SPEAKER: 'BE AFRAID' OF TESCO

JON SPRINGER

BOSTON - Bringing unrivaled expertise in supply chain efficiency and a plan to achieve scale quickly when it arrives in the U.S. next year, Tesco's Fresh & Easy format could rank No. 1 or No. 2 in market share in the areas it operates stores within five years, Martin White, a London-based director of AMR Research, Boston, said in a Web cast presentation last week.

"Be afraid - be very wary of Tesco coming to the U.S. market," said White, who said he worked for a competitor of Tesco in the Uni-ted Kingdom for 16 years. "I haven't seen a better grocery operator. While you might win the odd battle, it's a long, hard and bloody war."

London-based Tesco reportedly plans to open around 100 Fresh & Easy stores - expected to be 14,000-square-foot units described as a hybrid of Tesco's Express and Metro convenience stores emphasizing fresh foods - beginning next year in the Los Angeles and Phoenix markets.

Though Tesco has not provided many details of the venture, Tesco's behavior in its home market suggests the retailer would likely locate the units near traditional grocery stores, concentrating on a plan to "cream off the frequent visits and the fresh products," White said.

White said it was also likely that Tesco would follow those stores quickly with an Internet home shopping option, which could help the retailer measure demand for larger traditional supermarkets or even hypermarkets. He said Tesco would likely try to build scale quickly: While the retailer has pulled out of new markets after a few years when prospects were not encouraging, White said he thinks Tesco can be successful in the U.S.

"This is a retailer that has trampled competition in its domestic market, including relegating Wal-Mart to a distant second," he said. "It's a retailer that has gone to a lot of other markets from scratch and built positional stakes that make it impregnable. I believe very strongly that within the next five years they will be No. 1 or No. 2 within their markets."

White cited supply chain efficiencies that save money, drive sales volume and improve service and the shopping environment as key competitive advantages of Tesco, which does about $75 billion in annual sales at some 2,700 stores worldwide. As an example, he cited a "ready to sell" strategy, which involves receiving certain grocery and produce items pre-packed in wheeled store merchandisers, reducing labor costs.

Produce in the "ready to sell" program is popular with consumers because the product is fresher and less prone to bruises due to reduced touches. Tesco can typically replenish such sections with two workers in a conventional grocery store - a job that might take seven workers under a traditional shelf-filling arrangement.

In the U.K., Tesco supported a rapid store rollout by having its stores premade as kits at factories and assembled on-site, including store equipment. "They can get a store up in the U.K. within two weeks, which really does accelerate the ability to roll them out once the property has been settled," White said. It is likely Tesco will try the same strategy in the U.S., in order to gain the scale necessary to drive its efficiencies.

Tesco's arrival should be "a wake-up call" to other retailers to re-examine its supply chain and other processes, White said. Particularly vulnerable, he said, are weaker chains in the Phoenix and Los Angeles suburbs.