Tesco finds Southwest Yanks not so obliging

British retail giant Tesco's big-budget U.S. grocery market invasion appears to be falling well short of expectations, according to analysis of the new chain's first few months of operation.

Most of Tesco's 59 Fresh & Easy convenience markets recently opened across Southern California, Arizona and Nevada are averaging about $60,000 per week in sales, said Michael J. Dennis, a London-based senior research analyst covering the food industry for the Minneapolis-based investment firm Piper Jaffray.

This falls well short of Tesco's reported goal per store of $200,000 a week in average sales, Dennis told Bizpress.com.

Tesco is marketing the Fresh & Easy stores as an alternative to tradition markets, with an emphasis on what the retailer calls healthy, fresh foods and prepared takeout meals at low prices.The individual store formats are about 20 percent the size of traditional supermarkets, but three times larger than an average convenience store.

Dennis said that other than fresh fruits, vegetables and bakery items, sales throughout the stores have been bad.

The rest of their sales have been a disaster,Dennis said.

In a recent 11-page investor report, based in large part on information from suppliers and grocery industry analysts, Dennis changed his evaluation of Tesco stock from buy to neutral.

Tesco officials must be concerned that the Fresh & Easy concept is not right for the United States market,?he wrote in the report, adding that if the Fresh & Easy strategy does not turn out to be as robust a concept as first thought,?the British retailer needs to find out quickly what their issues are.

Tesco officials pointed out that many of the stores have only been open since November and that it is too early to speculate on overall performance.

The retailer has already invested heavily in the venture, constructing a $13 million, 824,000 square-foot distribution center on an 89-acre parcel in Riverside, Calif.

Long considered the al-Mart of Europe,Tesco said it plans to spend more than $2 billion over the next five years to expand its chain in the United States, with a goal of 1,000 locations throughout the country by the end of 2008.

Internationally, the British retailer has expanded aggressively in recent years and opened its first Tesco-branded store in China in January. It also runs retail operations in Hungary, Poland, Japan and Thailand, among other countries.

Source: American Shipper