Tesco grocery expansion on hold
RIVERSIDE, Calif. —Tesco this month put a three-month hold on new store openings to assess the performance of its Fresh & Easy Neighborhood Markets. The chain said the move was preplanned, but it raised questions about how its concept store is faring with U.S. shoppers.
Tesco said its April 8 store opening in Arizona would be its last until July. In the meantime, it plans to make changes to address unspecified issues in stores.
“We’ve given ourselves a little time to kick the tires, smooth out any wrinkles and make some improvements that customers have asked for,” said Tesco U.S. marketing director Simon Uwins. “Quite simply, it’s to allow the business we’ve created time to settle down.”
He said Tesco opened 31 stores during a 66-day period earlier this year, in what he described as “an opening program on steroids.” Tesco has opened 61 stores since its November 2007 debut in California, Arizona and Nevada, and plans to have 200 stores by February 2009.
Tesco spokesman Brendan Wonnacott said its current hold on new openings was part of its original plan and that its expansion plans are on track. “Before we even opened our first store, we left a period of time open where we would stop expanding and assess the business,” Wonnacott said.
Tesco’s stores don’t have pharmacies and stock a small selection of OTC products. In January, Tesco agreed to take over 10 former Rite Aid locations in Las Vegas and will convert the stores later this year. But they’ll be standard Fresh & Easy outlets, and Wonnacott said Tesco has no plans to get into the pharmacy business.
The three-month break has raised questions about the health of Fresh & Easy, especially in light of a March 13 report from Mike Dennis, a U.K.-based analyst with Piper Jaffray, who alleged stores were 70 percent under original sales projections. In March, Dennis told London’s Evening Standard newspaper that the “Fresh & Easy concept is not right, and they need to quickly find out what the issues are and reset the concept.”
Tesco hasn’t commented on Dennis’ allegations and said its sales are on track with original projections, though the company hasn’t released sales figures and won’t do so until late 2008.
To date, Tesco has made few notable changes to its business model, but it’s expected to address issues raised by some critics, including alleged problems keeping its shelves stocked, particularly in the produce section.
While some critics have been quick to paint Tesco as a retailer with problems, others say it’s too soon to judge it after just four months in business in the United States. “One thing they do very well is listen to consumers and make changes accordingly,” said George Whalin, president or Retail Management Consultants in San Marcos, Calif. “And they have a good track record [entering new countries], so they’ve been down this road before.”