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Tesco Intelligence Report: Slow Start

Jim Prevor’s Perishable Pundit, January 23, 2008

The prospect of a major new buyer, especially one operating a major new format, has interested the trade and, as a result, we have run many pieces on Tesco’s efforts to establish a beachhead in America.

Tesco announced its holiday sales in the U.K. recently. For the most part, the take was negative as Tesco had projected growth of around 4% in same-store sales in its core U.K. market for the holiday season but only achieved a 3.1% increase — although the company had exceeded expectations on its non-U.K. business as well as on sales of non-food items in the U.K.

The new Fresh & Easy division in the U.S. is too small and too new to break out separate financial results, though Finance and Strategy Director Andrew Higginson used the words “very encouraging” to characterize consumer response to the concept and, in reference to Wal-Mart’s new efforts to experiment with a smaller format, pointed out that “Imitation is the sincerest form of flattery.”

Here at the Pundit, though, we have our own unique intelligence network, and what happens is that virtually every day we receive calls and e-mails from around the industry on topics of current concern. Tesco being of great industry concern, we receive a lot of messages regarding Tesco. In fact, we are well in excess of 200 comments, most saying nothing more than that a given industry member — a wholesaler, a grower-shipper, a broker, a consultant, another retailer — was just in a Fresh & Easy and was reporting his or her perceptions.

The vast majority of these comments contain a line similar to this: “It may just be the time of day or day of the week or perhaps just this particular store — but, there were practically no customers in the store.”

One comment, two comments, ten comments — and it could be the time of the day, the day of the week or the particular store. But so many reports, from many stores on every day of the week and from a diverse mix of times of day, seem likely to indicate that sales are not strong.

Several suppliers have also told us that orders are well below their expectations and at least some primary suppliers have thought the business not worth the trouble and stepped back into secondary supplier roles.

Although Fresh & Easy has signed on to open stores in San Francisco and Oakland, and plans are proceeding to open a Northern California distribution center in Stockton — all evidence that Tesco is dead serious that this is “…a launch and not a trial…” — it also speaks to the fact that Tesco has yet to prove the viability of the Fresh & Easy concept.

We would expect some major revamps to the concept in the months ahead. The commitment has been substantial, so Tesco will go to great extremes to juggle the variables and get the offer right. But there is no assurance that this size footprint is viable.

You have to tip your hat to the courage of the Tesco executives who decided to launch without a trial. In America, we call that kind of gutsy move a “brilliant or bankrupt” strategy. A lot of suppliers are counting on Tesco’s executives to be brilliant.

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