TESCO EXPANDS WITH METRO FORMATS

MARC MILLSTEIN

BERLIN -- Tesco will move forward with plans to expand its Metro small-store format in London and other areas in the United Kingdom. The move will help Tesco's markets at a time when U.K. planning boards are making it increasingly difficult for retailers to open large stores virtually anywhere in the country. The chain, which now operates 21 of the smaller convenience-oriented supermarkets primarily in congested urban areas, will increase the number of Metro units to at least 30, and could eventually open as many as 100, said Terry Leahy, director at Tesco, Cheshunt, Herts, England.

Leahy spoke about Tesco's experience with the smaller units and the chain's success in capturing incremental food sales in urban areas at the CIES -- The Food Business Forum -- World Forum on Food Marketing Conference here last week. The three-day event's theme was "Re-engineering the Shopping Experience." It attracted about 320 attendees, most of them retailers. Leahy's presentation was entitled, "Variety and Convenience: Catering for the Inner-City Shopper."

Leahy blasted the regulation policies of the U.K. planning boards and contended that retailers are being overly restricted.

"It worries me that there is a tendency in Europe now toward regulation that may result in stifling that very innovation that has made our industry so successful.

"You can criticize many aspects of the North American retailing, but there is no doubt that the consumer is getting a great deal there in terms of value and choice and innovation, for the market is being allowed to operate more freely than many in Europe," he said.

The tighter regulations preventing retailers in the United Kingdom from building larger superstore units in most areas comes as a result of mounting consumer and environmental group concerns, Leahy told SN following his talk.

"A few people get upset because retailers want to serve the majority of consumers better and open more superstores -- and the planning boards are taking up their cause. Eventually it will open up again, but the situation is difficult now," he added. Although Tesco's Metro format was not developed directly in response to U.K. planning board regulations, the stores are succeeding in helping drive company profits by targeting underserved inner-city markets.

"It may be that Tesco has come full circle and breathed new life into an old market, and once again reinvented itself, but this time back on the high street," Leahy said.

"It is interesting now to see some fans holding up Metro as something of an innovation, of a virtue, and concluding that they replace the need for more superstores. Well, nothing could be farther from the truth. They provide a useful complimentary role to superstores, but can never replace them," he said.

"We think there is a place certainly for 30 Metro units, and potentially 100. Time will tell. Clearly they are a niche, not a major market, but we think they are a worthwhile venture for us," Leahy added.

The Metro units, Leahy noted, typically contain about 10,000 square feet of selling space, and they place a heavier emphasis on fresh and prepared foods than would be found in a traditional Tesco superstore.

In the area of private label, the Metro units offer about the same percentage of Tesco-label products as in the superstores. "It may surprise you to know that 55% of our [chainwide] sales are from our Tesco private-label products," he said.

When asked during a question and answer period following his presentation whether Tesco intended to extend its private-label program further, and become, in essence, another Marks & Spencer, Leahy stressed the importance of maintaining a strong national brands presence in food stores.

"No, we will not expand [into private label] much further. In fact, the proportion of private label in our stores has been fairly stable for some time, shifting by only about 1% or so a year," Leahy said.

"The reason for that is if we expanded further, consumers wouldn't accept it. Stores must continue carrying major national brands. Some retailers have tried in the past to extend their private-label offerings beyond a certain point, and they got a lot of consumer resistance."