The UK's biggest supermarket, Tesco, is gonna give Walmart a taste of its own medicine by opening stores in the US -
Tesco takes plunge into tough US market
· Top UK grocer to launch west coast Express chain
· Shares fall as City analysts weigh risks of expansion
Julia Finch, city editor and David Teather in New York
Friday February 10, 2006
The Guardian
Tesco is moving into the toughest retail market in the world with a new chain of stores in the United States. The leading British supermarket unveiled plans yesterday to build a new business on the US west coast, based on its Tesco Express convenience store format.
It will invest up to £250m a year to build the new chain. Sir Terry Leahy, the chief executive, hailed "a tremendously exciting move which will add a new leg to our international expansion".
The first stores are likely to open early next year and the operation will be run by Tim Mason, one of Sir Terry's most trusted deputies, and currently the marketing and property director. The new chain is expected to break even within two years.
Tesco was providing few details of its ambitious plans yesterday. The name of the new chain is being kept under wraps, along with the number of outlets planned. But Andrew Higginson, the finance director, said: "If this is successful, we will have hundreds."
Tesco currently operates in 12 countries outside the UK and has 648 overseas stores. It operates 800 Express branches in five countries. However, until now, the group has focused its international expansion on less-developed retail markets in eastern Europe and Asia.
There has been speculation for some time that Tesco was considering a move to the US. The grocer had a team of executives working there throughout last year. They were thought to have been looking for acquisitions, and Tesco's name was linked with several US grocery chains, including Albertsons.
That prospect alarmed some City analysts, who questioned the wisdom of moving into Wal-Mart's back yard and a market with the toughest price competition. British-based retailers have had a poor record with US expansion. Many have tried and failed to gain a foothold, including Sainsbury's and Marks & Spencer. Both bought US food businesses which turned into expensive mistakes.
In recent months, it seemed that Sir Terry had ruled out such a move, especially after the departure last month of the US team's leader, the commercial director Colin Smith, who quit to join Somerfield.
Several analysts began speculating recently that Tesco would instead consider a return of cash to shareholders. Yesterday, as that possibility receded and the City weighed the risks of expansion to the US, Tesco's shares fell back 6.5p to 320.5p.
The new chain, however, will not plunge Tesco into battle with Wal-Mart. The Arkansas-based retail giant is not strong on the west coast, and the Express format convenience stores will not compete with Wal-Mart's out-of-town discount supercentres.
Tesco has been attracted by the size and potential of the market. "The US grocery market is currently worth over $600bn [£345bn] and is forecast to grow 40% in the next five years," said the grocer.
City analysts were split on the wisdom of the move. Oriel Securities said: "The risk profile of owning Tesco has now worsened materially." But Dresdner Kleinwort saw the plan as "a fascinating development with good chances of success".
Thinly sliced meats and fat profits
On the corner of 14th Street and Eighth Avenue in New York, a branch of Balducci's has just opened in an imposing neo-classical former bank. With its vaulted ceilings, Roman columns and suited doormen, it is like a temple for expensive European-style sliced meats and cheeses. Then there is Wal-Mart.
Traditional supermarkets in the United States such as Safeway and Albertsons have been squeezed at both ends: from the rise of pricey retailers aimed at wealthy and health-conscious customers and discounters that have begun making significant inroads into groceries, led by Wal-Mart but also including the likes of Kmart, Costco and Target.
Wal-Mart has become the biggest food retailer in the US, with grocery sales of $109bn (£63bn) in 2004. Its nearest rival among traditional supermarkets, Kroger, had sales of $56bn. One of the most successful high-end chains is Whole Foods Market, which grew out of one shop in Austin, Texas, and emphasises organic produce.
Albertsons, the second-largest supermarket chain, buckled last month after struggling for years with stagnant sales. The company will be carved up into three parts after it agreed to be bought for $9.7bn by its smaller rival SuperValu, the chemist chain CVS and venture capitalists.
There is further trouble ahead for the supermarkets. As Wal-Mart and its rivals have saturated out-of-town and smaller markets, they are now trying to push into big cities. Still, for a retailer that gets it right, there is much to go for. The US grocery market is worth more than $501bn, according to the retail consultants Verdict Research - more than 10 times the British market.
guardian.co.uk
Tesco takes plunge into tough US market
· Top UK grocer to launch west coast Express chain
· Shares fall as City analysts weigh risks of expansion
Julia Finch, city editor and David Teather in New York
Friday February 10, 2006
The Guardian
Tesco is moving into the toughest retail market in the world with a new chain of stores in the United States. The leading British supermarket unveiled plans yesterday to build a new business on the US west coast, based on its Tesco Express convenience store format.
It will invest up to £250m a year to build the new chain. Sir Terry Leahy, the chief executive, hailed "a tremendously exciting move which will add a new leg to our international expansion".
The first stores are likely to open early next year and the operation will be run by Tim Mason, one of Sir Terry's most trusted deputies, and currently the marketing and property director. The new chain is expected to break even within two years.
Tesco was providing few details of its ambitious plans yesterday. The name of the new chain is being kept under wraps, along with the number of outlets planned. But Andrew Higginson, the finance director, said: "If this is successful, we will have hundreds."
Tesco currently operates in 12 countries outside the UK and has 648 overseas stores. It operates 800 Express branches in five countries. However, until now, the group has focused its international expansion on less-developed retail markets in eastern Europe and Asia.
There has been speculation for some time that Tesco was considering a move to the US. The grocer had a team of executives working there throughout last year. They were thought to have been looking for acquisitions, and Tesco's name was linked with several US grocery chains, including Albertsons.
That prospect alarmed some City analysts, who questioned the wisdom of moving into Wal-Mart's back yard and a market with the toughest price competition. British-based retailers have had a poor record with US expansion. Many have tried and failed to gain a foothold, including Sainsbury's and Marks & Spencer. Both bought US food businesses which turned into expensive mistakes.
In recent months, it seemed that Sir Terry had ruled out such a move, especially after the departure last month of the US team's leader, the commercial director Colin Smith, who quit to join Somerfield.
Several analysts began speculating recently that Tesco would instead consider a return of cash to shareholders. Yesterday, as that possibility receded and the City weighed the risks of expansion to the US, Tesco's shares fell back 6.5p to 320.5p.
The new chain, however, will not plunge Tesco into battle with Wal-Mart. The Arkansas-based retail giant is not strong on the west coast, and the Express format convenience stores will not compete with Wal-Mart's out-of-town discount supercentres.
Tesco has been attracted by the size and potential of the market. "The US grocery market is currently worth over $600bn [£345bn] and is forecast to grow 40% in the next five years," said the grocer.
City analysts were split on the wisdom of the move. Oriel Securities said: "The risk profile of owning Tesco has now worsened materially." But Dresdner Kleinwort saw the plan as "a fascinating development with good chances of success".
Thinly sliced meats and fat profits
On the corner of 14th Street and Eighth Avenue in New York, a branch of Balducci's has just opened in an imposing neo-classical former bank. With its vaulted ceilings, Roman columns and suited doormen, it is like a temple for expensive European-style sliced meats and cheeses. Then there is Wal-Mart.
Traditional supermarkets in the United States such as Safeway and Albertsons have been squeezed at both ends: from the rise of pricey retailers aimed at wealthy and health-conscious customers and discounters that have begun making significant inroads into groceries, led by Wal-Mart but also including the likes of Kmart, Costco and Target.
Wal-Mart has become the biggest food retailer in the US, with grocery sales of $109bn (£63bn) in 2004. Its nearest rival among traditional supermarkets, Kroger, had sales of $56bn. One of the most successful high-end chains is Whole Foods Market, which grew out of one shop in Austin, Texas, and emphasises organic produce.
Albertsons, the second-largest supermarket chain, buckled last month after struggling for years with stagnant sales. The company will be carved up into three parts after it agreed to be bought for $9.7bn by its smaller rival SuperValu, the chemist chain CVS and venture capitalists.
There is further trouble ahead for the supermarkets. As Wal-Mart and its rivals have saturated out-of-town and smaller markets, they are now trying to push into big cities. Still, for a retailer that gets it right, there is much to go for. The US grocery market is worth more than $501bn, according to the retail consultants Verdict Research - more than 10 times the British market.
guardian.co.uk