Let the Fresh & Easy games begin

So Tesco finally did it. The world’s fifth-largest retailer defied all odds and stealthily came into the U.S. market in as bold a manner as one could possibly conceive—opening an unproven concept (unproven in the United States, anyway) in what is undoubtedly the single most hotly contested grocery market in all of America. How very cheeky, indeed.

That Tesco pulled off this implausible feat with nary a hitch is a major accomplishment in its own right. But as they say in the world of horse racing, getting to the starting gate is only the first step. Now Tesco has to run the race. And the hurdles it faces as it rolls out its network of stores in the Southwest over the next year or so will truly seal its fate as a “U.S. retailer.”

The first hurdle is organized labor—and for now, at least, Tesco seems to have cleared it, having opted to run its stores mostly independent of the tight network of labor unions that has come to be synonymous with the U.S. food market. And while the subject of unionization is not something most people immediately associate with the launch of Fresh & Easy, it is indeed a critical one for the success of any food concept—especially a small-format, high-volume store with an inherent propensity for high turnover. Should the UFCW decide it wants to make the unionization of Fresh & Easy its cause celebre in the year to come, it will be a battle that Tesco simply cannot afford to lose.

A second hurdle Tesco faces is its own success. Like any new launch, there will be a certain grace period during which investors wait patiently as they assess market reactions and potential growth obstacles. But the word in the City (aka London’s Wall Street) is that Tesco investors are keeping Fresh & Easy on a tight leash. They support the project. They’re even cautiously optimistic about its chances. But there’s also little doubt that they will demand efficient returns. And as anyone familiar with the many variables in the U.S. grocery market can attest, Tesco’s success here is anything but a slam dunk. Tesco ceo Terry Leahy called Fresh & Easy “a loss-making business to begin with,” but it is not only a question of time before the business gets out of the red. It’s a question of overcoming the myriad issues that come with the territory, including distribution, labor, an overstored market and a fickle consumer, to name just a few.

That last point—about a fickle consumer—may in fact be Fresh & Easy’s single greatest obstacle. No matter how much market research a company conducts, the rubber doesn’t hit the road in a test lab. It hits when shoppers enter the store, kick the tires and decide for themselves whether “fresh, wholesome food at affordable prices” is something they want or need in their lives.

And then you have the competition. If the Fresh & Easy concept is readily accepted by the U.S. consumer, you’re likely to see a flurry of me-tooism, the likes of which the U.S. grocery market hasn’t witnessed since the early 1990s, when most major American supermarkets began trying (with varying degrees of success) to reposition, rebrand and remerchandise their supermarkets to look, feel and shop like a Wal-Mart supercenter.

The big difference in this case is that unlike the arrival of the Wal-Mart supercenter some 20 years ago, many food retailers already have concepts in place that are similar to the new Tesco store, including Kroger convenience stores, Supervalu’s Save-A-Lot, Trader Joe’s, Wal-Mart’s Neighborhood Market (which is rumored to have a new small format currently in development) and many, many others. In fact, if merchandising and marketing prove to be the principle advantages for Fresh & Easy, one could argue that any of the aforementioned stores could “catch up” in short order.

For now, Tesco benefits from the element of surprise. And to be sure, the arrival of Fresh & Easy has surprised more than its share of food retailers. But in the face of adversity, America’s pedigree companies have risen to the challenge. Which means all eyes are not only on Tesco, they’re also on the competition, as everyone from pundits to prognosticators is anxious to see how the major American retailers react, and what, if anything, will be the next American-made answer to Fresh & Easy.