Fresh & Easy Seen Exceeding Targets

JON SPRINGER

NEW YORK — Armed with a unique market concept and free of the burdens of legacy U.S. retail practices, Tesco's Fresh & Easy concept could easily exceed its prediction of having 200 stores open by February of 2009, a London-based food retailing analyst said.

Tesco, which opened its first stores in California just last month and currently operates 30 sites, has 270 sites in its development pipeline, according to James Anstead, U.K. food retail analyst for Citi Investment Research here.

“Tesco will be very keen to overdeliver” on its expansion plans, Anstead said in a conference call. “I don't think 1,000 stores by the end of five years is at all unrealistic. Within 10 years, 2,500 stores is not impossible.”

Tesco is poised to succeed in part because it has “a clean sheet of paper,” allowing it to implement aspects like self-checkout and central back-office support chainwide easier than an existing supermarket could, Anstead added.

“Self-checkout is much easier accomplished for a retailer coming in with a clean slate than it would be for an existing retail player,” he said. “It would be a radical move that might not get approval of customers if it were tried at an existing U.S. chain. But it's much easier when you're starting from scratch.”

Anstead, along with colleagues Deborah Weinswig, a U.S. retail analyst, and Michael Kaye, a retail consumer specialist based in London, said Fresh & Easy's unique store format and sharp pricing provide the opportunity for a dense concentration of stores that would take market share not only from traditional supermarkets but from quick-service and casual restaurants and convenience stores. They also said they expect Tesco could take the vehicle to new markets — Anstead suggested Denver and Chicago — before long.

“The common assumption in the U.S. was that Wal-Mart would fill in the gaps between Supercenters with its Neighborhood Market stores,” Anstead said. “It's interesting to see that it's Tesco that's doing that rather than Wal-Mart.”

According to Citi's studies, Fresh & Easy had pricing around 25% lower than Safeway prices with a club card, and around 3.5% more expensive than Wal-Mart.

Although some observers criticized Fresh & Easy for having an underwhelming design, Anstead said the no-frills look supports the pricing message. He contrasted the bare look to that of Sweetbay, Delhaize Group's Florida chain, which discovered that its attractively renovated stores gave its shoppers the notion that prices were less competitive.

“It's undoubtedly basic,” Anstead said of the Fresh & Easy store design. “Having said that, it's not necessarily quite the negative that some people are portraying it to be.”