Tesco aims to open some 300 small grocery stores in Southern California, Las Vegas and Phoenix and is prepared to spend as much as $2 billion over five years on the effort.
Tesco USA Chief Executive Tim Mason said his management team was negotiating for 300 sites, although “not all will get opened,” The Los Angeles Times reported late last year.
The first stores will open in the second half of next year, and the pace of development will pick up as Tesco gets its distribution network operational, Mason said. He said many more stores could follow.
“If this is successful, this is a very big country,” Mason said at the public opening of the company’s U.S. headquarters in El Segundo.
Tesco has kept secret most of the details of its launch — which focuses on Southern California and the Southwest — out of fear that rival grocers will develop a strategy to foil its plans. On Dec. 4 Tesco again withheld details about any of the locations it is moving forward with. But in September, the company leased a shuttered Albertsons market in Glassell Park.
The company plans to push into underserved urban areas that need to be “re-energized,” Mason said.
“We think there are a lot of good opportunities there,” he said, adding that Tesco had experience in running successful stores in distressed urban areas in England.
Tesco’s entrance into Southern California will provide a potent new competitor to traditional grocers such as Kroger Co.’s Ralphs, Safeway Inc.’s Vons and Supervalu Inc.’s Albertsons. The British company’s arrival ratchets up the stakes at a time when the supermarkets already face pressure from the expansion by discount chains Wal-Mart Stores Inc. and Target Corp. into food offerings.
“It is already a competitive market, and I would be lying if I said the rest of our membership was looking forward to the arrival of Tesco,” said Peter Larkin, president of the California Grocers Assn. in Sacramento. “But the grocery chains are accustomed to new challenges and will be ready to compete when Tesco opens its stores.”
Mason said Tesco was looking for sites of about 15,000 square feet, with about two-thirds devoted to sales space. That would make the typical U.S. Tesco store about the size of an average location of Monrovia-based Trader Joe’s.
Tesco expects to hire about 2,500 employees in its first year as it opens “a format that we call the ‘neighborhood market,’ ” Mason said.
Mason said Tesco was looking at the range of hourly wages paid in the areas it planned to enter and would offer a competitive pay package that could include bonuses, a 401(k) savings plan and health benefits.
“We know that we have to be a good employer if we want to attract people in this market,” he said.
Although he was approached by members of the United Food and Commercial Workers union at the Dec. 4 opening, Mason said the company had not decided whether it would have a union workforce.
Tesco, with about $80 billion in annual sales worldwide, already operates in 13 countries and employs more than 300,000 people.
(Source: The Los Angeles Times)
New player has strong credentials
Merrill Lynch analyst Patricia Baker said Tesco’s arrival could only be viewed as a “negative” for the conventional supermarket channel.
“The coming of Tesco represents not only a new player but one that is a quite accomplished retail entity with the ability to attack this market in a much more meaningful fashion over the long term, should it choose to do so,” she wrote in a recent research note.
Based in Cheshunt, England, the Tesco Group currently runs about 2,500 stores in the United Kingdom and 12 other countries in Europe and Asia.
Tesco operates four different retail formats. Tesco Express, a smaller store format of up to 3,000 sq. feet, sells fresh produce, wine and in-house baked goods; mid-size Tesco Metro stores range between 7,000 to 15,000 sq. feet; larger Tesco supercenters of between 20,000 to 50,000 sq. feet also carry non-food items like DVDs and books and Tesco “Extra” stores of over 60,000 sq. feet have a more varied product mix including clothing, housewares, electronics, cosmetics and garden furniture.
The company last year reported profits of $3.5 billion on total sales of $65 billion. That’s still significantly smaller than the $312 billion in revenue Wal-Mart garnered with twice as many stores.
If you want to compare Tesco and Wal-Mart, Langdoc said you should look at the performance of both retailers in the U.K., where Wal-Mart already directly competes with Tesco through its ASDA grocery stores.
According to Langdoc, ASDA is struggling in the U.K. against fierce competition from leader Tesco.
“Wal-Mart even complained about Tesco’s 30 percent market share of the supermarket sector in the U.K. and asked the government to investigate,” Langdoc said. “This shows that Wal-Mart is keeping a close eye on Tesco.”
Perhaps Tesco is doing the same. Industry watchers point out that the company may have decided to enter through the West Coast first because that region of the country is not yet dominated by Wal-Mart.
Wal-Mart could not be reached for comment.
(source: Tesco Corporate)
Tesco is the UK’s largest retailer and one of the world’s leading international retailers. We have reached this position through consistent focus on our four part strategy for growth:
We have a strong, growing core UK business offering customers excellent value, choice and convenience
We aim to be as strong in non-food as we are in food
We follow the customer into new areas–like retailing services such as financial products (Tesco Personal Finance), internet shopping (Tesco.com) and telecoms (Tesco telecom offers mobile, fixed line and broadband services).
We are a leading international retailer with a long term strategy for growth.
The Tesco Group had turnover of £33,974 million ($59,454 million) with pre-tax profits of £2,029 million ($3,551 million) in the year to February 2005. We have 2,467 stores, employing over 370,000 people in the 13 countries in which we operate. In Europe, outside the UK, we operate in Ireland, Hungary, Poland, Czech Republic, Slovakia and Turkey where we have 305 stores and over 61,000 employees. In Asia we have 343 stores and over 40,000 employees across our businesses in Thailand, S. Korea, Malaysia, Taiwan, Japan and China. We are the market leader in six of the countries we trade in. Tesco is a multi-format business, operating hypermarkets, superstores, supermarkets and convenience stores.