UK supermarket Tesco to open stores in America.

The UK's biggest supermarket, Tesco, is gonna give Walmart a taste of its own medicine by opening stores in the US -

Tesco takes plunge into tough US market

· Top UK grocer to launch west coast Express chain
· Shares fall as City analysts weigh risks of expansion

Julia Finch, city editor and David Teather in New York
Friday February 10, 2006
The Guardian

Tesco is moving into the toughest retail market in the world with a new chain of stores in the United States. The leading British supermarket unveiled plans yesterday to build a new business on the US west coast, based on its Tesco Express convenience store format.

It will invest up to £250m a year to build the new chain. Sir Terry Leahy, the chief executive, hailed "a tremendously exciting move which will add a new leg to our international expansion".

The first stores are likely to open early next year and the operation will be run by Tim Mason, one of Sir Terry's most trusted deputies, and currently the marketing and property director. The new chain is expected to break even within two years.

Tesco was providing few details of its ambitious plans yesterday. The name of the new chain is being kept under wraps, along with the number of outlets planned. But Andrew Higginson, the finance director, said: "If this is successful, we will have hundreds."

Tesco currently operates in 12 countries outside the UK and has 648 overseas stores. It operates 800 Express branches in five countries. However, until now, the group has focused its international expansion on less-developed retail markets in eastern Europe and Asia.

There has been speculation for some time that Tesco was considering a move to the US. The grocer had a team of executives working there throughout last year. They were thought to have been looking for acquisitions, and Tesco's name was linked with several US grocery chains, including Albertsons.

That prospect alarmed some City analysts, who questioned the wisdom of moving into Wal-Mart's back yard and a market with the toughest price competition. British-based retailers have had a poor record with US expansion. Many have tried and failed to gain a foothold, including Sainsbury's and Marks & Spencer. Both bought US food businesses which turned into expensive mistakes.

In recent months, it seemed that Sir Terry had ruled out such a move, especially after the departure last month of the US team's leader, the commercial director Colin Smith, who quit to join Somerfield.

Several analysts began speculating recently that Tesco would instead consider a return of cash to shareholders. Yesterday, as that possibility receded and the City weighed the risks of expansion to the US, Tesco's shares fell back 6.5p to 320.5p.

The new chain, however, will not plunge Tesco into battle with Wal-Mart. The Arkansas-based retail giant is not strong on the west coast, and the Express format convenience stores will not compete with Wal-Mart's out-of-town discount supercentres.

Tesco has been attracted by the size and potential of the market. "The US grocery market is currently worth over $600bn [£345bn] and is forecast to grow 40% in the next five years," said the grocer.

City analysts were split on the wisdom of the move. Oriel Securities said: "The risk profile of owning Tesco has now worsened materially." But Dresdner Kleinwort saw the plan as "a fascinating development with good chances of success".

Thinly sliced meats and fat profits

On the corner of 14th Street and Eighth Avenue in New York, a branch of Balducci's has just opened in an imposing neo-classical former bank. With its vaulted ceilings, Roman columns and suited doormen, it is like a temple for expensive European-style sliced meats and cheeses. Then there is Wal-Mart.

Traditional supermarkets in the United States such as Safeway and Albertsons have been squeezed at both ends: from the rise of pricey retailers aimed at wealthy and health-conscious customers and discounters that have begun making significant inroads into groceries, led by Wal-Mart but also including the likes of Kmart, Costco and Target.

Wal-Mart has become the biggest food retailer in the US, with grocery sales of $109bn (£63bn) in 2004. Its nearest rival among traditional supermarkets, Kroger, had sales of $56bn. One of the most successful high-end chains is Whole Foods Market, which grew out of one shop in Austin, Texas, and emphasises organic produce.

Albertsons, the second-largest supermarket chain, buckled last month after struggling for years with stagnant sales. The company will be carved up into three parts after it agreed to be bought for $9.7bn by its smaller rival SuperValu, the chemist chain CVS and venture capitalists.

There is further trouble ahead for the supermarkets. As Wal-Mart and its rivals have saturated out-of-town and smaller markets, they are now trying to push into big cities. Still, for a retailer that gets it right, there is much to go for. The US grocery market is worth more than $501bn, according to the retail consultants Verdict Research - more than 10 times the British market.

guardian.co.uk

Man, opening a Tesco in the US. The founder of this store must be really proud of how the one little store he opened many years ago is now the biggest supermarket ever.

Has anyone else ( I'm talking about the forum junkies that live in Europe) gotten sick of seeing and hearing about Tesco ?.

Yes. I never go there, I dont like it, all their fruits and veggies are crap. I dont think they will do well in the states. There are lots of cheap grocers already.

I get most of my stuff from ALDI since it is really close to my place, bread is 29p so not that bad.

Well good luck to them, competition is always good, but I don't see them having much luck. Neither does the market it seems.

It is absolutely impossible to compete with Walmart for price utility, impossible to compete with US pharmacy (I guess they're called chemists in the UK) chains for time utility on small grocery trips, and would take an enormous capital investment to compete with established grocery chains for place utility for full-service grocery. Tesco's best bet would probably be to compete in the niche health/organic/premium foods market. Whole Foods is doing great, but by no means have they exploited the whole possible market.

I go to France a lot and can't help noticing how independent retailers are a lot stronger there in the sense that there are a lot more of them. Once (I think it was in The Times) I saw something about how your average High Street these days is just a clone of High Streets everywhere in the UK - you have your Boots, your Sainsburys, your Superdrugs, your Carphone Warehouses etc etc.

With companies like Tesco being more agressive in their tactics and the bigger companies being the only ones that can afford the rents these days that some property companies ask for, cloned High Streets will be more common.

I've never understood why Weston hasn't opened a Superstore here in the States. I think they'd kick Wal-Marts behind.

You'd better start panicking, America's WalMart. The British are coming!

UNI supports Tesco's decision to take on Wal-Mart in the United States:

Respect for workers and social partnership to challenge walmartization
Wal-Mart will soon face a substantial challenge at its home market as highly successful British retailer Tesco sets up shop in the United States. To workers and their trade unions, today's announcement from London brings good news. Together with UNI Commerce affiliate Usdaw, Tesco has been leading the way in the United Kingdom when it comes to showing respect for working people and developing constructive and positive relations with their trade unions, both on the national and the global levels.

- We'll open quite a few stores in 2007 and hope for pretty rapid expansion,' Tesco's CEO Sir Terry Leahy said today. - We hope we will be giving U.S. consumers something new and different, he said.

The US West Coast will be the entry point for Tesco, which quite apparently sees this only as a first bridgehead and is expected to seek a fast expansion.

Whereas Wal-Mart has seen its shareholder value fade by more than ten per cent last year, Tesco has added over three per cent to its share prices. It is widely considered that the company's positive approach to human resource management and preparedness to recognise and work with trade unions has been an important factor behind its commercial success.

UNI welcomes Tesco's decision

Philip Jennings, general secretary of Union Network International UNI, welcomes today's news from London:

- Tesco's success shows that treating workers fairly and working with their unions is better for business than the bullying and union-busting favoured by Wal-Mart.

He said that UNI is convinced that Tesco will bring this positive labour relations culture with it to the United States market as well. At home, in the United Kingdom, Tesco and UNI Commerce affiliate Usdaw have a longstanding social partnership arrangement and a large majority of Tesco workers are indeed organised in this trade union.

Wal-Mart is clearly nervous

Wal-Mart's CEO Lee H. Scott must have felt that this would be coming, as he has been nervously attacking Tesco for what he considers to be a dominant position on the British retail scene. His own subsidiary ASDA, which was bought by the Bentonville giant some years ago, has failed to make inroads into Tesco's turf.

Instead of taking on the successful British retailer, Wal-Mart's CEO has chosen to beg for help from government authorities, to curb Tesco's expansion and to make place for its less successful US-owned competitor. Until now, his pleas for help from UK competition authorities have not made any impact, and Tesco continues to add to its lead and even Sainsbury's seems to do much better than the Bentonville giant.

The Wal-Mart boss may indeed do his company a serious disservice - calls for a global curb on Wal-Mart's dominant market position are getting more frequent as suppliers, investors, competitors, consumers and governments are ringing the alarm bells about the dangers for both free competition and social stability which Wal-Mart and walmartization bring with them.

UNI Commerce works with Tesco to promote good labour relations

UNI Commerce has been working successfully with Tesco to promote constructive labour relations and social dialogue in many of the new markets around the world, which the company has entered. Partnership agreements have been negotiated in Poland and Hungary with the participation on the global union. Most recently, UNI Commerce came out in support of the takeover by Tesco of Carrefour's subsidiaries in the Czech Republic and Slovakia, after consultations with the central managements of both companies, and in agreement with the national unions in the two countries.

The starting point for Tesco on the US retail market will surely be its successful neighbourhood convenience store concept, which will, as Mr Leahy said, be a new experience for most US consumers who have got used to equate convenience stores with a traditional drugstore model, or a 7-Eleven. The new Tesco's, whatever the company will choose to call them in the US, will probably be more upmarket, but still price-competitive, if the UK example gives any indication about what the stores will look like.

Respect for workers a cornerstone for Tesco's business success

Most of all, Tesco will surely be competitive through its approach to staff. Respecting its workers and entering into a social partnership agreement in the United Kingdom before any other leading British employer has been a solid cornerstone for Tesco's success. This is the winning model which the British retail multinational is now expected to take with it to the United States, at this may be the reason for Wal-Mart and its CEO being so nervous.

Today's message from London will surely be positively received by the US workers and their families, and by the millions and millions of Americans who are growing ever more unhappy with the destructive brutality of Wal-Mart, with the attack on their health insurance and their living conditions, and with the whole process of walmartization of working life. Far from presenting Tesco as a White Knight in shiny armour, the entry of the successful and socially responsible British retail giant may just be the force which finally wakes up Wal-Mart.

union-network.org

Blackleaf

The successes of foreign retailers in this country are few and far between.

I doubt WalMart is losing much sleep over this.

GB, don't make it sound like wal-mart is going to go down because of this UK expension. wal-mart will swallow up this competion just like it does for everything else

As much as I hate Walmart as well.... They won't make it threw. They are gonna be sent packing like every other foreign attempt to enter the market.

Though, in pharmacies, I know a Québec family owned corp that made it in, buying Edkard(Or how ever its spelled)... None other then Jean Coutu. Oh and Couche Tard that made a huge entrance and is far on its way to becoming the number 1 for liquor stores in North America.

In Kaohsiung, taiwan they are opening a huge Tesco right across the street from Costco. I wonder how that will work. A city of 2 000 000 and they have to open across from Costco. There's also Dollars which is the local equivalent and Carrefour the Frenchy superstore.