Tesco's Foray, and Failure, in the U.S.

A Cautionary Tale About the Misuse of Data

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When UK-based retailing giant Tesco launched its Fresh & Easy stores in the U.S. just six years ago, Chief Executive Terry Leahy was confident in the venture. "We can research and design the perfect store for the American consumer in the 21st century," he said at the time. "We did all our research, and we're good at research."

No question, Tesco is known for cutting edge use of data. Mr. Leahy invented the Tesco Clubcard, revolutionizing consumer data collection, in addition to working closely with customer science consulting firm Dunnhumby to analyze the data. Tesco purchased a majority of Dunnhumby in 2001 and today owns it entirely.

So Tesco asked their questions, looked at their numbers, and got their answers. Americans wanted fresh, convenient, organic, quality products at a good price from a store that was socially and environmentally responsible. They did find a paradox in the data, however. Americans had a greater desire for a one-stop-shopping experience, but in reality, visited more stores than their British counterparts.

Tesco took these findings and ran hard and fast with them. They built more than 200 Fresh & Easy stores in five years. They invested in branding, store design and house brands, based on research and testing. They made a clean, sparse design – think Ikea meets Whole Foods. They gave Americans everything they asked for, down to the solar roofing and hybrid car parking.

And six years later Tesco's U.S. operations filed for bankruptcy. To be fair, the business was never able to support the expensive leases it signed at the height of the real estate boom. It was losing $22 million a month over the past year, according to Bankruptcy Court documents. Still, with so much data behind it, how could Tesco have gone wrong?

From the Fresh & Easy debacle, there are a few lessons we can learn about the responsible use of data:

Be Humble - Big data is only valuable if it comes with big context.

Tesco found that Americans want a one-stop shop but still go to many stores. The data wasn't wrong; Tesco's mistake was assuming they understood the context. Its interpretation was that the competition simply wasn't offering a good enough one-stop shop and that a more perfect alterative would succeed.

But within cultural context, there's another explanation. Americans only like the idea of one-stop shopping. And in a car-centric, commuter culture that views shopping as entertainment, they'd rather go to multiple enjoyable stores than one. But they'll still complain about it.

Be Brave - You can't test magic.

Ask people what they want, and they'll talk about convenience and organic produce. They won't mention Hawaiian shirts or sampling stands. If Trader Joe's had tested their store like Fresh & Easy did, we'd never have the joy of Two Buck Chuck and constantly ringing bells. I can see the customer feedback now: "kitschy," "tacky," "too LOUD."

Fresh & Easy's sterilized farmer's market was innocuous and tested well. But liking a clean grocery store out of context and choosing it over the frenetic, playground-like atmosphere of Trader Joe's is a whole different ballgame. Testing is a great way to kill magic -- or to approve mediocrity, whichever you're going for.

Be Nimble – Don't confuse a strategy with a plan.

Tesco failed because it used its findings as hard and fast answers rather than a springboard for creative risk taking. Strategy should be nimble and inspiring. It should be informed by data, not limited by it. In this iterative problem solving, beta-testing culture, we have to use research to adjust as we go, just as much as, if not more, than we used it to write the first brief.

To best use data we need to know when to not use it and when to go with our gut instead. Case in point: Whole Food's rather odd decision to put a beer bar in a grocery store. It was a store employee's idea that, after some research and refining, became a highly profitable addition.

I'm in no way condemning data; it is one of our most powerful tools in this customer-centric age. It offers fresh insights and guides iterative design and optimization. And it will only become more important with the growth of e-tail.

But over and over again we've seen the best strategy and design innovations arise from empowered individuals, not from the widely held opinions of the masses. And if we allow data to rule innovation unchecked, we too will go the way of Fresh & Easy.

Jess Neill is a strategist at Red Peak Branding in New York, a unit of Red Peak Group.
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