Tesco plans foray into US market

The Tesco brand is taking a trip Stateside

UK supermarket chain Tesco is planning to open convenience stores in the US next year, in its first venture into the world's largest economy.

Tesco will spend £250m ($436m) on the venture, funded from existing cash resources, and says it expects to break even after two years.

The first store will open on the West Coast, the company said.

Chief executive Terry Leahy described the venture as a "tremendously exciting move" for the group.

"A strength of Tesco is that we don't just plant a format and hope that it works well. We think this will bring something new to the American market," Mr Leahy said.

Shares in the company were down 6.5 pence, or 1.99%, at 320.5p by the close of trade on the London Stock Exchange on Thursday.

'High-risk'

The US grocery market is worth $600bn a year and is expected to expand by 40% over the next five years, according to Tesco.

A team from Tesco has been scouting out the US market over the past year. The start-up will be led by Tim Mason, currently Tesco's marketing and property director.

There's a risk in terms of the significant cash involved Sanjay Vidyarthi, analyst See Tesco's share price

Tesco plans to base its American stores on its Express small-shop format. It currently has more than 800 Express stores in five countries.

Some analysts remain cautious about the venture, given the disappointing track record of other UK supermarkets attempting to crack the US market, often regarded as a graveyard for British grocers.

"It's clearly high-risk and a bit surprising," said Sanjay Vidyarthi at Teather & Greenwood.

"There's a risk in terms of the significant cash involved, as far as the shareholders are concerned it suggests the cash is going to be invested in growth and won't be returned to them."

But Tesco is confident of success.

"We have committed serious resources to developing a format that we believe will be really popular with American consumers," said Mr Leahy.

The announcement comes a day after market research firm TNS revealed that Tesco's share of UK supermarket sales has risen to 30.6% in the 12 weeks to 29 January, up from 30.5% in the previous quarter.