EL SEGUNDO, Calif. -- U.K. retailer Tesco PLC's new U.S. grocery/convenience store venture, Fresh & Easy Neighborhood Markets, has unveiled expansion plans including wanting shoppers in the urban centers it targets never to be more than a mile from one of its stores, said Reuters. Three weeks after launching near Los Angeles, Fresh & Easy's U.S. CEO Tim Mason told reporters on a road trip to some of the discount chain's first 15 stores that the number of outlets would swell to around 200 by February 2009.
Meanwhile, Tesco also has built an 80,000 [image-nocss] sq.-ft. food preparation facilitydubbed the Fresh & Easy kitchenat the Riverside distribution facility, added a report by The Financial Times.
Plans are also advancing to open a second distribution center in Stockton in northern California. Like the first one near Los Angeles, the facility could serve up to 500 stores.
Mason said he saw "enormous possibility. We want the stores to be no more than two miles apart so no one has to travel more than a mile to get to a Fresh & Easy."
Fresh & Easy's roll out in Las Vegas, Los Angeles, San Diego and Phoenix is being closely watched by players in several competing retail channels. Tesco, the world's third-largest retailer after Wal-Mart and Carrefour, is bankrolling the venture to a tune of 250 million pounds ($516 million) per year over five years. Industry analysts predict the small, 10,000 square-foot convenience markets will cause a shake up of what is the world's most competitive retail market and the home of Wal-Mart.
TNS research analysts forecast Fresh & Easybased in the U.S. in El Segundo, Calif.could be the 10th largest U.S. retailer by 2015 with revenues of $10 billion. Fresh & Easy has said it will pass through breakeven in its second year of trading.
Mason, who is a Tesco board member and viewed as a possible successor to Tesco CEO Terry Leahy, said Fresh & Easy's prices were as much as 25% lower than industry rivals such as Trader Joe's, Ralphs and Albertsons. Fresh & Easy's 3,500 product lines combine with higher quality fresh produce and all-important ready meals targeted at the growing number of time-pressed but health- and environmentally concerned U.S. shoppers.
Tesco wants its prepared meals, such as chicken curry, sushi rolls and Caesar salads, to be an important part of the appeal of the Fresh & Easy stores. But it decided to set up its own kitchen rather than use third-party suppliers because of concerns over prevailing U.S. standards in the sector, said the report.
"The reason for doing it ourselves was that there was no one here that could do it to the same standards," Mason told the newspaper.
Some 40% of the ingredients for the kitchen, including meat, poultry and fruit and vegetables, are provided by Wild Rocket Foods and 2 Sisters Food Group. The two U.K. suppliers have each invested $100 million in setting up food processing plants adjacent to Tesco's Riverside distribution center.
"It's all about getting the supply chain as short as possible," John Burry, Fresh & Easy's chief commercial officer of centralized planning at the warehouse complex, which ships about 95% of the items sold at the stores, told the paper.
Tesco said its buyers will source food from the kitchen at commercial margins, to benchmark the performance of its operations.
Tesco has never before tried to make the food it sells, the report said. But the discount operating model of its U.S, business increases the attraction of the higher-profit margins yielded by making its own food, rather than using a third-party provider.
"We could have asked one of our suppliers to come over and they would have jumped at it, but we felt we could do it ourselves," Burry told the paper on a tour of the facility last week. "We have lots of experience in this, and the margin is much better. Why pay someone else to do this?"
The kitchen, with its giant cookers, stirring vats and the pasta-making machine imported from Italy, produces 120 different product lines from ready meals to fresh sushi and sandwiches. Burry said he expected to expand that to about 150 lines and the existing kitchen site can be doubled in size to serve up to 500 stores. Tesco is considering building a second kitchen, or smaller "kitchenette" at its planned Stockton distribution center.
Orders from the stores are placed with the kitchen at 2:00 a.m.this means Tesco can incorporate all the previous day's salesfor next-day delivery.
Wild Rocket and 2 Sisters, which also supply pre-packed fresh products for the Fresh & Easy stores, chop and prepare the required amounts of vegetables and meat for the kitchen to be made into meals later that day. For fresh salads, Wild Rocket will take leaves picked by their suppliers in northern California and then wash, prepare and ship them to the kitchen at the distribution center, said the report. The proximity of the suppliers and the kitchen to the warehouse means that the lettuce can go from the soil to the shelves in three days.
Burry said the prepared food is going down well with shoppersso much so that Tesco had availability problems in the first couple of weeks of opening its first stores.
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