As Tesco prepares to open operations in America, what sounds like a reasonably similar concept by arch rival Wal-Mart seems to be struggling to get past the launch gate.
To much publicity Wal-Mart, through its ASDA subsidiary, had opened a concept in the U.K. called ASDA Essentials. Like Tesco’s US concept, Fresh & Easy Neighborhood Market, the ASDA Essentials stores were almost all private-label and each store was around 10,000 square feet. There was talk of hundreds of stores being rolled out.
ASDA opened two stores, though, before closing the first one. Although ASDA management said not to make too much of that store closing — pointing to unique circumstances of geography and demographics — closing 50% of your test stores is not an optimistic statement about the concept.
The concept also was being remerchandized to carry more branded product. This could be a problem for Tesco in the US if consumers look for brands they are familiar with or want to use manufacturers’ coupons.
It is also possible that the problems with the ASDA Essentials concept go deeper and Tesco may avoid these issues. One may be the use of the ASDA name. There are small store concepts, such as Aldi and Lidl in Europe and Aldi and Trader Joe’s in the US, that are mostly private label — but they are independent brands.
Possibly consumers used to the ASDA name expected branded items and were disappointed that the stores didn’t have them.
Fresh & Easy will be free to create its own expectations.
Another issue: ASDA insists on charging the same prices in its ASDA Essentials as in the large ASDA stores. This is not the way Tesco Express, the U.K. giant’s convenience banner, prices in the U.K., and it may make the whole concept unviable.
In fact these ASDA actions — utilizing the ASDA brand and requiring the same pricing in stores large and small — sound like something dictated by Bentonville. It sounds like the same problems Wal-Mart has imposed on its Neighborhood Market concept.
The slow growth of this concept has been because it doesn’t provide the same return on investment as building supercenters.
Yet that may be because the more convenient locations of Neighborhood Markets merit higher prices.
Having placed the Wal-Mart brand on the Neighborhood Market store, though, Wal-Mart executives are loathe to sully the name with higher prices. Is it possible that Wal-Mart has repeated the same mistake on two continents, with ASDA’s name also on its convenience concept?
The other issue is whether being a discounter is enough? Tesco is cleverly positioning its stores as green, family-friendly and fresh. Although we understand they intend to be very competitive on price, they don’t intend to build their reputation on it.
We can see the difference in corporate culture in the contrast between ASDA Essentials and Fresh & Easy.
Wal-Mart, with sales larger than the next four largest retailers in the world combined, opens just two test stores over a year and closes one down for poor performance after 10 months. Tesco, a much smaller company, pours hundreds of millions of dollars into building a distribution center, signing leases on a couple hundred stores — all before any consumer spends even a penny in the concept.
It is clear that Tesco wins points for audacity. Whether that means it will be a success remains to be seen. Prudent hands at Wal-Mart probably consider executives at Tesco to be irresponsible with shareholder’s money. Which they certainly will be accused of if the venture fails. Some will surely lose their jobs. Maybe even the CEO.
Yet one advantage of the Tesco method of plunging in is that it gives those same executives enormous incentive to find a way to succeed. It is a truism of venture capital to invest in the people, not the concept. Because bad people can mess up the best concept and good people will often find a way to alter even a terrible concept.
If you build two stores and they don’t work, maybe you just close them. If you build 200 stores, maybe human creativity kicks in and you find a way to make them a success.