INTERNATIONAL MARKET GONE WRONG:

Times when Tesco failed in international markets

International expansion is one way for firms to increase sales. When domestic market gets saturated, other countries
can provide fresh customers in an area with less competition or where demand is higher.

However, having a presence in more than one country means that a firm has to rely on more than one country's
economy for its success.

Ultimately, it is a matter of survival and one wrong step could drag a flourishing business down the dumps. Lets
take a look at some of the times Tesco failed to achieve success in international markets.

JAPAN:

Japan in numbers:

Revenue of only 476m in 2011

Contributed less than 1% of group sales
Made a loss of 5m on sales of 476m in 2010

What went wrong?

Cultural oversight

After only nine years of operation, Tesco quit the Japanese market in 2011. Since 2004 the retailer invested
around 250m in Japan, yet it could not establish a place for itself in the market. According to reports by The
Guardian, Tsurakame (the Japanese name for Tesco) had a market share of only 1% in the Japanese grocery
market.

It was found that Tesco didnt appear to fully consider the cultural differences between UK and Japan. Japans
culture is quite different compared to that of the UK. The country has many family-owned and long-established
grocery stores, which form a hub of the community, valued for the personal touch they offer.

Another cultural oversight relates to the fact Japanese customers prefer high quality products and excellent service
during their shopping experience.

However, as Tesco stores tend to be large in size, its almost impossible to offer high levels of customer service to
every shopper. Although Japanese customers love to buy western products from Europe and the USA, it is still
important to present them in a way that will appeal to the Japanese mindset. In 2011, only half of the 129 Tesco
stores in Japan were profitable, which lead to the decision of ceasing trading in Japan.
USA

USA in numbers

186m loss for 2010-2011

After 1bn of investments and almost 850m of losses, Tesco is expected to withdraw from the US market

What Went Wrong?

Understanding the target market

In 2007, Tesco established its first US-store under the name Fresh & Easy.

However, Tesco appeared to have overlooked the importance of understanding the target market.

Firstly, it was trying to get a foothold in a market that was already so saturated. Tesco was aware of this and so they
repositioned the brand as Fresh and Easy. However, instead of focusing on convenience and price, they focused
on convenience and fresh organic food.

It is a known fact that organic stores and lifestyles are a trend in Europe, but research from Michigan State
University illustrates that this trend has not yet spread to the USA. Yet Tesco tried to establish a store with a healthy
image in a country where the population loves fast food.

According to the study from Michigan State University, only three per cent of the American population follows the
essential four steps of a healthy lifestyle:

1. Being a non-smoker
2. Exercising for 30 minutes a day and at least five times a week if not more
3. Consuming five portions of fruit in a day
4. Maintaining a BMI under 25 (40 per cent)

In addition to targeting the wrong products to the wrong audience, Tesco assumed the USA would be similar to the
UK, and ignored cultural differences. Some of the blunders are as follows:

The Fresh & Easy stores offered a range of British products, but didnt focus enough on local American
products.
The self-checkout system seemed strange to a nation used to a high level of customer service in
supermarkets.
The US customers love consuming frozen food, something Fresh & Easy ignored at the beginning. By the
time they introduced frozen food, it was too late.
Americans like to have coffee and freshly baked bread in the grocery stores which was not offered at Fresh
& Easy at the beginning.
 In comments gathered by the BBC, Americans said the marketing and advertisement was not appealing.
Although Tesco launched a huge social media campaign, it did not advertise on TV or other media where
Americans expect to see adverts and offers.

CHINA

China in numbers

Tesco had 131 stores in China, yet it was just the 8th largest grocery retailer in China and had a market
share of just 2 per cent.
Tesco, which reported losses for each of its nine years trading alone in China, achieved just 150 million
yuan of average sales per store at its 121 outlets in 2012, compared with the break-even level commonly
thought to be around 250 million yuan per year.

What went wrong?

Tesco failed to make headway in the Chinese market causing it to shut shop due to tremendous loss made in China.
Tesco also tried its hand at localization by selling live toads and turtles in its stores in Shanghai but failed to drive
sales significantly higher, and eventually decided to abandon its solo strategy and team up with a major local player,
China Resources Enterprise ("CRE"), an operator of nearly 3,000 smaller stores called Vanguard

Thus in 2013, Tesco announced that it was withdrawing its solo brand from China and was merging all of its 131
stores with the 2,986 outlets of China Resources Enterprise (CRE) under the Vanguard brand, which would leave
Tesco with a 20 per cent stake.

Timing

Tesco launched in 2004, which was relatively late compared to its rivals such as Wal-Mart, which were able to use
their first mover advantage to pick better and lower-cost store locations. It was also badly mistaken in thinking that
it could win over the Chinese consumer with its Clubcard, the loyalty card of Tesco, which had proved to be
extremely popular in the UK.

Full appreciation of market

Without understanding the shopping habits of the Chinese customers, Tesco replicated its tried-and-tested UK
hypermarket model by rolling out massive stores very quickly and hoping that Clubcard would prove to be a
competitive advantage as it had been in the UK. However, this was not the case as Chinese consumers prefer to shop
at different stores and often carry multiple store cards. This misunderstanding of the market doomed the economics
of these large stores from the outset.

Research carried out by Warwick Business School in an Asian market with similar demographics and purchasing
power to that of Chinas large cities, found that consumers were ill-suited to the Clubcard approach, which Tesco
described as its secret weapon in its bid to conquer the country.

According to the research, almost all consumers participated in at least one loyalty programme and 63 per cent of
loyalty participants had cards from four or more retailers as they believed that larger choices gave them more power
of control, more motivation to make decisions, more chances to have programmes which suited their needs and a
more satisfying shopping experience.
Also, in addition to losing out on better and cheaper store locations to its rivals such as Walmart, Tesco was also
competing with well-known local brands in the best locations who had already established relationships with
suppliers and had a thorough understanding of the Chinese consumers buying habits.

Thus, the learnings from the Chinese market is that China is large, complicated and a very capital-intensive market
to crack and one cant expect to just execute a text-book store rollout story in a market of 1.3 billion and direct it
from the UK without having local knowledge. In addition, partnering with strong local players and suppliers is also
a good route to follow in such a market.