Background A lot of PR has been built around the much debated debut of Tesco in the US.

Several sources suggest a $2 Billion commitment over the next 5 years, and stores are supposed to be opened up at the rate of 3 week per week. The company is aggressive about its strategy and is gambling big bucks on their assumptions and understanding of the US food retail market. Success will result in returns of hedge-fund proportions, given the high margins that exist in the fresh and prepared foods and the organic growth that will result from developing a consumer niche of their own. A lot of players in the grocery retail industry including big names like Whole Foods and Trader Joe’s as well as smaller convenience store chains are watching Tesco’s actions closely. Since Tesco is developing an original format that doesn’t directly align with anything else anyone is currently doing on this scale, no one is certain how much of a market-share threat this is. I don’t believe any single channel will get the brunt of market-share loss from Tesco’s success in the US, more likely it will carve a little out of all channels. There are some industry experts that call Tesco’s strategy unwise given the maturity of this industry and there are those experts that acknowledge the respectable track record this company has racked up and the business acumen of its leaders. ‘No guts no glory’ seems to be the motto at Tesco, given their past history of doing the unexpected and succeeding at it. I don’t think organic market-entry (as against entry by acquisition) is an easy task in a mature industry, but there is the possibility that Tesco has really found a lucrative corner of the grocery retail playground that is not crowded, and they are moving fast to claim their stake in this corner. Once the company announced plans, they ramped up quickly to announce locations for about 35 stores across Phoenix (AZ), San Diego (CA) and Las Vegas (NV) and stores are scheduled to open around October ‘07. Analyzing Store Locations We will analyze the rationale behind the selection of these locations by looking at the demographics of the stores’ neighborhoods. For food retail, the mantra is still ‘LocationLocation-Location’. Demographics are a big part of location. Tesco would certainly have looked at several other factors like distance to the distribution center, proximity of competitors etc., but demographic profile of the future shoppers at these stores is probably the single largest factor that will determine if these stores will achieve the desired dollar sales per foot. This analysis is based on information on the location of the stores and publicly available data on the neighborhood of those stores, primarily Zip Code demographics from the US Census Bureau. Aggregate demographic factors for the store Zip Code were considered. Factors that were considered include Percentage of population by race/ethnicity, Percentage of Urban vs. Rural population in store Zip Code, Percentage of Population by Age groups, gender and level of education, number of housing units in store Zip Code (indicator of density) and Per Capita Income. Demographics Comparing demographics across stores indicate some commonalities across the locations. Overall the stores are not located in the most affluent neighborhoods (with exceptions), but the neighborhoods have a relatively higher density (both in terms of population and households). A large proportion of the stores have culturally diverse backgrounds with higher concentration of

Tesco may also be trying to modify their basic format to fit needs of different consumer segments. That said. Compared to the rest of the county. This may have been by design as Tesco may be gathering comparative data to test hypotheses they may have developed as to what neighborhoods would be best suited for their strategy. who are typically greater consumers of prepared foods given their on-the-go lifestyles). Below are the three groups based on clustering stores based on demographics. I would like to reiterate that Tesco will have additional factors they consider.non-white Households. we conducted a segmentation analysis on the store locations to identify what groups existed across the stores. Per Capita Income for the Zip Code versus the rest of the county had a positive impact on the odds of a site being selected Variances in Store Location Demographics Although the above results indicate that there are common demographic factors across most store locations. we found that the selection of stores was not really homogenous. but from a store branding perspective it could be challenging. This is good from a diversification standpoint as it would lower risk and help it ramp up distribution of stores faster by using multiple local formats to target different populations.25 years of age. The table below gives the list of some factors that were very significant indicators of store locations (Factors are listed in decreasing order of importance). Factor Rank 1 2 3 4 5 6 % Increase in Factor Odds of Site being Located in Zip Zip Code Population Lower Proportion of Population 25 years or lesser in Age Higher Percentage of Urban Households Lower Percentage of Population between 15-25 years of age Higher Proportion of Caucasian Households compared to Lower rest of county Per Capita Income Compared to rest of County Higher It would appear that population density and presence of younger population are some of the key drivers for site selection. We ran an econometric (logit) analysis on which of these demographic factors would increase the probability of Tesco selecting a particular Zip Code to launch a store and we got some interesting insights. these neighborhoods have a greater proportion of teenagers and young adults (a large percentage of population between 15. since marketing communications will need to cater to different things for different people. which will result in a strategy with either more or less groups. The results indicated three broad groups based on the demographic characteristics of the population within the store’s Zip Code. Group 1 A more even mix of young adults educated up to High School and young adults educated beyond High School Group 2 A greater proportion of Households educated beyond High School Group 3 A more even mix of young adults educated up to High School and young adults educated beyond High School . Interestingly.

Relatively moderate number of Households with teenage to young adults (compared to the rest of the county). consisting of families with teenage children and multi-cultural neighborhoods. Group 1 seems to be suburban but ethnic neighborhood. A larger concentration of Non-white Households (compared to the rest of the county). A greater proportion of Caucasian Households (compared to the rest of the county). whereas Group 2 seems to be suburban neighborhoods with young population with comparatively higher levels of education and less culturally diverse. Low number of High Percentage of families Households with with teenage to young teenage to young adults. Working: Why Tesco is looking out for new locations? Why is it important for Tesco to get good locations? What kind of location would be best suited for their proposed format? What are different site analysis that Tesco should consider? . Moderately populated compared to rest of cohort. More densely populated compared to rest of cohort. Group 3 is more inner city. A larger concentration of Asian Households (compared to the rest of the county). with moderate levels of education and income. adults in Households Relatively lower population as compared to rest of cohort.

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