Don’t bet against Tesco, US setback or not
Since last June the group has opened 60 Fresh ’n’ Easy stores on America’s West Coast, with plans to have 200 more in place by the end of 2009.
This is the group’s first venture into the US market for which the giant retailer has been very bullish.
It has identified as many as 100 sites to begin its £250m a year (€315m) campaign. Rumour has it that a new warehouse just east of Los Angeles could alone supply about 400 stores, but as of now the group’s ambitious plans are on hold.
It has called a three-month halt to the expansion of Fresh ’n’ Easy last week, after opening almost 60 stores since last autumn.
Tesco has gone from being the third largest food chain in Britain, to the largest player with 30% of the market.
It is also one of the dominant players in the Irish market with Musgraves and Dunnes Stores and has been expanding in Europe and China, forced by its market dominance in Britain to look beyond its home market. This US glitch was unexpected and shows the retailing giant is vulnerable, like any other corporation, to the vagaries in the market.
What is more fascinating however, is some of the details emerging about how the retailer went about the roll-out.
Prior to the move its plans for America were veiled in secrecy.
In one case when it tested the layout of a mock store in Santa Monica it did so hidden from view in a warehouse.
It stocked the shelves with food shipped in from America’s East Coast and people were told it was just a film set.
That secrecy, said analysts, points to the risks involved in taking on such a behemoth as Wal-Mart on its own turf.
Tesco left nothing to chance in planning this venture and the decision to call a halt, even temporarily, is surprising at this stage.
It also is alleged to have spent years gathering detailed information on every aspect of American life. Researchers and top executives from the company spent two weeks living with 60 American families looking in kitchen cupboards, watching people cook and they even tracked them while out shopping.
This was in Phoenix. “They’d been studying the city for about a year before they came to us,” said a city employee, which along with the Greater Phoenix Economic Council, helped Tesco find places to put stores.
Previous reports suggest it could end up with thousands of stores in the US, given its ability to identify market needs as it has clearly shown in Britain, Ireland and elsewhere under Terry Leahy.
“In retailing there aren’t huge barriers to entry... that’s one of the reasons you can’t hang around and trial this thing. You have to launch and go,” he said prior to the assault on the US.
Last year Warren Buffett, America’s most successful investor, bought almost 3% of Tesco to become one of its largest shareholders.
Mr Buffett admires careful planning and clearly Tesco had done plenty of that before its US launch.
Whether or not Tesco has the formula to succeed in the US — a very different market to Britain — remains to be seen, a fact acknowledged by Mr Leahy.
Like Warren Buffett, however, city analysts are backing the group, which hopes to have 200 stores up and running by 2010.
Tesco’s decision “clearly means the performance hasn’t been stellar”, said Christopher Hogbin, an analyst at Sanford Bernstein in London.
But city analysts argue that Mr Leahy and his management team will come though this setback.
