Viewpoints

Countdown to Tesco: Why Few Retailers Are Deeply Worried

RSS

It's close to the moment of truth in the American Southwest. Soon all the talk and speculation will be over. Tesco will arrive here in November to begin opening some 100 Fresh & Easy Neighborhood Market stores by the end of 2008 in Arizona, Nevada and Southern California. A lot more may follow. The battle is about to rage.

Except that few retailers seem truly concerned. Sure, everyone talks about it, but not in the fearful manner reserved for the discussion of Wal-Mart supercenters and Neighborhood Markets a number of years ago.

Today you hear the same line from virtually every retailer that likely will be in the line of fire: “Tesco is a formidable operator and will do well here. We've studied them and made some preparations. But they will impact others more than us.”

7-Eleven's CEO said supermarkets will be more affected than convenience stores. Stater Bros.' CEO said Trader Joe's, Smart & Final and Bristol Farms will be hurt more than traditional supermarkets. Unified Grocers' CEO speculated that restaurants may feel the biggest bite, if the U.K. experience is any guide. And so on.

What's going on here?

Some answers emerged from the new SN Financial Analysts Roundtable, our annual gathering of the best and brightest minds covering public food retailers (see Page 14). This wide-ranging discussion included a segment about Tesco in which Mark Husson, an analyst at HSBC Securities, remarked on which retailers would be most vulnerable. Husson said: “It's going to be difficult to isolate the impact the Tesco stores will have on supermarkets, because they are going to take business from family and casual dining restaurants, convenience stores, drug stores, non-traditional supermarkets like Trader Joe's and other operators like that as much as they will from Vons and Ralphs.”

Given that reality, Tesco appears to be the ideal competitor, a rival that impacts everyone but mortally wounds no one.

Moreover, Tesco's arrival comes at a time when supermarkets are more competitive than they've been in decades. Many are sporting new or retooled formats with merchandising geared to local areas. They've also survived years of incursions from warehouse clubs, supercenters, Neighborhood Markets and other invaders. So how much damage can a 12,000-square-foot British import cause, anyway?

Supermarkets deserve to feel good about their progress, but they should keep in mind that the British retailer is backing up its assault with heavy firepower. Consider the 820,000-square-foot distribution center in Riverside County, Calif., and reports that Tesco could open 500 units by 2010.

If supermarket executives aren't frightened, who is?

Probably Wal-Mart. It is reportedly preparing two new formats that include an upscale convenience store for urban areas, which sounds like an answer to Tesco's strategy.

Investors also appear to have the jitters. Merrill Lynch just downgraded Safeway's stock, noting, among other things, “the impending entry of the new Tesco format.”

Do supermarket executives need to remake their game plans to battle Tesco? Probably not at this point. But supermarkets will need credible strategies in case more business than expected starts flowing Tesco's way.

Contributors

Julie Gallagher

Julie Gallagher’s delicious foray into coverage of the food industry was purely accidental. With a background in technology, she joined Supermarket News as associate editor of its Technology...

Mark Hamstra

Mark Hamstra is the editor of the Retail/Financial section of Supermarket News covering mergers and acquisitions, quarterly earnings reports, executive changes and other significant events and trends...
What's Viewpoints?

In their Viewpoints columns, SN editors give their perspectives on current industry issues.

Blog Archive
Penton Media Food Group and Related Sites

Sponsored Introduction Continue on to (or wait seconds) ×