Dearth of data strategy hit Tesco US

fresh-and-easyTesco’s decision to delay the launch of a Clubcard-style loyalty scheme has been added to the catalogue of cock-ups which has led to the failure of its US chain Fresh & Easy, according to one expert.
The withdrawal from the US – set to cost a reported £1bn – has been blamed on many factors, including the wrong store size, faith in ready meals, and too many own-label products.
But according to one analyst, it was the retailer’s reluctance to implement a data-led marketing strategy – and replicate the UK success of Clubcard – that was the final nail in the coffin.
Despite Tesco’s insistence that Clubcard is “the icing on the cake, not the cake itself”, in the UK its ability to deeply customise its direct mail offerings based on past shopper purchases translates to a 98.4% redemption rate – compared to the mere 1% industry average.
When the Fresh & Easy chain opened in 2007 then boss Terry Leahy maintained the retailer needed critical mass to set up a similar scheme in the States. He said: “You need to be of a certain size to make good use of a Clubcard, because you have to develop quite expensive insight teams that can properly analyse the data and respond to the information. It is important that it does not just end up being a cheap promotional tool.”
However, the retailer waited four years to do so, eventually rolling out Fresh & Easy ‘Friends’ in October 2011. The new scheme offered one point for every dollar spent in stores and customer rewards were sent by email rather than the traditional physical voucher format that is popular in the US.
Yet having relied heavily on untargeted coupons since launch, it is said that many Fresh & Easy shoppers had got used to instant redemption, and were not willing to wait to build up points.
The analyst said: “Fresh & Easy shoppers are coupon addicts, although admittedly this is a self-inflicted problem as Tesco tried taking them away for a brief period but sales immediately suffered.
“Americans like loyalty cards. They like to swipe them at the checkout, so much so in fact that if you forget yours at home a cashier will gladly swipe theirs for you.
“However, the difference here is that American shoppers are used to getting exclusive discounts with their loyalty card. Fresh & Easy failed to convince shoppers of their value proposition by not offering such a scheme from the outset.”
The issue was further complicated by the fact that DunnHumby in the US, set up in 2002, is a joint venture with Fresh & Easy rival Kroger. With DunnHumby US’ help, Kroger has developed a targeted coupon programme that gets redemption rates as high as 50%, the supermarket chain contends. Redemption rates for traditional coupons can be as low as 1%, with the more popular only reaching 3%.
DunnHumby US also has an impressive line up of clients, including Coca-Cola, Home Depot, Procter & Gamble, Macy’s, General Mills and Kraft Foods but sharing a shopper database was never an option; instead, Fresh & Easy had to work with DunnHumby’s UK division.
The analyst added: “With its mouth-watering blue-chip client base, DunnHumby US had all the data in place yet because of its partnership with Kroger, Fresh & Easy was unable to use it. The UK division simply would not have been able to build enough information into its system in such a short period of time to make a real difference to sales.
“With Tesco investors piling pressure on the US business to get results, it seems that Fresh & Easy ‘Friends’ was just too little, too late.”

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