British Invasion of Grocer Tesco To Shake Up U.S. Marketplace

Forget about rock'n'roll and low-mileage compact cars. The latest competitive threat from overseas could be a food fight with Britain's international grocery and retail merchandising chain Tesco PLC. The world's third largest retailer — with some 3,000 stores and 450,000 employees — wants to be faster, leaner and more in touch with the needs of today's shoppers.

Tesco will launch a chain of stores in the western U.S. later this year under the Fresh & Easy Neighborhood Market brand name.

The stores will average 10,000 sq. ft. with “easy-to-shop aisles” designed to help customers get in and out quickly, a stark contrast to today's sprawling supermarkets that are typically at least 45,000 sq. ft. Fresh & Easy will also place a heavy emphasis on nutritional food, including pre-prepared meals at affordable prices.

“They [Tesco] want to be the place where you can go and shop two to three times a week, pick up items and go home,” says Walter Pagel, senior vice president with Grubb & Ellis based in Newport Beach, Calif. “People on the go, dual-income families, aren't shopping like they used to.”

Twelve sites in greater Los Angeles have been identified, including one in Compton, an economically depressed area. Additionally, 20 sites in Phoenix, 14 in Las Vegas and seven in San Diego have been secured — all markets with significant population growth. Retail branches in this first wave of development are expected to start opening in late 2007. “They were doing so many deals, it was a machine,” says Pagel, referring to the British invasion of Tesco.

Acting on behalf of client DBN Development, Pagel successfully marketed a site to Tesco in San Jacinto, Calif., located in the Inland Empire. Tesco entered into a ground lease to build a Fresh & Easy store on the site. The retailer is changing the rules of the game when it comes to site selection, says Pagel. A typical supermarket and drugstore-anchored center with in-line stores requires 10 acres, but the smaller prototype means that five-acre sites are now in play.

Ultimately, the Fresh & Easy concept will hurt weaker grocers, according to analyst CIBC World Markets, which issued a June 27 report on national supermarket chain Kroger Co. “At this stage, all three southwest markets [California, Nevada and Arizona] are still populated by weak grocers, both regional and independent,” the report stated. “In areas immediately around those Tesco stores, these older, tired competitors will be the most vulnerable.”

By 2011, assuming more than 500 Fresh & Easy stores are open by that time, Tesco could be generating $3.8 billion in annual sales in the U.S., according to CIBC. In the final analysis, existing grocers will have to adjust by upgrading stores and product lines, or perish.

THE TESCO EMPIRE

British grocery giant Tesco PLC operates in 13 countries. It is entering the western U.S. with its Fresh & Easy Neighborhood Market chain.