Other British retailers have failed miserably in the US, but, for one, Oriel Securities is confident Tesco will succeed with Fresh & Easy
Tesco will open its first stores in the US next month. For its Fresh & Easy chain, Tesco has the distribution capability to move quickly and get critical mass on the West Coast. But why do we think that Tesco will succeed where so many other British retailers have failed?
Tesco has already been successful in a number of other countries and one of the contributory factors to this has been its obsession with being "local".
Whereas, for example, a Carrefour in Japan would look just like a Carrefour on the Champs Elysées (product range, store fit out, French staff, brand name!), Tesco stores around the globe all have one thing in common: they bear only passing resemblance to a UK-based Tesco.
Almost completely without fail globally, store managers and regional managers are local nationals.
This helps Tesco get closer to its customers and understand quicker the quirks and unusual shopping habits of the country in question. Did you know that in Poland at Christmas no meat is served during the supper, only fish, usually herring, carp or pike?
A Brit would have the store swarming with turkeys... and not sell one of them.
UK retailers (and there's a long list of them, including very good companies such as Sainsbury's, Boots, WH Smith and Dixons) have a very poor record in the US.
The Oriel Securities view is that this is very much down to these companies' lack of local-ness. Like the Carrefour example above, they simply carried their UK models to the United States (after all, we all speak the same language, right?) - and then crashed and burned.
As far as we can establish, Tesco is following the model it has used everywhere else around the globe (ie being local), and is not replicating the mistakes its UK peers have historically made.
Tesco is also developing a new concept for California: it believes the convenience market is poorly served and is doing something about it. Incumbents will doubtless try to imitate Fresh & Easy, but Tesco will roll out tens of stores in weeks.
So investors should not fret that Tesco is embarking on an American adventure.
Sir Terry looks more confident than ever about the venture, and the capital spend is not excessive. And it could be the start of something very, very big.n
Partner, Oriel Securities