Tesco Puts Walmart on Defense

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Tesco Puts Walmart on Defense

LONDON -- British retailer Tesco put Walmart on the defensive this year in a battle that retailing analysts expect will intensify, according to BusinessWeek Online.

In November 2007, Tesco entered the U.S. market by launching Fresh & Easy, a chain of 10,000-square-foot convenience stores, in cities across California, Nevada and Arizona. Walmart returned fire 11 months later, taking on Tesco in Arizona with the debut of the similar-size Marketside, its first new store format in a decade.

"It's a direct message from Walmart to Tesco saying, 'Hey, we're watching you,’” Neil Stern, a senior partner at retail consultants McMillan Doolittle in Chicago told BusinessWeek Online. "And we'll not only copy you; we will do it better."

Burt P. Flickinger III, managing director of New York-based retail consultancy Strategic Resource Group, called Tesco, "Walmart's worst nightmare," in the BusinessWeek article. "While a number of retailers are trying the multi-format approach, Tesco does it the best," he said.

In Britain, Tesco has long outpaced the Walmart-owned discount chain Asda.

Internationally, Tesco's momentum is expected to continue. A recent report from the Institute of Grocery Distribution, a British food industry group, forecasts Tesco, now the world’s third-largest retailer, will continue to grow at an average of 11 percent annually through 2012, enabling it to overtake France's Carrefour to become the world's second-largest retailer by 2012.

Analysts said Tesco's big advantage over major international rivals, which also include Germany's Aldi and Lidl, is its unrivaled ability to manage vast reams of data and translate that knowledge into sales. This gives Tesco two major advantages: an unmatched ability to operate multiple retail formats—ranging in size from convenience stores to hypermarkets—and the market knowledge to offer what many analysts said is the best and broadest range of house brands from any retailer.

While U.S. retailers have struggled to convince shoppers that supermarket brands are as good as big-name counterparts, Tesco's private-label products account for as much as 60 percent of sales in many countries. According to the company, private-label products also account for more than 70 percent of Fresh & Easy's sales.

"Walmart and France's Carrefour are lucky to get 35 percent of sales from private label," Flickinger stated. The reason, he said, is that Tesco has a range of house brands to cover every price point. In fact, some of its premium-range products even sell at up to a 50 percent premium to established brands.

Access to deep customer insights is also key to Tesco's success in managing different store formats, a skill that analysts say no U.S. retailer has equally mastered.

Still, cracking the U.S. market is proving tougher than Tesco anticipated, especially in the current economic environment. The company has slowed down the pace of new Fresh & Easy store openings, stating it hopes to have 200 stores by the end of November 2009. But that is 50 fewer stores and 10 months later than initially planned.