December 7, 2006
Tesco Offers More Details on U.S. Plans
Tesco is prepared to spend up to $2 billion over the next five years as it looks to stake its claim to the American grocery market. The British retailer is currently looking at 300 potential sites in southern California, Arizona and Nevada to build what the company is referring to publicly as its “neighborhood market.”
The British retailing giant expects to open its first stores in the second half of 2007. Tesco USA CEO Tim Mason told the Los Angeles Times that the company is looking at a number of locations in underserved urban areas that need to be “re-energized.”
The only confirmed Tesco location to date is a space in the Glassell Park section of Los Angeles that previously housed an Albertsons. The 32,500 square-foot store is larger than other properties Tesco is said to be looking into, which typically run about 15,000 square-feet with two-thirds devoted to sales.
Tesco’s Mason said the company is looking at operating “smaller, simpler grocery stores” that allow consumers to quickly pick up what they need without having to visit multiple stores.
“One of the things that we found unique about American consumers is that they shop frequently here, and that they shop in a lot of different stores,” said Simon Uwins, chief marketing officer for Tesco USA.
Tesco plans to focus on fresh foods, prepared meals and packaged goods. The company is placing a strong emphasis on its distribution network to deliver fresh foods and prepared meals to American consumers.
“One of the problems of distribution in a place as vast as America is that most of the freshness is used up in trucks rather than in people’s refrigerators,” said Mr. Mason.
To help it meet its U.S. distribution challenges, Tesco has brought over suppliers from its U.K. home. Natures Way Foods and 2 Sisters Food Group (see RetailWire 11/28/06, Tesco
Brings Suppliers Along for U.S. Adventure) will open facilities in California. Tesco has bought 88.4 acres in an area south of Riverside to open its local distribution center.
Tesco expects to hire approximately 2,500 people in its first year. It has had talks with the United Food and Commercial Workers (UFCW) union but has not decided if it will open with a unionized workforce. Either way, Mr. Mason said Tesco is looking at hourly wages paid in areas where it plans to open stores. The company intends to offer a competitive compensation package including bonuses, a 401(k) and health benefits.
“We know that we have to be a good employer if we want to attract people in this market,” he said.
Discussion Question: Which of the known details about Tesco’s plans for the U.S. have really caught your attention?
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What jumped off the page for me was Tesco referring to their stores for the U.S. venture as “neighborhood markets,” which just happens to be Wal-Mart’s name for their small grocery store format. The fresh food aspect also caught my eye. The original #1 Wal-Mart Neighborhood Market did not emphasize fresh food, while in the newer stores this is the first thing you see as you enter the front door. In one store in Utah they were making fresh tortillas on the left side and had a large assortment of “grab and go” lunch choices on the right. This fast lunch carry out is now in most if not all stores.
Tesco outperforms Wal-Mart’s Asda in Great Britain. Could Tesco be showing Wal-Mart there is more opportunity for growth in the Neighborhood Market concept than they have exploited to date? Again, in Utah, the model seemed to be 4 to 5 Neighborhood Markets, surrounding each Supercenter.
The only thing that has gotten my attention is they want to build 300 stores. All the rest sounds like canned hype that boils down to “if we build it they will come.” They make it sound like its going to be so easy. Almost to the point of being naive.
What has caught my eye is the fact that they intend to open 300 sites in an already saturated market and are bringing with them their UK suppliers. They have grand ideas, but will the personnel who deliver, at store level, be any different than present convenience or grocery stores?
If they’re successful, 300 stores is only the beginning — and, as they expand, Tesco won’t necessarily stick to the small grocery store format. This is a company that has lots of different store types all of them successful pretty much wherever they go.
Let’s not forget, stores are the end result. The key is that they are starting to build a proprietary distribution system and have an understanding of the total supply chain picture virtually unmatched in retailing.
I’ve been following Tesco intently for a time. This is an impressive company. Nothing really surprises me about them, as they’ve done their homework each time they make a major move. Well-organized as well as seemingly competent, it is interesting that they’re taking on one of the most competitive regions in the U.S.
I like their furtive and covert ways, with a sense of confidence, coupled with what is an able and knowledgeable group. Although supermarkets may be most affected by this invasion, companies like Trader Joe’s and C-stores like Circle K had better be as much, if not more concerned with this juggernaut.
Anyone wanting to check out just how different small format, urban take-and-go retail can get on the left coast should check out Famima (Family Mart). The venerable and groovy retailer out of Japan met their goal of gaining a pre-Tesco edge…ten locations-and-counting in the LA area.
Two things struck me right away. First, they’re rethinking the distribution system. I have no idea what they can do, but it sounds very interesting, particularly for prepared or semi-prepared meals and sandwiches, where freshness is a must. Ever eaten a Walgreens sandwich? Don’t.
The other was the product mix. I expected a more upscale C-store, but this sounds more like a meal solution concept, something like the meal prep businesses that are popping up nationwide. If their bet is right, they may meet an unfilled need in the retail world.
And, $2 billion ain’t hay.
One thing that appears inevitable, though, is they’re going to have to buy their way into the market. Building from scratch is just too slow to get economies of scale once they move out of the West Coast.
This is America, where competition is KING. And this is Tesco, the one retailer even Wal-Mart admires. They are a spectacular, efficient operation — lean and mean and they are a brand. Question is will they be able to build brand permission here?
For example, in 2000/1 Tesco reinvented its approach to private label across 36,000 skus and moved their UK market share from 10% to 15% in less than 18 months.
Today, following a very clever and wise retail strategy and triple brand play for their store banners: superstores, metro and express, they have nearly 30% of the UK market! And their retail site acquisition strategy was operated with stealth and worked like a charm, surprising most of its competitors, like Wal-Mart’s ASDA, and effectively locking out any chance for its competitors to open stores in these urban areas. And these urban areas are the only areas for growth in the UK given that the out of town sites are now saturated and no more being given out.
I wish them well.
SoCal is the land of “overserved” and “underserved” grocery markets. I live within (what would be considered in other regions) a “short walking distance” to an intersection that has an Albertsons, Ralph’s, Wild Oats, Trader Joe’s and Farm Boy, all within one block.
There are many areas, though, where Tesco’s competition will primarily contain the word “liquor” somewhere in their name and the overpriced merchandise is very limited. Extreme freshness and an emphasis on pre-packaged meals almost sounds like overkill to me, whereas decent selection and good prices might suffice, but I applaud their intent and hope they succeed.
Watch at Aldi and Save-A-Lot. There will be a new player in town, who will be quite aggressive to steal some of the grocery dollars. They’re going to start out West and move across the country before you know it.
So much of a retailer’s success lies in the execution. Many food stores say they emphasize freshness, quality, prepared foods, etc. And anyone can say they’re going to spend big $ building hundreds of stores. Everyone will see the real picture after a few Tesco US stores open. If the stores do well, the billions will be invested and the hundreds of locations built. If the stores don’t perform, the press releases will be worded differently. Furthermore, if Tesco’s first few US locations are successful, let’s see how many others (new and existing) copy them, and how quickly.
I am very excited to see that Tesco is coming to the USA. I think that they will do very very well here. I have been watching them for quite a while now and have seen what they are doing to improve their stores, not only in the UK but also in other parts of the world. I think that it will good for them as a company to explore our part of the world. It looks to me that they have also done a lot of research here to know what they need to do. I also do believe that it will not just stop there.
I’m with Bernie. Can they do enough to be different? It seems like bringing this approach to underserved markets is a great idea…at least until other competition appears. Will their loyalty program and prices create something truly unique? It’s going to have to. My gut tells me that they have something up their sleeve that will surprise us all.
A grocer’s success always begins tomorrow…and tomorrow hasn’t come yet. We now speculate on which of Tesco’s “brave new world” plans catch our fancy. We know they will commit $2 billion, build 300 stores and a new distribution center in Riverside, CA. What we don’t know is how strategic is their mindset or how well they will persevere once in the America.
Thus, Tesco’s plans at this time remind of the Book of Life with a man and a woman in a garden, and ends with Revelations.
So let’s wish them the best of luck, thank them for adding interest to a mature industry, and wait for revelations.
Having built their UK empire on out-of-town stores, doing their best to kill off town centres, Tesco then headed back into small towns with smaller format units. This you all know. What surprises me slightly is that they are starting in the US with the smaller format urban outlets. In that context, looking for so many sites right from the get go makes perfect sense. But bear in mind, as well, that they are currently being investigated for buying and hoarding locations over here. Finding 300 sites doesn’t necessarily mean that they will open but they may well prevent other operators from getting some of the best spots. In this case, I would say seller beware.
I’ll go out on a limb and ask if Tesco’s description reminds anyone else of Trader Joe’s? Small footprint. Neighborhood locations. Fresh and prepared foods emphasis. Heavy on store brands (inferred from its reliance on UK suppliers). Specialized distribution system.
This is a play for wallet share – focused on lucrative trip types. Could be a brilliant stroke by a smart organization that is entering the U.S. market with a blank slate and deep pockets.
What strikes me is that we have a retailer that has been extremely successful in the UK, that has an amazingly efficient demand and supply chain, that has taken some time to analyze the US market and figure out how to enter this market, and that has had the first successful online grocery business who is planning to enter the US market. They are a smart, savvy company.
In addition, the other striking aspect about their approach is that they are entering the US market where they will be competing directly with Wal-Mart, not by directly competing in rural and/or suburban areas against the supercenters, but in the urban areas that will be in direct competition to the neighborhood store concept being rolled out by Wal-Mart.
Tesco is smart. They will, no doubt, be going head to head with Wal-Mart (as basically ALL retailers do in the states). And what better way to do that than go into the urban settings where Wal-Mart has been getting so much push-back? This path will be Tesco’s entree into the US market, which will allow them to build a brand and develop a following of consumers in highly concentrated areas.
Think about it. By dropping even a 15,000 sq ft store into a highly populated area, they will have at least a similar consumer reach of a 200,000 sq ft supercenter in the middle of nowhere.
If they are successful and have built a brand following in urban markets, then expect the expansion into larger format stores.
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What jumped off the page for me was Tesco referring to their stores for the U.S. venture as “neighborhood markets,” which just happens to be Wal-Mart’s name for their small grocery store format. The fresh food aspect also caught my eye. The original #1 Wal-Mart Neighborhood Market did not emphasize fresh food, while in the newer stores this is the first thing you see as you enter the front door. In one store in Utah they were making fresh tortillas on the left side and had a large assortment of “grab and go” lunch choices on the right. This fast lunch carry out is now in most if not all stores.
Tesco outperforms Wal-Mart’s Asda in Great Britain. Could Tesco be showing Wal-Mart there is more opportunity for growth in the Neighborhood Market concept than they have exploited to date? Again, in Utah, the model seemed to be 4 to 5 Neighborhood Markets, surrounding each Supercenter.
The only thing that has gotten my attention is they want to build 300 stores. All the rest sounds like canned hype that boils down to “if we build it they will come.” They make it sound like its going to be so easy. Almost to the point of being naive.
What has caught my eye is the fact that they intend to open 300 sites in an already saturated market and are bringing with them their UK suppliers. They have grand ideas, but will the personnel who deliver, at store level, be any different than present convenience or grocery stores?
If they’re successful, 300 stores is only the beginning — and, as they expand, Tesco won’t necessarily stick to the small grocery store format. This is a company that has lots of different store types all of them successful pretty much wherever they go.
Let’s not forget, stores are the end result. The key is that they are starting to build a proprietary distribution system and have an understanding of the total supply chain picture virtually unmatched in retailing.
I’ve been following Tesco intently for a time. This is an impressive company. Nothing really surprises me about them, as they’ve done their homework each time they make a major move. Well-organized as well as seemingly competent, it is interesting that they’re taking on one of the most competitive regions in the U.S.
I like their furtive and covert ways, with a sense of confidence, coupled with what is an able and knowledgeable group. Although supermarkets may be most affected by this invasion, companies like Trader Joe’s and C-stores like Circle K had better be as much, if not more concerned with this juggernaut.
Anyone wanting to check out just how different small format, urban take-and-go retail can get on the left coast should check out Famima (Family Mart). The venerable and groovy retailer out of Japan met their goal of gaining a pre-Tesco edge…ten locations-and-counting in the LA area.
Two things struck me right away. First, they’re rethinking the distribution system. I have no idea what they can do, but it sounds very interesting, particularly for prepared or semi-prepared meals and sandwiches, where freshness is a must. Ever eaten a Walgreens sandwich? Don’t.
The other was the product mix. I expected a more upscale C-store, but this sounds more like a meal solution concept, something like the meal prep businesses that are popping up nationwide. If their bet is right, they may meet an unfilled need in the retail world.
And, $2 billion ain’t hay.
One thing that appears inevitable, though, is they’re going to have to buy their way into the market. Building from scratch is just too slow to get economies of scale once they move out of the West Coast.
This is America, where competition is KING. And this is Tesco, the one retailer even Wal-Mart admires. They are a spectacular, efficient operation — lean and mean and they are a brand. Question is will they be able to build brand permission here?
For example, in 2000/1 Tesco reinvented its approach to private label across 36,000 skus and moved their UK market share from 10% to 15% in less than 18 months.
Today, following a very clever and wise retail strategy and triple brand play for their store banners: superstores, metro and express, they have nearly 30% of the UK market! And their retail site acquisition strategy was operated with stealth and worked like a charm, surprising most of its competitors, like Wal-Mart’s ASDA, and effectively locking out any chance for its competitors to open stores in these urban areas. And these urban areas are the only areas for growth in the UK given that the out of town sites are now saturated and no more being given out.
I wish them well.
SoCal is the land of “overserved” and “underserved” grocery markets. I live within (what would be considered in other regions) a “short walking distance” to an intersection that has an Albertsons, Ralph’s, Wild Oats, Trader Joe’s and Farm Boy, all within one block.
There are many areas, though, where Tesco’s competition will primarily contain the word “liquor” somewhere in their name and the overpriced merchandise is very limited. Extreme freshness and an emphasis on pre-packaged meals almost sounds like overkill to me, whereas decent selection and good prices might suffice, but I applaud their intent and hope they succeed.
Watch at Aldi and Save-A-Lot. There will be a new player in town, who will be quite aggressive to steal some of the grocery dollars. They’re going to start out West and move across the country before you know it.
So much of a retailer’s success lies in the execution. Many food stores say they emphasize freshness, quality, prepared foods, etc. And anyone can say they’re going to spend big $ building hundreds of stores. Everyone will see the real picture after a few Tesco US stores open. If the stores do well, the billions will be invested and the hundreds of locations built. If the stores don’t perform, the press releases will be worded differently. Furthermore, if Tesco’s first few US locations are successful, let’s see how many others (new and existing) copy them, and how quickly.
I am very excited to see that Tesco is coming to the USA. I think that they will do very very well here. I have been watching them for quite a while now and have seen what they are doing to improve their stores, not only in the UK but also in other parts of the world. I think that it will good for them as a company to explore our part of the world. It looks to me that they have also done a lot of research here to know what they need to do. I also do believe that it will not just stop there.
I’m with Bernie. Can they do enough to be different? It seems like bringing this approach to underserved markets is a great idea…at least until other competition appears. Will their loyalty program and prices create something truly unique? It’s going to have to. My gut tells me that they have something up their sleeve that will surprise us all.
A grocer’s success always begins tomorrow…and tomorrow hasn’t come yet. We now speculate on which of Tesco’s “brave new world” plans catch our fancy. We know they will commit $2 billion, build 300 stores and a new distribution center in Riverside, CA. What we don’t know is how strategic is their mindset or how well they will persevere once in the America.
Thus, Tesco’s plans at this time remind of the Book of Life with a man and a woman in a garden, and ends with Revelations.
So let’s wish them the best of luck, thank them for adding interest to a mature industry, and wait for revelations.
Having built their UK empire on out-of-town stores, doing their best to kill off town centres, Tesco then headed back into small towns with smaller format units. This you all know. What surprises me slightly is that they are starting in the US with the smaller format urban outlets. In that context, looking for so many sites right from the get go makes perfect sense. But bear in mind, as well, that they are currently being investigated for buying and hoarding locations over here. Finding 300 sites doesn’t necessarily mean that they will open but they may well prevent other operators from getting some of the best spots. In this case, I would say seller beware.
I’ll go out on a limb and ask if Tesco’s description reminds anyone else of Trader Joe’s? Small footprint. Neighborhood locations. Fresh and prepared foods emphasis. Heavy on store brands (inferred from its reliance on UK suppliers). Specialized distribution system.
This is a play for wallet share – focused on lucrative trip types. Could be a brilliant stroke by a smart organization that is entering the U.S. market with a blank slate and deep pockets.
What strikes me is that we have a retailer that has been extremely successful in the UK, that has an amazingly efficient demand and supply chain, that has taken some time to analyze the US market and figure out how to enter this market, and that has had the first successful online grocery business who is planning to enter the US market. They are a smart, savvy company.
In addition, the other striking aspect about their approach is that they are entering the US market where they will be competing directly with Wal-Mart, not by directly competing in rural and/or suburban areas against the supercenters, but in the urban areas that will be in direct competition to the neighborhood store concept being rolled out by Wal-Mart.
Tesco is smart. They will, no doubt, be going head to head with Wal-Mart (as basically ALL retailers do in the states). And what better way to do that than go into the urban settings where Wal-Mart has been getting so much push-back? This path will be Tesco’s entree into the US market, which will allow them to build a brand and develop a following of consumers in highly concentrated areas.
Think about it. By dropping even a 15,000 sq ft store into a highly populated area, they will have at least a similar consumer reach of a 200,000 sq ft supercenter in the middle of nowhere.
If they are successful and have built a brand following in urban markets, then expect the expansion into larger format stores.