Tesco’s US expansion is in doubt

Late last year, supermarket giant Tesco announced it was to embark on a major expansion of the west coast of America. It opened the first Fresh & Easy Neighbourhood Market in the city of Hemet which is about 75 miles east of Los Angeles.

However, the supermarket’s plans to make it big in the US have been questioned when a major US stockbroking house claimed the stores are struggling.

Piper Jaffray said sales are far short of target and the stores need an urgent overhaul. Mike Dennis of Piper Jaffray warned the Fresh & Easy concept is not right and they need to quickly find out what the issues are and reset the concept.

According to Mr Dennis, it could cost Tesco £400 million to exit the US, a dramatic move the supermarket insists it is not contemplating.

Mr Dennis said the overall indication seems to be negative which asks the question of how bad it could be for Tesco’s Fresh & Easy stores across California, Arizona, Nevada and what it would mean to Tesco’s long-term growth rates and international strategy in the US.

Following the statement by Piper Jaffray, a spokesperson for Tesco said this appears to be a bit of scaremongering particularly as Mike Dennis hasn’t even spoken to us about Fresh & Easy’s performance.

It is ridiculous to make judgments just 4 months after the first store opened. I don’t know when Mike last visited California but the up-to-date picture is one of growing sales, increasing customer numbers and more repeat visits, added the spokesperson.

Retailers including Dixons, Marks & Spencer, Next and fellow supermarket giant Sainsbury’s, have all attempted to grow business in the US but failed.

Tesco is the biggest player in the British grocery market with a 30% share of the market. Asda controls 16.9% of the market, Sainsbury’s has 16.4% while Morrison’s is in fourth place with 11.5%.

Tesco’s Fresh & Easy stores are about a quarter of the size of the traditional US supermarket. It is attempting to build on the success in the UK and Europe of its Tesco Express local stores. The store includes a kitchen table where an employee warms up samples of prepared foods such as curries and pizza. Furthermore, customers have to scan their own purchases at the check-out registers with staff available to help.

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