Reuters

Europe's Tesco hired anthropologists and sent executives to live with families. But they still couldn't figure out how Americans buy food.

Tesco’s attempt to sell groceries to Americans has been an ignominious flop. Six years and £1.8 billion, or over $2 billion in losses after it opened its Fresh and Easy chain of stores in the U.S., the British firm yesterday said that it’s selling most of its U.S. outlets to a company run by billionaire Ronald Burkle for zero dollars, and even lending him $126 million for his trouble.

What went wrong? Hard to say, exactly. Before launching in 2007, Tesco studied the U.S. market for years—hiring anthropologists and sending executives to live with families and study the contents of their refrigerators. By focusing on discount fresh food, Fresh & Easy planned to take on both high-end organic retailers like Whole Foods and the stack-'em-high-and-sell-'em-cheap approach of Wal-Mart, with dozens of small shops in both wealthy and poorer neighborhoods in California, Nevada, and Arizona.
 

Some decisions were probably mistakes. In a market where shoppers are used to store clerks and personal help, Fresh & Easy stores had only self-check-out counters. Food was packaged in quantities better fit for Europeans, who make more frequent and smaller shopping trips. For some, the stores' heavy focus on ready-made meals, which have taken up ever-greater lengths of supermarket aisle in Britain, was strange in a country where the "TV dinner" was a 1950s craze.

Tesco joins a list of retailers that have pulled back from US ventures, like the UK’s Sainsbury’s, Marks & Spencer, Dixons, WH Smith and HMV, as well as other foreign firms. Other international retailers, from Canada’s Loblaws in the early 1900s to France’s Carrefour in the 1980s, have been trying and failing in the American market for the past century.
 

The U.S. grocery market does seem especially difficult to crack. While other industries have consolidated, groceries has not, in part because of how much consumers’ tastes and shopping habits vary across the country. As of 2011, America’s 10 largest grocery chains accounted for only 35 percent of stores (pdf).*

Another thesis, Marcel Corstjens from Insead and Rajiv Lal from the Harvard Business School argued in a paper last year, is that it’s just difficult for grocery retailers to cross borders in general. "It would be logical to expect that grocery retailers would enter the world’s biggest markets—the United States, Germany, Japan, the UK, and France—to boost revenues and profits. Yet no retailer is present in all of them today," they write.
 

A big grocery retailer that wants to break into a market has to figure out how to acquire local partners and suppliers, bring in original enough concepts to convince customers to switch stores, and often sell across regions with highly diverse groups of customers. Certainly, Tesco didn’t do these things well in its American foray.

But perhaps Tesco’s biggest mistake was that by making so much effort overseas, it neglected its home market. The world’s third largest retailer by revenue has seen its sales in Britain slide and last year had to issue its first profit warning in 20 years. As one analyst observed last year, "Tesco sent the A team to run the U.S. operation and, by definition, that left behind the B team running the UK side."
 
* Correction: An earlier version of this article incorrectly said that as of 2011, the 10 largest grocery chains in the U.S. accounted for 35 percent of sales.
 
This post originally appeared on Quartz, an Atlantic partner site.

 

About the Author

Most Popular

  1. a photo of yellow vest protesters in Paris, France.
    Equity

    To Understand American Political Anger, Look to ‘Peripheral France’

    French geographer Christophe Guilluy has a controversial diagnosis of working-class resentment in the age of Trump, Brexit, and the Yellow Vests.

  2. A man walks by an abandoned home in Youngstown, Ohio
    Life

    How Some Shrinking Cities Are Still Prospering

    A study finds that some shrinking cities are prosperous areas with smaller, more-educated populations. But they also have greater levels of income inequality.

  3. A child's hand reaches to pluck blueberries from a branch.
    Environment

    Atlanta’s Food Forest Will Provide Fresh Fruit, Nuts, and Herbs to Forage

    The seven-acre site in southeast Atlanta will grow fresh fruit, vegetables, herbs, and nuts to improve food security for local communities.

  4. a screenshot of a video about Baltimore's Metro
    Transportation

    It’s Time to Celebrate Baltimore’s Much-Maligned Metro

    In 1987, the Maryland Transit Administration busted out a brass band to open a subway that never had a chance.

  5. Transportation

    Why Are Little Kids in Japan So Independent?

    In Japan, small children take the subway and run errands alone, no parent in sight. The reason why has more to do with social trust than self-reliance.

×