opportunities.
18
10.
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19
Threats 1. Intense price competition in U.S. because of large amount of stores 2. Economic recession in U.S. 3. Sense of frugality among American shoppers 4. Patrons of convenience stores typically seek out beer, cigarettes or a newspaper, rather than a salad 5. Relatively low consumer demand and willingness to experiment with a new store brand 6. U.S. shoppers are not very tolerant to stockouts 7. Customers do not perceive prepackaged produce and meat as very fresh 8. Customers are concerned about the lack of familiar brands at Fresh & Easy 9. Since customers value loyalty programs, they might get loyal to competitors offering a loyalty program 10. Little reported impact on the revenues of competitors
20
21