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Last Updated: Monday, 3 December 2007, 23:54 GMT
Tesco makes fresh foray to US
By James Gordon
BBC News, Las Vegas

One of the Fresh & Easy stores set to open in the US
Tesco hopes to have 800 Fresh & Easy stores by 2012

Las Vegas is home to some of the world's biggest hotels and casinos, but just three miles away from the razzle-dazzle of lights on The Strip lies a distinctly un-flashy supermarket - at least compared with the rest of Vegas' glamour.

It is called Fresh & Easy and is owned by the world's third biggest retailer, Tesco.

Priding itself on offering gourmet-style produce, its branding tries to stress its range of all-natural food.

And, as is the trend these days, it is also promoting environmental awareness: the stores are painted green and there is parking for hybrid cars along with bike racks.

Its new distribution centre in Riverside in California - where it makes its salads and ready meals - has one of the largest solar-panelled roofs in the US.

But is the company taking too much of a gamble by stepping foot on American soil?

American focus

Certainly it is out to make a name for itself.

Five branches have opened in Las Vegas within the past three weeks alone with 20 planned by this time next year.

Another 10 are already up and running in Los Angeles and Orange County, with a further three stores opening in Phoenix this week.

Tim Mason
What we're trying to do is to be very useful and very beneficial to American neighbourhoods and I think we're achieving that
Tim Mason
Chief executive
Fresh & Easy

In all Tesco hopes to have 250 Fresh & Easy stores dotted across California, Arizona and Nevada within the next 14 months - and as many as 800 of the outlets by 2012.

But expats hoping to stock up on Branston Pickle and Marmite will be disappointed - the stores are designed for American consumers.

Tesco's entrance into the US market has been a long time coming, with the company, a 40bn international enterprise, studying US shopping habits for 20 years.

The team even sent out researchers to live with 60 American families for two weeks to discover the products they bought and they food they ate.

And the physical appearance of the store had been shrouded in secrecy - with a mock outlet set up in an LA warehouse to test designs and train staff.

Members of the public who were invited were told they were there to take part in a film about supermarkets.

Competitive market

But setting up shop - and making it succeed - is not going to be as simple as the brand name suggests.

Tesco has had to build a distribution network up from scratch and it aims to source 60% of its products locally.

And while it has chosen to target the western US because of the size and density of its urban sprawl, where there are already many other chains looking to sell goods with an emphasis on "fresh" and "cheap".

These include Vons, Trader Joe's, Ralphs, Albertsons and of course, the mighty Wal-Mart.

Cactus on sale
Some products are quite different to those Tesco sells in the UK

Tesco doesn't see Wal-Mart as the main competitor here though.

There are comparatively few in this area of the US and the company is still very much focused on its superstore set-ups; nothing like the type of store that Tesco is going for here.

But that competition, coupled with the sheer size of the area it aims to cover - a drive from Los Angeles to Las Vegas is almost 300 desert-covered miles - may make things much harder than in the UK.

It is a factor that saw Marks & Spencer and Sainsbury's abandon their American dreams in the late 1980s and early 1990s.

But Tesco thinks it has got it right and the stores aim to cater for time-starved shoppers who want fresh, healthy food - including ready meals - at "affordable prices".

The company is promising to locate some of its outlets in areas that desperately need them.

Many low-income, high-poverty areas that have become so-called "food deserts": areas that lack access to fresh, healthy, affordable food.

Brand identity

European chains have long tried, mostly unsuccessfully, to make inroads into the US.

Even US retailers, squeezed by rising costs and big players such as Wal-Mart often end up scaling back or selling out.

Fresh & Easy has had its work cut out - with no established brand, no customers and no distribution network.

It's a far cry from its UK position where Tesco is the dominant grocery brand.

From Tesco Extra to the smaller Express and Metro versions on the High Street, the company controls more than 30% of the UK grocery market.

Fresh & Easy have modelled their west coast outlets on the 800 Express stores in Britain.

Tesco faces challenges from many established low-cost rivals
A number of established US chains also offer fresh produce

The aisles are wide and the shelves no higher than five feet.

Each outlet employs between 20 and 30 people and are much smaller than the typical US supermarket.

The store has a kitchen table area where staff - or as they call them here "crew members" - offer customers the chance to try some of the food for themselves.

Fresh & Easy chief executive Tim Mason is convinced Tesco has developed a winning formula.

"What we're trying to do is to be very useful and very beneficial to American neighbourhoods and I think we're achieving that," he said.

"I mean, we haven't come here to be a small business. There's no point in coming to America and planning to be a small business."

The figures appear to back up that ambition.

'Early days'

Tesco is putting 250m a year into the business after an initial investment of 89m, and it expects US operations to be profitable from the third year.

Editor of trade magazine Retail Week, James Thompson, believes Tesco has made an impressive start.

"It's obviously early days, but certainly in California they appear to have found a niche for fresh food and convenience stores," he said.

"The scale of their rollout plans show Tesco is committed to its Fresh & Easy operation for the long term."

SEE ALSO
Fresh & Easy: Customers' Views
04 Dec 07 |  Business
Tesco plans US stores expansion
03 Dec 07 |  Business
Tesco opens its first store in US
05 Nov 07 |  Business
Tesco sees UK sales growth slow
02 Oct 07 |  Business
Tesco says year will be 'tougher'
19 Jun 07 |  Business

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