Tesco Is Bringing Some Fab Technology to Its U.S. Stores

The anticipation surrounding the opening of Tesco's first Fresh & Easy Neighborhood Market stores in Southern California on Nov. 8 brings to mind the arrival in the U.S. of another British phenomenon — the Beatles — in February 1964.

Then, as now, the question was: How will an entity that plays remarkably well in the U.K. perform in the far more competitive and lucrative U.S.A.?

I don't suppose that Tesco in its wildest dreams — or food retailers in their worst nightmares — imagines it will replicate the Fab Four's impact on the American market, even in food retailing terms. In fact, supermarket companies are publicly taking a fairly serene view of their newest competitor.

When they do consider Tesco, most organizations are focused on the go-to-market strategy that it will be employing, which is to open 10,000-square-foot stores emphasizing fresh foods, prepared meals and private label, and located in strategic urban neighborhoods.

But I believe it would be wise for food retailers to take a look at the technological, supply chain and overall operational excellence that Tesco brings to its stores. (This topic was addressed last week in SN in a Page 1 news article, and is revisited this week in the Technology & Logistics section on Page 44.) After all, it was through supply chain sophistication built on technology that Wal-Mart Stores was able to create the low-cost empire that now dominates much of U.S. food retailing.

In fact, I can think of few U.S. retailers apart from Wal-Mart more willing to apply technology to its operations than Tesco. In my reporting on retail technology over the years, it is invariably Tesco that is trying out the latest innovations, from RFID to infrared sensors that allow it to reduce checkout waiting time.

Moreover, when Tesco applies technology, it's usually at a very high level. The most notable example, of course, is its use of loyalty card data. Tesco's ability to leverage card data in its promotional targeting of shoppers — abetted by its partnership with the U.K. loyalty marketing consultant Dunnhumby — is often credited for pushing Tesco to the top of the heap among U.K. supermarket companies.

That success caught the attention of at least one U.S. food retailer, Kroger, which entered into a 50-50 partnership in 2003 with Dunnhumby to form Dunnhumby USA, which is based along with Kroger in Cincinnati.

Most observers expect Tesco to bring its Clubcard program and attendant marketing prowess to its U.S. stores, though apparently not at the outset. One system that Tesco will be using immediately in the U.S. is a homegrown continuous-replenishment application that allows it to generate finely tuned orders for each of its stores. That system supports Tesco's other supply chain practices, such as frequent store deliveries.

Tesco will also be ahead of the curve here in environmental technology, both in its stores and at its Riverside, Calif.-based warehouse, where it has deployed the state's largest solar panel roofing system.

It seems clear that Tesco will be raising the bar for the way supermarkets are operated in this country — something its competitors will ignore at their peril.