British supermarket giant Tesco has unveiled dramatic plans to launch itself into the American markets - in a move bound to send a shiver through the ranks of its international competitors.
Beginning next year, the retailing superpower, led by chief executive Sir Terry Leahy, intends to spend up to £250 million a year developing convenience stores, initially on the West Coast.
Analysts at Fitch, which rates Tesco’s creditworthiness, estimate Tesco could open upto 200 outlets on the West Coast, subject to the relevant approvals.
The American stores will ape the Tesco Express concept in Britain - smaller convenience stores situated at the heart of the hight street - in a move that suggests Tesco is not planning to go head to head with market leader WalMart - at least not just yet.
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Sir Terry, who is venturing into a market that has been plagued with difficulties for his rivals in the past, today named Tim Mason, the group’s marketing and property director as the head of its set-up operations in the United States.
Tesco, which will fund the move from existing resources, hopes to reach break-even by the end of its second full year of operations.
“This is a tremendously exciting move for Tesco, which will add a new leg to our international expansion,” Sir Terry said. “The United States is the largest economy in the world with strong forecast growth and a sophisticated retail market.
“It is a market we have researched extensively for many years and over the last year we have commited serious resources to developing a format that we believe will be really popular with American consumers.”
Richard Ratner at Seymour Pierce described Tesco’s American launch as a “bit of a surprise”, but added that the broker was “certain that Tesco has done its homework”.
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Tesco already operates an increasingly powerful international network of supermarkets - with a total of 2,467 stores in 13 countries including Poland, the Czech Republic and Turkey. It said today that more than half its selling space is now situated outside the UK.
And it already has a joint online venture in the United States with American retailer Safeway Inc, which is not related to Safeway in the UK, owned by Wm Morrison.
The retailer said the American grocery market is currently worth more than £343 billion and is forecast to grow 40 per cent over the next five years.
Jonathan Pitkanen, senior director at Fitch, said the risk involved in Tesco’s American adventure were more reputational than financial, pointing out that the retailer has been analysing the market for more than 20 years and describing the Safeway Inc joint venture as “less than successful”.
“There is material execution risk given the organic nature of the expansion process and the group is obviously concerned that incumbent supermarket or convenience store operators may react with copycat concepts,” Fitch added.
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Tesco, which claims a 30 per cent share of the British grocery market and accounts for about £1 out of every £6 that is spent by British consumers, made pre-tax profits last year of more than £2 billion.
It has come under increasing fire domestically for its dominance of the market which, as with its rivals J Sainsbury and Asda - owned by WalMart - has often come at the expense of small privately-owned high street stores.
Shares in Tesco closed last night at 322p, valuing the retailer at more than £25.6 billion.
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