Tesco is California dreaming

The British grocer hopes to have a corner of the US market in the bag with its brave Fresh & Easy venture, reports Richard Fletcher in Los Angeles

Tim Mason is packing bags for customers in the Fresh & Easy convenience store in Lakewood, Los Angeles. While the Fresh & Easy chief executive packs, customers scan their own shopping. There are no “checkout girls” at Fresh & Easy. It is entirely self-service.

  • Tesco close to deal for second US depot
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    “It is way better,” is the verdict of Victor, whose $30-worth of groceries have just been packed by Mason.

    Victor may be impressed but some of the store’s customers are confused. And it is not just where to insert their $20 bills that has them flummoxed – the whole concept of self-service is baffling.

    “Some of the older customers struggle with it,” admits Trisha, one of a number of assistants on hand to help customers.

    Self-service may be a key component of Fresh & Easy’s “simple and efficient” business model, allowing it to offer Wal-Mart prices in convenience store locations. But, in a country where many stores still carry your groceries to your car, self-service checkouts are a brave move.

    Brave is a word that can be used to describe Tesco’s Fresh & Easy venture. For a string of British high street institutions – including Dixons, Marks & Spencer and J Sainsbury – the US has proved to be an expensive disaster. All have been forced to pull back after ambitious expansion plans crumbled.

    But Sir Terry Leahy, Tesco’s longstanding chief executive, is hoping to prove – once again – that he can prosper where others have failed. Rival retail executives describe his move into the US as “Leahy’s biggest ever gamble”.

    Tesco is one of the few British retailers to have stepped on to the international stage and prospered. Over the past decade Sir Terry has transformed what was the UK’s number two supermarket chain into an international powerhouse.

    When he was appointed chief executive in February 1997, Tesco’s international arm was a fledging operation with just 2.7m sq ft of space. Today the group has more than 40m sq ft of space overseas. When Sir Terry announces full-year results these days, he kicks off his presentation by briefing investors on what is happening in Shanghai rather than Southampton.

    In recent years Tesco has increasingly looked overseas for growth – with the international business accounting for one third of the group’s growth in the first half of the year. With 1,376 stores outside the UK, international sales hit £11bn last year, generating £564m of trading profit.

    Matthew Truman, retail analyst at Tesco’s broker Lehman Brothers, believes the international business is on the cusp with a decade of investment about to pay dividends. By 2012 Lehman expects Tesco’s international arm to account for 34pc of sales and 31pc of profits.

    But Sir Terry is not resting on his laurels. Having taken on the likes of Carrefour and Wal-Mart in Asia and Europe, the UK retailer is now pursuing its American adventure.

    Step into the 675,000 sq ft Fresh & Easy distribution centre on the former March Airbase in Riverside, east of Los Angeles, and the scale of Tesco’s US ambitions are obvious. The warehouse has the capacity to unload and load 150 lorries simultaneously.

    Publicly, Tesco insists it plans to open just 200 stores by the end of February 2009. But the distribution centre could support almost 500 of the group’s small convenience stores – and the retailer is close to acquiring a site in northern California to build a second distribution hub.

    However, it is not just a distribution centre that Tesco has built at Riverside. On the same 88-acre site Fresh & Easy staff are making $2.99 Carne Asada Burritos – which, despite weighing in at a decidedly unhealthy 15oz, are a best seller.

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