Tesco round-up

The entry of Tesco into the US market (see below, "Tesco to enter US") has generated a lot of commentary. We'll provide links here to some of the items we've read.

The general consensus is modestly positive, although the London stock market pushed Tesco's stock down after the announcement. Several commentators noted that Tesco has good experience in entering foreign markets (they are in twelve countries beyond the UK). On the other hand, they have focused mostly on developing markets, and the US is a very different case for them. In addition, they entered China just last year, and some feel that two big new markets might stretch their management thin.

Almost every story notes that European retailers entering the US market (Sainsbury, Marks & Spencer, Ahold) have had problems.

It has been noted repeatedly that, while they are entering Wal-Mart's home turf, they are also avoiding a direct confrontation by choosing the West Coast, where Wal-Mart is relatively weak, and by starting with a c-store format.

AMR Research says that Tesco's expertise in private label, store execution, and supply chain management will challenge US retailers.

Progressive Grocer: "It's another factor that will accelerate the trend of smaller independent supermarkets going out of business," he said. "It also spells for the convenience store industry another step in the ultimate shakeout of the industry, which, like the supermarket industry, tends to be dominated by smaller, independent chains."

Bloomberg: "The U.S. has been a graveyard for U.K. retailers, so investors are a little cautious…. It could be that it wants to get a flavor for the market through a small operation and then make a massive acquisition to get instant size.''

Convenience Store News: "The move into the United States will mark Tesco's second expansion into a major economy in less than two years. The retailer entered China in 2004, following Wal-Mart and Carrefour SA. Tesco now operates in 12 countries outside the U.K. and has 2,365 stores worldwide. Half of the company's floor space is outside the U.K.

The Sunday Herald: "It has embarked on an ambitious international expansion to fuel the next phase of turnover growth. But thus far, it has stuck to emerging markets like eastern Europe and Asia. Its success has been mixed. It has made significant ground in Poland and Korea. On the other hand, it is pulling out of Taiwan after failing to compete with French multinational Carrefour. And the competition is even greater in its latest territorial conquest. The US is where Wal-Mart reigns supreme; where independent grocers and larger discount goods players have been forced to their knees in its wake. "

The Business: "America is the country that invented big. Everything is supersized, from hamburgers to the girth of its people. So Tesco’s pint-sized assault on the US food retailing market announced last week will either plug the gap for small, or leave its customers feeling undernourished. No-one could accuse Britain’s most successful grocer of rushing into the States. It has agonised over its American problem for 20 years. Only now has it settled on a low risk entrée, launching a stars and stripes version of its successful Tesco Express convenience concept."

LA Times: "Carving out a distinctive identity will be important, said Nate Franke, an Orange County-based analyst with Deloitte & Touche. "It's a brand that is relatively unknown to the U.S. consumer, so I think their strategy has to be to create a niche, something that's different that the consumer isn't currently getting from the existing participants," he said.

The Guardian: "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."

The Telegraph: "It will take all of the experience and knowledge Tesco has acquired through years of study in the US if it has any hope of cracking what is reckoned to be the most developed retail market in the globe. Tesco is launching its plans at a time when a host of US retailers have been forced to scale back or put themselves up for sale. Leading operators such as Albertson's have all been through the motions as they face competition from Wal-Mart on one side, and dollar stores on the other."

Food Production Daily: "Verdict predicts the UK retailer's choice to develop organically is the correct decision as it will not be burdened by the problems of a company it takes over nor will it be encumbered by stores which are unsuited to its operation. Moreover, this route will allow the company to manage its capital expenditure and learn from experience as it expands store numbers."