Tesco's California Plans Delayed

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Tesco's California Plans Delayed

LONDON -- Tesco is facing another legal challenge in California this week regarding its plans to expand into the U.S. According to The Financial Times, the retailer will seek to block a court challenge today that would immediately stop construction of its 1.5 million-square-foot distribution and food processing center in Riverside County east of Los Angeles, pending a full trial of an environmental challenge in June.

Tesco has argued the proposed 13-week stoppage could cost it more than $50 million, with up to $2.6 million in costs for every additional week of delay, according to the report.

Delays in winning approval for the project have already pushed Tesco's plans back since the company originally hoped to have the distribution center completed by July. However, the DC is now unlikely to be finished before autumn, with the retailer possibly resorting to temporary facilities to launch its first stores later this year, the report stated.

Analysts have been weighing the potential threat to traditional larger supermarkets -- including Safeway, Albertson's and Kroger -- from Tesco's planned "Fresh & Easy Neighborhood Market" stores. Credit Suisse Securities estimates that the U.K. retailer could generate $1 billion in sales within three years, and capture 2 to 6 percent of the local market share in five years, arguing in its reports Tesco's U.S. entry could "redefine the mainstream grocery business" in the U.S., reported The Financial Times.

Jack Brown, chief executive of Stater Brothers, a regional supermarket chain based in Riverside County, said he believed the retailer's already low prices and strong local loyalty would fend off any threat to its market share from the British giant.

Steve Burd, Safeway's chief executive, admitted the company is watching Tesco closely, telling analysts that "we intend to be as ready for that entrance as anybody."

Meanwhile, the United Food and Commercial Workers (UFCW) grocery workers' union told its members that Kroger, Safeway and Albertson's have been citing future competitive pressure from Tesco as a factor in their current negotiations with the union over a new three-year contract in southern California, the report stated.

Tesco, which will start opening stores later this year in southern California, Las Vegas and Phoenix, Arizona, said it has already secured 76 store leases for its stores, which will have just 10,000 square feet of selling space.

Additionally, the company has said that the stores will offer food "at affordable prices" -- targeting the supermarkets rather than gourmet grocers such as Trader Joes or Whole Foods -- and that they will bring shoppers back to their neighborhoods, the report stated.