For two weeks, 50 senior Tesco directors and researchers lived the American dream: shopping, eating and even “chilling out” with families living on the West Coast.
Their mission: to understand the American way and how best to exploit it.
The Californian families — who were recruited by a market-research firm — had no idea who the strange Brits were or why they were so interested in how they lived.
Nevertheless, they invited them into their homes where over the next fortnight the visitors kept a diary detailing their hosts’ eating habits, shopping routines, even excursions for recreation or entertainment.
“Spending time with people in their houses, looking in their cupboards and fridges and actually shopping with them is a great way to understand the market,” said Lucy Neville-Rolfe, company secretary and corporate- affairs director at Tesco.
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The information that the Tesco snoops garnered was fed back for the personal attention of Tesco’s chief executive, Sir Terry Leahy.
It was the ammunition for his imminent assault on America.
Leahy, 50, is famed for having an instant feel for his customers and what they want. That knack has been one of the main reasons for Tesco’s success story and it has cemented his reputation as one of Britain’s most talented retailers.
Leahy commissioned the US research to gain an insight into the psyche of West Coast Americans. Tesco carried out similar exercises in China and Japan before invading their markets.
Yet Leahy knows his US foray is risky — no amount of research can guarantee success.
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“It is Leahy’s biggest ever gamble,” said one FTSE 100 rival.
America has been a graveyard for a string of British retailers — including Dixons, Marks & Spencer and J Sainsbury — and Leahy is putting his reputation on the line with both investors and rivals.
Tesco’s US research did not stop at just shopping with consumers. In east Santa Monica, away from the beaches and tourists, Tesco constructed a dummy store within a warehouse. “Knock down the walls of the warehouse and it could be a standalone fully functioning store,” said a Tesco insider.
Such is the secrecy surrounding Tesco’s US plans that when it first built the store it pretended to be making a film set.
More than 200 focus groups have toured the store, providing feedback. “From what I hear, the ready meals are to-die-for. And Californians are wealthy and busy enough to try them all out,” said a member of the Santa Monica Chamber of Commerce.
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Having secured the No 1 spot in Britain over the past decade, Tesco has increasingly looked overseas for growth. With stores in 10 European and Asian countries, international sales totalled £10.5 billion in the year to February 2005 (UK sales topped £32.7 billion in the same period).
In America, Tesco plans to roll out a chain of convenience stores based on its Express format, a move that will have it go head-to-head with niche retailers such as Trader Joe’s — a gastronomic grocery chain that prides itself on its hip image — rather than Wal-Mart.
Tesco’s small-store format, Tesco Express, has proved a huge success not just in Britain, but around the world.
It was in 1994 that Tesco opened its first trial Express store in Barnes, southwest London. Originally developed on petrol forecourts, Tesco initially appeared to be unconvinced about the new format — a year later it had opened only two more trial outlets.
But today it has 830 in Britain, Thailand, Japan, Korea, Malaysia, Turkey and Ireland and is opening two Express stores a week in the UK alone.
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The products and store layout may be different — in Thailand the bestsellers include chicken livers and feet and a 200 baht (£3) bucket of food and toiletries for customers who want to give the traditional gift to Buddhist monks — but the philosophy is the same.
In Britain a typical Express is 3,000 sq ft, although in Korea and Malaysia, there are stores of up to 10,000 sq ft.
According to commercial estate agents in California, Tesco is looking for 10,000 sq ft to 12,000 sq ft stores in Los Angeles. The stores, according to agents, need to have parking for 70 cars with a population of 15,000 in the immediate area.
In the next few weeks Tesco is expected to start work on a distribution centre on the former 88-acre March Air Reserve Base, east of Los Angeles. The firm is already recruiting senior staff to work there.
Sitting alongside the Interstate 15 highway, the Meridian Business Park site could not be better located: it is three hours north to Las Vegas and two hours south to San Diego. Phoenix is three hours east and Los Angeles 90 minutes west.
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Tesco, which is reported to have paid more than $50m (£26m) for the site, is expected to build a 1.4m sq ft distribution centre. Industry observers believe a hub of that size could serve up to 350 Tesco Express stores — an indication of how serious Leahy is.
The decision to send Tim Mason, the marketing director, to lead Tesco’s invasion also demonstrates Leahy’s commitment. Mason is Leahy’s long-standing right-hand man. Both have spent almost their entire working lives at Tesco. Mason even met his second wife, Fiona, daughter of former chairman Lord MacLaurin, at the firm.
As well as devising some of the retailer’s most successful advertising campaigns, Mason has overseen the growth of Tesco Clubcard and the group’s online business. But he will have to use all his retail skills if Tesco is to prosper on the West Coast, where there is an intense three-way battle already for customers between Kroger, Safeway and Wal-Mart.
One of Mason’s first decisions will be whether to work with the powerful United Food and Commercial Workers (UFCW) union.
In Britain Tesco has a close working relationship with the shopworkers’ union USDAW — but reports had suggested it was looking to have a non- unionised workforce in the US. It is a big issue on the West Coast. Two years ago there was a four-month strike by members of the UFCW.
“I understand they said it was just a little confusion, nothing more,” said Shaun Barclay, organiser for the UFCW, which has curbed Wal-Mart’s expansion in liberal California.
“There have been discussions between Tesco and my colleagues in Washington, but I do not know the result. But I don’t think opening up a non-union chain would be very popular.”
Closer to home, Leahy has to win over investors and analysts. Shares in Tesco — which underperformed the rest of the FTSE 100 in 2005 despite the company’s success — fell when Tesco first announced its American plans in February.
Not every foreign venture has been a success. Its first acquisition of the French supermarket chain Catteau in 1993 was a disaster. More recently it pulled out of Taiwan.
Sanjay Vidyarthi, analyst at Teather & Greenwood, said: “While the market, understandably enough, is giving Tesco the benefit of the doubt at this early stage, we see considerable risks associated with the US market and wonder whether the £250m a year would be better spent in existing territories or ones where dominance might be easier to achieve.”
As Tesco heads into the American West, his rivals will be waiting to see if Leahy is riding for a fall.