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Tesco’s Biggest Challenge: Prepared Foods

Tesco has a big disadvantage as it enters the U.S. market: Its executives speak English.

That may sound counter-intuitive but have no doubt — it is good to have a customer just like yourself, it is OK to understand that your customer is totally different than you, but the worst possible situation is to think you are similar to your customer, yet your customer turns out to be very different.

Intellectually, top Tesco executives know this. That is why they have made a point of how much consumer research they have done in America, including sending executives to live in the homes of Americans with American families.

Yet the similarities in culture and language are such that many a Tesco executive is likely to have made, and to still make, decisions based on his gut, a problem no where near as likely in, say, Thailand. Thailand is where Tesco operates its Lotus stores, and its success there is often pointed to as evidence that Tesco knows how to adapt to local markets.

If the concept is at all like what we’ve been led to believe, much will depend on how the prepared foods section goes over.

Prepared foods have a history of failing in America. General Foods tried Culinova, Kraft had Chillery, Nestle freshNes and a hundred more.

Some upscale retailers, such as Wegmans, Whole Foods or HEB’s Central Market, do a great job with prepared foods but they have a particular clientele and a particular price point.

Most prepared foods operations fail for a simple reason: Sales are too slow to support the production and frequent delivery of a diverse range of prepared foods offerings.

The choice then becomes continuing to offer a broad range and having unacceptable shrink or cutting the range, which makes the whole offer less appealing and tends to decrease sales while the distribution cost is close to fixed.

There are successful prepared foods retail programs in every major city, but these serve mostly apartment-dwellers who have small homes and high disposable income. So they shop frequently and will pay a premium for fresh, convenient food.

In most of the country, suburban dwellers have ample homes and like to stock up, which enables them to not have to shop so much — which is another definition of convenient. So they are often dissatisfied with fresh prepared food offerings because they don’t want to buy just for tonight. They may pick up four or five meals, then plans change and they get invited to barbeques, a friend from out of town flies in, they get called on a business trip, etc. — by the time they go to eat it, the food looks a little uncertain or is past its code date.

And increasing the shelf life turns out to be counter-productive. Nobody wants fresh food that has a 28-day shelf life. The lengthy code date means they won’t buy it to begin with.

So the big competitor winds up being frozen meals. In fact, typically the fresh meals tend to look frozen. The best sellers are typically hard-to-cook dishes with sauces — by the way, these also typically have the shortest shelf life and require most frequent delivery — and if they leave a clear top on the food, the sauce rolls around in transport and in store and it looks unappetizing. So they usually put a sleeve on it that makes it look very much like a frozen dinner.

These, of course, can be put away and are available even if you don’t eat them for a week or two or three months.

Thus Tesco’s success with its Fresh & Easy Neighborhood Market concept may well depend on the concept’s ability to get Americans to dramatically increase the frequency of food shopping. This may seem very easy to UK-based executives that sell loads of prepared foods in the UK every day.

There was a time, though, when Marks & Spencer was the premiere prepared foods retailer in the U.K. When the company bought Kings in New Jersey and tried to introduce its prepared food concepts to the U.S., the effort failed miserably.

Now Tesco, of course, can learn from the M&S experience — but have they?

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