Tesco Gets Billionaire's Backing

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Tesco Gets Billionaire's Backing

LONDON -- Tesco's U.S. chain that will launch later this year with the brand 'fresh and easy' attracted the attention of billionaire Warren Buffett, who raked in 177.8 million Tesco shares, at a 2 percent stake, through his company Berkshire Hathaway, Inc., Bloomberg News reported, citing company filings.

Debbie Bosanek, a spokeswoman for the Omaha, Neb.-based company, declined to comment on the investment, the report stated.

Analysts believe Buffett may be taking a wager on the brand's success. "It's going to face some real hurdles because it's a brand new market for them and one that is extremely competitive,'' George Whalin, president of Retail Management Consultants, located in San Marcos, Calif., told Bloomberg News. "Having Buffett buying your stock, though, is a great endorsement, and he tends to get it right.''

The U.S. tends to be a lost cause for other British retailers. J Sainsbury Plc, the U.K.'s number three food retailer, sold East Bridgewater, Mass.-based Shaw's Supermarkets Inc. for $2.48 billion in 2004. Marks & Spencer Group Plc sold Brooks Brothers in 2001 for less than a third of the $750 million it paid for the clothing brand 13 years earlier, the report stated.

"Other retailers failed because they either expanded too quickly or didn't do enough research on the market before entering it,'' said Ted Scott, who manages $4.23 billion in U.K. stocks -- including Tesco's -- at F&C Investment Management Plc in London. "Tesco's done its homework.''

Tesco has filed trademarks for three variants of the 'fresh and easy' name that will appear on the company's stores, which will open this year through a $490 million expansion plan, according to the report.

Tesco has seen large amounts of criticism for its Wal-Mart-like approach of retailing. "Tesco is living proof of a winner-takes-all dynamic in British retail,'' Andrew Simms, policy director for the New Economics Foundation, told Bloomberg News. "Tesco's expansion has resulted in the mass extinction of local retailers.''

Others believe the U.S. venture could be a new page for Tesco. "Tesco is seen as the Wal-Mart of the U.K.,'' said Bryan Roberts, an analyst at Planet Retail in London. "Being virtually unknown in the U.S. will be viewed as a clean slate for the company and somewhere where it can make its mark.''

While published reports state that Tesco plans to build anywhere from 250 to 300 stores in the U.S. and expand depending on its success, the size of its Riverside, Calif.-based distribution center shows it could support much more. The facility includes two warehouses and a 101,000-square-foot office and food processing center, Bloomberg News reported.

"It's a typical distribution center size when you compare it to other retailers that serve about 1,000 stores,'' said Roberts. "Tesco won't be stopping after opening outlets in California. It'll be looking to roll out the concept nationwide.''

Whether nationwide or West Coast-based, the retailer cannot expect the process to be effortless, according to one investor.

"It doesn't matter how much Tesco plans this, it's bound to run into some difficulties,'' said Grahame Exton, who manages £6 billion in assets at Tilney Investment Management, including Tesco shares. "It just needs to hope its shareholders are patient and remain committed.''