Tesco, the UK supermarket group, insisted on
Tuesday that its US expansion plans were on track,
amid growing speculation that the initial performance
of its new Fresh & Easy discount grocery stores
concept has fallen short of expectations.
Mike Dennis, an analyst at Piper Jaffray, is the
latest commentator to question the success of
Tesco's launch in the US.
He wrote in a note to clients that the 50 stores
opened so far around Los Angeles, Las Vegas and
Phoenix could be averaging sales of $170,000 a
week, against what he said were planned initial sales
Mr Dennis argued that the slow start would hit
Tesco's longer-term earnings projections.
Tesco said in a statement on Tuesday that the
stores were "proving very popular". It added: "What we
are seeing is growing sales, growing customer
There have been widespread anecdotal reports in
the US that the small neighbourhood groceries,
similar in concept to an Aldi discount store, have been
failing to attract customers at the rate needed.
In December, Jack Brown, chief executive of Stater
Brothers, a supermarket chain in southern California,
said his stores had seen "almost no impact" from the
first 20 Tesco stores that opened in his stores'
Jim Prevor, a US grocery industry consultant and
analyst, told a group of investors this month that he
estimated the Tesco stores were averaging weekly
sales volumes of $50,000 to $60,000.
Piper Jaffray said if traffic was slow "then Tesco
must be concerned that the Fresh & Easy concept is
not right and that they need to quickly find out what the
issues are and re-set the concept or ranges".
It also argued that lack of traffic suggested the
discount format was "not as robust a store concept as
we first thought".
Tesco is continuing to push ahead with its
ambitious US plans, with another 150 stores expected
to open over the coming year in its initial markets.
It has committed £1.25bn ($2.48bn) over five years
to its US expansion plans.
It is signing leases on additional store sites in
northern California, where it is also planning to open a
second large distribution centre outside Stockton.
Real estate agents in Chicago have also told local
newspapers that the retailer is in the early stages of
looking at potential sites for a distribution centre in the
Tesco is being closely tracked by US rivals. Wal-
Mart is planning to test similarly sized new grocery
stores in the Phoenix area and Safeway also plans to
open small format stores in northern California .
Source: The Financial Times Limited 2008
Most Fresh & Easy outlets will be relatively small,
at about 10,000 square feet. Although about the same
sales-floor size as the average Walgreen's, a chain of
drugstores, most food retailers in America are either
much bigger (six Fresh & Easy's would fit into a typical
supermarket and ten into the average Wal-Mart), or
much smaller (each is about three times the size of a
7-Eleven convenience store).
Convenience - Tesco is betting that there is
demand for smaller stores closer to home with fewer
products, making it easier to find things. 40% of
convenience sales come from cigarettes and tobacco,
followed closely by beer and wine. As for nutrition,
most offer little more than snacks and frozen pizza.
This is more like Japan where convenience and
quality food are available together.