SN Year in Review 2007: Tesco's British Invasion Sets Stage for Future Growth

ELLIOT ZWIEBACH

NOW THAT TESCO HAS begun opening stores in the U.S., it says it's definitely here to stay.

While most supermarket competitors shrugged and figuratively flicked the British fly off their American lapels, some more neutral observers are convinced Tesco's Fresh & Easy format will be attractive enough to American consumers to become a national force within three to five years — possibly clearing the way for full-scale Tesco supermarkets in the U.S. someday.

Of more immediate concern to Tesco than expansion, however, is whether it can resolve differences with the American judicial system after a District Court judge ruled in December that it had to make some adjustments at its Riverside, Calif., distribution center to meet environmental compliance requirements — a challenge Tesco was confident would not force it to shut down the operation.

At year's end. Tesco was on track to meet its goal of having 50 U.S. stores in operation by late February — with another 150 set to open in 2008, some of which might be outside the chain's initial Southwest geography.

After investing more than 18 months studying U.S. consumers before opening a single store, Tesco began opening stores in early November, and it remains committed to spending more than $2 billion over the next five years to open hundreds of Fresh & Easy stores.

The format is simple enough: eight aisles in a 10,000-square-foot space offering produce and other perishables, chilled ready-to-eat foods and an assortment of private-label products — all at prices just north of Wal-Mart's — with eight self-service (or at most assisted) checkstands.

One unimpressed observer called Tesco's effort “a modern-day Bunker Hill, with likely the same outcome as before.”

That assessment jibed with the reactions of several conventional supermarket competitors, who were dismissive in their remarks to SN about the prospects for the Fresh & Easy stores, citing the prepackaged produce and the self-checkouts as big negatives that would definitely not appeal to U.S. shoppers.

However, most analysts were ecstatic. “A brilliant concept,” said one, “and ‘sneaky’ brilliant, because competitors will be puzzled and dismissive of the concept and so will not feel compelled to respond. [But] Fresh & Easy will quietly eat away at the supermarket business and when [they] wake up, there will be almost nothing they can do about it.”