Supply Chain Systems Seen Boosting Tesco's U.S. Stores

MICHAEL GARRY

El Segundo, Calif. — Tesco's U.S. operation here, which plans to launch its first Fresh & Easy Neighborhood Market stores in Southern California Nov. 8, is expected to leverage a number of supply chain technologies and practices that have served it well in the U.K. and other countries, according to industry observers.

“They will push their supply chain technologies to maintain the right amount of fresh product at low prices in this region,” said Gary Herman, chief information officer, Unified Grocers, Commerce, Calif.

Tesco ranks ninth on AMR Research's 2007 Supply Chain Top 25 list of the best global supply chain practitioners across industries. The only other food retailers on the list are Wal-Mart Stores (sixth) and Publix Super Markets (23rd).

One of the key supply chain technologies that Tesco will use in the U.S. is an internally developed continuous-replenishment program that generates orders for its stores based on each store's POS data. Stuart McGill, chief technical officer, Micro Focus, Newbury, U.K., told SN that his company has worked with Tesco to bring that application — which has benefited its bottom line in the U.K — to the U.S. Greg Sage, Tesco's international corporate affairs manager, declined to comment on the application.

Mike Griswold, research director for AMR Research, Boston, said he sees Tesco leveraging transportation technology for its U.S. operations. “Transportation is difficult in the U.S., so they'll use technology for routing and building truckloads to make it as efficient as possible.”

Transportation efficiency is especially important to Tesco because of its penchant for frequent store deliveries, typically one in the morning and one in the late afternoon to each store for fast-moving items, said Griswold. This is often coupled with products being delivered to a warehouse and then rapidly sorted and dispatched to stores. “It will be interesting to see if they can do this in urban U.S. locations,” he said. “They have pulled it off in London.”

Tesco plans to open 30 stores this year in the Los Angeles area, San Diego, Phoenix and Las Vegas, followed by 20 more by the end of February, and 100 more that are in the pipeline.

Tesco's Gage declined to comment on the frequency of U.S. deliveries, but Simon Uwins, a Tesco executive who writes a blog on Tesco's U.S. website (www.freshandeasy.com), described the process that will be used to deliver smoothies and breakfast juices to U.S. stores.

“Not only is [Tesco's Riverside, Calif.-based distribution center] close to our stores, but it's also within easy reach of a number of suppliers, including our smoothie and juice supplier,” he wrote. “With daily deliveries to our stores, there's little delay in getting the smoothies and juice to them.”

Tesco is also noted for keeping lean inventory in its stores' back room and on shelves — between two and three days' worth overall, said Griswold — especially in smaller ones like the 10,000-square-foot units it will operate in the U.S.

What enables it to do that in the U.K. is that some products, such as two-liter bottles of Pepsi, as well as many produce items, are shipped in ready-to-sell units that roll off trucks on dollies into selling locations on the sales floor. “We'll see if they get that kind of cooperation from suppliers in the States,” Griswold said. “We don't see that in the States.”

In addition, Tesco often uses roll cages — also uncommon in the U.S. — rather than pallets to move products from trucks to the sales floor for display or put-away. “Tesco doesn't allot many labor-hours for multiple handling of products,” said Griswold. “So I expect product will come in and fit on the sales floor.”

Gage said that the wheeling of products into stores “depends on the product and the size of the store,” adding, “we haven't gone into those sorts of details on what we will be doing at Fresh & Easy stores.”

Tesco's supply chain operations will be supported in the U.S. by one of its U.K. private-label suppliers, Nature's Way Foods, which supplies ready-to-eat salads and prepared produce; the company told SN that it has opened a production facility in California to provide products just to Tesco.

AMR Research reported that another U.K. private-label supplier, 2 Sisters Food Group, which makes chicken products, also plans to establish a production plant in California to supply Tesco; 2 Sisters Food Group did not respond to requests for comment.