When International Expansion Isn’t For You: Lessons From Tesco’s US Expansion

Sep 29, 2023



The goal of most successful businesses is international expansion – and Amazon sellers should not be exempt. When venturing into international expansion, every Amazon seller is faced with a multitude of considerations and challenges, large and small. The expansion landscape is complex and requires a discerning approach. Is it the right strategic move for every brand? Perhaps not; not even the largest and most successful brands with millions of dollars to allocate to expansion don’t always make it. Just look at Tesco.

In 2006, the UK brand renamed itself Fresh & Easy and tried to infiltrate American retail. At the time, it was the 3rd biggest retailer on the planet. In 2013, Tesco exited the US market and sold off its remaining stores to Yucaipa Companies. It had spent over $1.5 billion to establish its stores and solidify its supply chain to accommodate the change, but even then, they were unsuccessful.

This all boils down to a few key factors, which Jana discussed on LinkedIn:

  1. Imperfect operations on your home turf
  2. High costs of entry
  3. Regulatory barriers
  4. Cultural differences
  5. Hiring local experts

(If you’re interested in getting deeper into Jana’s thoughts on international expansion, check out her guest appearance on the Empire Flippers podcast!)

Let’s get deeper into the challenges of international expansion through the example of Tesco’s failed attempt at penetrating the USA market.

International Expansion Shouldn’t Be Done Until You’ve Mastered Home Court

Firstly, let’s discuss the paramount importance of local market dominance. Establishing a strong foothold in your home market is not merely about market share; it’s about gaining a deep understanding of your customer base, refining your operational strategies, and building a resilient and reputable brand. If your brand struggles to establish itself in its home market, the complexities of international expansion may only magnify these challenges.

Sure, Tesco was doing well in the UK when it started to expand. Any savvy business person would understand the importance of doing well on your home turf before trying to expand – but even then, things can go awry.

Dave McCarthy, an analyst at Investec specializing in retail, pointed out that Tesco delegated its top executives, or the “A team”, to manage its US operation, consequently leaving the less experienced “B team” to oversee its UK business.

Tim Mason, who held the position of deputy chief executive at Tesco, relocated to California to lead Fresh & Easy. Mason, known as the brains behind the Clubcard and the architect of Tesco’s universal brand image in the UK, retained his chief marketing position even while based in Los Angeles – a staggering 5,000 miles from Tesco’s primary domestic market. Consequently, the brand’s reputation in the UK suffered considerably. Numerous UK stores were in need of revitalization, the chain’s pricing lost its competitive edge, and service standards declined. This deterioration was largely attributed to the redirection of investments from the UK stores into the US venture, resulting in domestic operations being sidelined.

McCarthy observes that it’s not a mere coincidence that several British retailers, including Sainsbury’s and Marks & Spencer, encountered failures in the US, leading to the divestment of their US entities. He poses a thought-provoking question: “Is it the distraction of international expansion that causes a lack of focus on domestic operations, or is it the challenges faced domestically that hinder success overseas?”

In short, both your home court advantage and your international expansion efforts have to be nurtured simultaneously. If you’re not prepared to do that, then international expansion can wait.

International Expansion is Costly; Do You Have the Budget?

Next, consider the high costs associated with entering international markets. Tapping into a new market is a significant investment and comes with inherent risks. Every decision, every strategy employed is a calculated risk. However, those brands that have successfully navigated international expansion have done so through meticulous planning, market research, and strategic investment, underscoring the importance of due diligence.

Here’s a brief timeline of what happened, and how much Tesco spent on its international expansion:

  • November 2007: Tesco inaugurates its first Fresh & Easy store in Hemet, California.
  • First Five Months: Rapid expansion sees the launch of 60 new stores.
  • End of First Year: The number of Fresh & Easy stores across California escalates to 150.
  • April 2009: The venture reports a substantial loss of $200 million.
  • June 2009: Criticism surfaces as Fresh & Easy stores predominantly employ part-time workers and deny recognition to a union.
  • April 2011: The losses continue to mount, reaching approximately $220 million.
  • January 2012: Due to economic downturns, 12 Fresh & Easy stores in California, Arizona, and Nevada are temporarily shuttered.
  • December 2012: Philip Clarke, Tesco’s new CEO, initiates a strategic review of Fresh & Easy, leaving all options on the table.
  • April 2013: Tesco, incurring around $2 billion in losses, officially announces its retreat from the US market.

Tesco spent a large amount of time and money before its international expansion, even hiring anthropologists to study the US customer. In spite of all the money they spent, and all the research they conducted. it still didn’t work out for them.

As an Amazon seller, you have to crunch the numbers carefully even before considering international expansion. Will your budget accommodate all the things your business will need while venturing out into foreign waters? Run your numbers – then add a healthy contingency fund – because you never know what will go wrong. Just take it from Tesco’s example, right? Carbon6 put together an excellent guide on capital availability, which might just be the answer you need to help fund your international expansion. Make sure to check it out here.

International Expansion Faces Diverse Regulatory Landscapes

Another critical consideration is navigating through diverse regulatory landscapes. Each country has its unique set of regulations that can potentially hinder your brand’s operations if not addressed properly. Understanding and complying with these regulations is crucial and requires a thorough analysis of the local legal framework to avoid any operational hiccups. Selling on Amazon in Europe opens up extensive opportunities, but businesses must navigate complex legal frameworks and requirements.

Businesses must legally register in the countries of operation, including VAT registration, which varies across EU countries. Compliance with VAT regulations is crucial for smooth operations, credibility, and accessing VAT benefits. Companies also need an EORI number, essential for customs declarations and facilitating cross-border movement of goods, while ensuring customs compliance is critical to avoid disruptions and penalties. Customs regulations may vary among EU countries, and working with experienced customs brokers or freight forwarders is advised.

Additionally, trading in Germany or France requires registration with LUCID and CITEO respectively for compliance with packaging waste regulations. If dealing with electrical and electronic equipment, businesses need to register for a WEEE number for proper treatment and recycling of waste equipment.

Furthermore, compliance with market-specific regulations is absolutely crucial in every market you sell in. Thorough research in every market you sell in is key – you’ll need to understand the intricacies and challenges presented by the varied global regulatory landscape. This includes Intellectual Property rights management – many sellers have faced issues (even legal ones) due to the unawareness of infringements by manufacturers, so IP management has to be proactive and meticulous.

Recovering from non-compliance sanctions can be challenging and resource-intensive.

Stay Culturally Aware with Every Step of Your International Expansion

Cultural adaptation is also a cornerstone of successful international expansion. Localization goes beyond mere translation – it’s about understanding and integrating into the local culture. Tailoring your brand message to resonate with a diverse audience and ensuring your products meet the local demands are pivotal. Brands that have successfully expanded internationally have seamlessly adapted their strategies to align with local preferences and cultural nuances.

We’ve discussed these points previously in our Ask Jana posts – where she explains why localizing your external marketing and customer service is so important. It is absolutely essential to keep listening to your market. You must pivot accordingly so you cater to your market’s specific needs at every point in time.

Now, back to Tesco. Numerous previous transatlantic endeavors have suffered due to arrogance and inadequate preparation, failing to grasp the notable differences between American and British consumers. While the Americans and Brits might share a common language, enjoy similar music, and watch the same movies, other preferences and behaviors can vary significantly. (For more information on their buying habits, check this blog out.)

Tesco deliberated for two decades about entering the US market and conducted two years of extensive, on-site research. This included having senior executives stay with Californian families to study their shopping and eating habits, constructing concealed prototype stores, and examining the contents of Americans’ refrigerators.

However, analysts point out that Tesco overlooked much of its gathered insights, choosing to establish the stores as per their preferences rather than aligning with potential customer needs. For instance, while American shoppers have a penchant for bulk buying to economize, Tesco’s Fresh & Easy provided smaller pack sizes. The stores also offered British-style ready meals, which were unfamiliar to the American populace, and initially depended heavily on self-service checkouts, which was unappealing to Americans who prioritize quality service. Also, Fresh & Easy opened in low-income areas – not the smartest move for an aspirational grocery store.

Knowing is half the battle, sure. But what you do with that knowledge is equally important.

International Expansion Needs Local People

Moreover, the importance of recruiting the right talent cannot be understated. Hiring local experts is not just a strategic necessity; it’s an invaluable investment in local knowledge and insights. It’s about bringing onboard individuals who understand the local market dynamics while maintaining the core values of your brand.

YLT’s translators cover the localization triumvirate: native speaker, copywriter, and Amazon expert. That way you can be sure that they’ll weigh in if there’s anything that might not resonate with their target market.

Tesco went ahead and brought in the big guns – who were all from Tesco UK. What did they know about the US customer? No amount of exposure to a culture will ever trump being from that culture, and understanding the nuances and idiosyncrasies of each culture’s people.

Conclusion: Is International Expansion for You?

So, where does this leave us in considering international expansion? It is indeed a challenging endeavor, but with the right approach, thorough research, and strategic planning, it can yield significant rewards.

YLT Translations stands as a pillar of support in this intricate landscape. With our extensive expertise in international expansion and localization, we guide Amazon sellers through the complexities of entering new markets. Our knowledge goes beyond surface-level insights, positioning us as a thought leader in this domain. As you contemplate the path of international expansion, know that we are here to assist and guide you every step of the way.

Have you ventured into international expansion? Encountered challenges, celebrated successes? We invite you to join the conversation, share your experiences, and explore the multifaceted landscape of international expansion with us.