Tesco strikes back at Wal-Mart
British supermarket giant has decided to expand into the US food retailing market, opening stores in 2007 in California. It plans to get its feet wet in the American market with a chain of convenience stores.
Tesco's move has to be causing some worrying at Wal-Mart headquarters. Tesco has proven that it can fight against Wal-Mart in the UK, thriving in spite of Wal-Mart's purchase of British Asda supermarkets in 1999. The general prediction was that Wal-Mart would soon dominate the market, but Tesco has held on to 30% share of the UK market, while Wal-Mart has been stuck at around 16%, is losing traction, and has lately been fined over 850,000 for braking labor laws and has been whining about Tesco's growth. Tesco in a sense has out-Wal-Marted Wal-Mart, with variety and discounted prices, along with a variety of formats from superstores to local convenience stores. It has also managed to appeal to some upscale customers.
It is striking that Tesco is starting at the convenience store level. As a Wall Street Journal article points our ("Tesco Jumps the Pond", 2/10/06)
The announcement ends months of industry talk about Tesco's plans for the U.S., fueled by the group's aggressive expansion elsewhere, particularly in Asia and in Eastern Europe. Some analysts had expected Tesco to enter the U.S. by purchasing a big supermarket chain.
Actually, the convenience store market is far more fragmented in the US than the narrowing supermarket industry. The only big national rival is 7-Eleven, which was recently acquired by its Japanese affiliate. And, as the WSJ article points, as convenience stock more fresh food, they are starting to compete with supermarkets.
Tesco has also been expanding overseas in Korea and Poland, but it is pulling out of Taiwan after a rough time there.
Of course, European supermarket companies from France's Carrefour to the Netherlands' Ahold have tried and failed in entering the US retail food market. As an Observer article ("Mixed messages as Tesco heads for Californian sun, 2/12/06) says:
The markets are often spooked when a British company says it will take on Uncle Sam in his own backyard, and especially when retailers say it. The corporate graveyards are littered with the tombs of British/US disasters.
But Tesco has the reputation of being even better run and smarter than Wal-Mart, and if it manages to respond well to America customers, it might well establish a beachhead in the US.
