On Point: Innovation’s limitations

Tesco’s Fresh & Easy flop shows there are no sure bets.

tom weirBack in 2007, one of the main topics of conversation in the industry was the impending launch of Tesco’s new small-supermarket format in the western U.S. Industry observers said the format would emphasize prepackaged convenience meals and produce. To make sure those guiding principles were not lost on the public, the British retailer named its innovation Fresh & Easy.

Depending on whom you talked to at the time, Fresh & Easy was either bound to fail because Tesco’s concept would never connect with American consumers or it was a revolutionary idea with the potential to remake the supermarket business in the U.S.
A lot of conventional retailers that had already lost business to unconventional ones like Whole Foods, Trader Joe’s and ethnic-based independents were bracing for yet another competitive body blow. Tesco’s position as the U.K.’s dominant grocer made the anxiety seem justified.

This was a venture that had a considerable amount of thought, planning and commitment behind it. Long before the launch, Tesco set up an executive team in the U.S. to do extensive research, even going so far as to station anthropologists in dozens of consumers’ homes to study their eating and buying habits. The company earmarked almost $2 billion in capital spending for Fresh & Easy over the first five years.

Despite all this, the naysayers wound up carrying the day. As we all know, Tesco has thrown in the towel, and it will eat around $1.8 billion to escape. This is not an analysis of how the venture bombed; that has already been done to death. You can pick your own favorite reasons: failure to understand American tastes, an overabundance of prepackaged product, subprime locations, short-term financial thinking and others.

Whatever the causes—and there surely must be more than one—Fresh & Easy should stand as an object lesson for companies planning new and different ventures. No amount of homework can prepare you for every problem that might arise. That is just life as we know it, and it should not frighten anyone into doing nothing. How much would get done if people only acted when there was a 100% chance of success? Return on investment is a reward for taking risks, not for playing it safe.

Nevertheless, it is wise to pay attention to those with negative opinions; in fact, it is wise to encourage all involved to spell out their most serious concerns without having to fear they will suffer for being disloyal to the team. Suppression of contrarian ideas leads toward groupthink and cheerleading and away from intelligent consideration. The more negative possibilities you have on the table in the planning stages, the better you will be able to deal with them if they occur. Bad news is a lot harder to handle when it takes you by surprise.

Perhaps most important, if you are planning something for consumers, do not oversell it in advance. Let them know you are going to do something you think they will like, but be modest about it. If it turns out great, shoppers will discover just how great and they will be happy with you for thinking of it and happy with themselves for taking advantage.

If you have already promised them the moon, whatever you deliver is almost guaranteed to disappoint.

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