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Chapter 5. STRATEGY TWO: ENTER NEW MARKE... > Tesco: Building Oases in the Food De...

5.1. Tesco: Building Oases in the Food Desert

The store near two payday loan outlets and a Mexican butcher shop in Phoenix doesn't look like an oasis, but that's exactly what it is. Tesco's Fresh & Easy Neighborhood Markets are aimed at stranded communities, where fresh fruit and vegetables don't exist for miles around. These areas are becoming popularly known as "food deserts."[] Tesco, a UK-based company and the world's third-largest food retailer, is using the new smaller convenience stores (ten thousand square feet on average) to penetrate the U.S. market for the first time in its hundred-year history. In fact, few British retailers have ever succeeded in the United States, so when Tesco announced in February 2006 that it would invest $472 million per year to establish a beachhead in the United States, it was a big gamble.[] But Tesco had a plan, and it involved entering a new market through backdoor channels, or "backdoor market entry."

Instead of taking the market head-on, Tesco made its entry into the United States by going after an orphaned market riddled with social issues but offering a big financial prize. So far, the strategy has gone according to plan. As of late 2009, the company had opened 129 stores, primarily in Phoenix, Las Vegas, and Southern California.[] According to the most recent management report in late 2009, Tesco expects to open additional U.S. stores at a rate of around one per week through 2010—even in the wake of a dramatic recession! As of late 2009, U.S. sales were up 115 percent, with revenues of $260,000,000.[] The operation is still in the red due to startup costs, but the company is meeting investor expectations.


  

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