Tesco spent last week wowing investors and analysts with its ambitious expansion plans for Fresh & Easy, a new chain of stores on the west coast intended to provide Americans with Wal-Mart-style prices in town-centre locations. It plans to open about 50 stores by February, but wants to increase this to about 250 within two years. If all goes well, it could have as many as 1000 within five years.
The stores, which are based on the Tesco Express concept that’s been doing so well in the UK, will all be about 1000 sq ft in size – tiny compared to the giant Wal-Mart outlets. The idea is to offer Americans an easier shopping alternative: fresh food and ready meals at low cost in smaller, more convenient shops. Tesco thinks there’s a gap in the market, and plans to spend more than £1bn trying to exploit it.
To keep costs down, the stores all use self-service checkouts. This concept is still relatively new in the UK, so it’s likely to prove even stranger to US shoppers, who are used to having everything done for them. For similar reasons, the stores will also carry a lot of own-brand produce. Tesco has set up a factory in Riverside to make its ready meals – partly to make sure it gets the food on the shelves quickly, and partly because it doesn’t trust local suppliers to do it.
As you’d expect, Tesco has done its homework. Before the launch, it conducted extensive market research into the shopping habits of US consumers – ‘we literally went into their kitchens and looked in their refrigerators’, said Fresh & Easy boss Tim Mason – and even created a dummy store in a warehouse to trial the concept.
And so far, the signs are good – in fact demand was so great in the first few weeks that Tesco was having trouble keeping the shelves stacked (although it says that it’s ironed out these teething troubles now).
It’s definitely a gamble by Sir Terry – plenty of companies have come unstuck before trying to crack the US. But we wouldn’t bet against him. Since taking over as chief executive, he’s made Tesco the number one retailer in the UK and turned its international operation into an £11bn business. If anyone can beat the US retail giants at their own game, it’s probably him.