BARCELONA, Spain -- Britain's Tesco, the world's fifth-largest retailer, believes it will create a new market in U.S. food retailing when it opens in the United States later this year with a new store format, according to a Reuters report.
"We can't just go to the United States and do the same thing that is already done there. If we do something new, that will create business," CEO Terry Leahy said on Wednesday during the World Retail Congress in Barcelona, Spain.
The much-anticipated launch of Tesco's Fresh & Easy [image-nocss] Neighborhood Market in the autumn is so secretive that Tesco built a test store inside a California warehouse and told curious onlookers it was a Hollywood film set.
Tesco has said it will open first in Southern California, Arizona and Nevada, but analysts expect it to roll out nationally within the year, tapping a new market for lower-cost, healthy fresh foods, particularly in inner cities.
"I don't think you ever set out to take on any one competitor. I think we can grow the market. I don't think it's a case of taking business from existing competitors," Leahy said, according to the Reuters report.
Leahy kept with Tesco's policy of not providing the finer details of its opening in the world's most competitive retail market and reiterated he did not expect it to go head-to-head with world leader Wal-Mart Stores Inc.
One person familiar with the matter has said Britain's biggest retailer looks set to launch a format straddling a Trader Joe's convenience store and a cheaper priced version of premium organic food shop Whole Foods Market Inc.
But analysts expect that if it finds early success, Tesco will roll out larger superstores that would put it in direct competition with Wal-Mart, the world's biggest retailer.
Tesco has said it will spend $500 million per year to open stores of just 10,000 square feet, smaller than a traditional 45,000-square-foot grocer or a Wal-Mart Supercenter, which is about 200,000 square feet.
It aims to open more than 100 stores within a year. Analysts speculate that figure could be closer to 300, with some saying the high morale at Tesco's headquarters in El Segundo, Calif., could give it a competitive advantage.
A buoyant mood at U.S. Tesco could be particularly uncomfortable for Wal-Mart, which built its business on strong worker loyalty but has seen some of that eroded in the past year by negative publicity and employee lawsuits, according to the report.
"Morale and motivation and making people feel good about themselves and good about the cause is an important ingredient in the success of any retail business and probably more so in America," Leahy said. "American employees really enjoy working for a business they believe in."
Meanwhile, some Tesco observers said they expect the U.K. retailing giant to hit a sweet spot when it opens its stores in the United States, possibly changing the American idea of retailing convenience.
Tesco has been doing an excellent job of throwing a bit of confusion into what people expect, Ted Zittell, a Toronto-based consultant for McMillan/Doolittle, told MediaPost.com. But we do know that it is importing its own supply chain, and whatever its Aha!' surprise is, I expect it may change the way American food retailers do business.
Zittell anticipates that the consumer-centric Tesco will find surprising ways to pair fresh foods and prepared meals, and the stores will be organized differently than customers expect. Tesco is all about being convenient, not just being a convenience store, and Americans have shown they are wide open to that -- look at all the people who go into a Costco just for a hot dog and a drink or are willing to buy a cup of coffee at a Walgreen's. It's all about figuring out new solutions.
One caveat, he says, is how fresh Tesco can keep its food. In England, which is about twice the population of California and about half its size, it's easy to get fresh sandwiches from Bristol to Scotland. Shipping distances in the U.S. will make that tougher, he says.
Tesco's entry into the United States also is expected to influence how other retailers stock their stores and how American consumers shop for groceries, the top executive of U.S. food group H.J. Heinz Co. said, according to a separate Reuters report.
We'll be very interested to see the Tesco experiment on the West Coast, very interested, because I think Tesco is an outstanding retailer. It will be interesting to see how that plays out, Heinz chairman and CEO William Johnson said at the Reuters Food Summit in Chicago.
It's going to be an evolution in the way that American consumers buy products and that the retail trade is going to have to address.
Johnson said for now, Heinz plans to sell fundamentally the same products in Tesco's U.S. stores as it now sells in other U.S. locations. But he hinted that different products for Tesco could be in the works.
We've got some other things we're working on that I'd rather not get into at this point because they haven't been announced, he said.
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