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Tesco In America:
Foodservice vs. Prepared Foods

Jim Prevor’s Perishable Pundit, February 27, 2007

In our piece, Tesco’s Success Course Far From Easy, we referenced a research report from Credit Suisse entitled, It May Be Fresh, But It Won’t Be Easy. One of the more intriguing comments in the report deals with Tesco’s supposed plans to sell a lot of prepared foods:

“… grocers’ fresh food offers have not developed as quickly in the US as, say, the UK. True, the ‘eat-out’ market takes a higher proportion of food expenditure in the US, so customers are perhaps less inclined to buy fresh ‘centre of plate’ products at a US grocery store (although this in itself is an interesting debate — i.e., has the strength of the US eat-out market contributed to the relative weakness of US grocers’ fresh food offers, or is it the grocers’ relatively weak fresh offer that has assisted the move to eat-out?). Whatever the reason, the fact remains that mainstream grocers’ food offers are undeveloped compared with those of leading international peers.”

The comment is insightful because so much commentary looks at competitive differences in a vacuum. It is easy to see that the UK supermarket industry has a more developed prepared food industry than U.S. supermarkets.

Whether this is a competitive opportunity in the U.S. is another question entirely.

We see the same type of simple-minded comparisons domestically. Wegmans has a great pizza program and, in many of the towns it operates in, Wegmans offers the best pizza around. Which doesn’t mean that every D’Agostino’s store in Manhattan, where there is a specialized pizzeria on every corner, ought to copy the Wegmans program.

The answer to the chicken-or-egg question posed by the Credit Suisse analysts is probably that America’s more diverse ethnic population led to the development of more diverse foodservice options. Partly this is because each ethnic group has its own cuisine, partly because these immigrants worked harder and cheaper than the more mainstream and, often, unionized supermarket labor.

This meant restaurants produced food both better and less expensively than supermarkets were generally able to. Often the restaurants are more convenient as well, since many offer delivery or curbside pick-up.

In any case, it may not matter. Habits once developed are difficult to break, and it is unlikely that the prepared foods offerings of Tesco, whatever its merits, will significantly shift the retail/foodservice split of business.

The way for Tesco to really create a more convenient store is to recognize that Americans don’t want to get out of their cars. The revolution Americans want is not what is inside the store, nor it being close to the house. It is not having to go inside. Drive-throughs, curbside-pickup, convenient delivery.

For all the talk of being consumer-centered, most proposals to do these things are met with resistance because, after all, how are you going to sell consumers impulse buys if they can just call in or e-mail their lists and when they pull up, you’ll just put it in their trunk?

To our British friends from Tesco, that would be a boot and if they want to be truly convenient in the American context, they should look at all the restaurants that offer curbside service. No reason a retailer that is consumer focused can’t do that as well.

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