Critics cast doubt over Tesco’s US expansion

Mike Dennis, an analyst at Piper Jaffray, has criticised Tesco over its expansion in the United States.

Mr Dennis said poor weekly sales at the supermarket giant’s recently opened Fresh & Easy stores in the west coast of America could be hit by competition from Wal-Mart’s new Marketside stores.

Mr Dennis said Marketside could draw custom away from Fresh & Easy and give Tesco’s US business an unwelcome broadside to its already weak sales and accelerating losses.

Mr Dennis added that together this would mean revenues in the US will be around $600 million this year, just half of the $1.2 billion forecasted.

Late last year, 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.

The supermarket chain has since opened almost 60 stores but expansion has been put on hold for 3 months.

Mr Dennis warned that disappointing full-year results for 2008 from Tesco could lead to a series of downgrades for 2009.

Many analysts believe Tesco’s recent performance has been weaker than that of its competitors. However, it is still expected to deliver a 10% increase in profits to about £2.8 billion.

Mr Dennis’ comments come just a few weeks after he said it could cost Tesco £400 million to exit the US, a dramatic move the supermarket insists it is not contemplating.

It is currently a challenging time for Tesco. It commenced legal proceedings against The Guardian newspaper last week.

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%.

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