Tesco Increases Dominance of UK Retail Market
Historically, no British retailer has enjoyed a notable success in the US hinterland. But that might be about to change, predicts UK retail analyst Verdict Research.
On Wednesday Tesco, the UK's largest retailer, announced it intends to enter the US market via a grocery convenience format. The business, which will be established organically, will launch in 2007 on the West Coast.
Tesco plans an initial capital expenditure of around £250 million ($435.12m; €364.6m), funded entirely from existing resources and expects the operation to break even by the end of its second full year of operation.
Verdict hails the convenience format as "sensible", adding that "there is a significant opportunity for Tesco to impose its 'good, better, best' product range model on the US market". This has propelled it to market-leading status across a raft of countries in Europe and Asia."
The researcher posits that traditional grocers in the US have in general been unsuccessful at developing a credible high end food offer. Tesco, however, has this skill, believes Verdict's director of consulting Neil Saunders.
However, grocery retailing in the US is a very tough business, Saunders acknowledges, with many of the traditional players - Kroger, Albertsons, Safeway among them - under intense pressure. In the light of this, he believes it sensible for Tesco to develop organically - unburdened by the problems inherent in an acquired company.
Saunders has no illuson that successful entry into the US market will be easy. "However, Tesco has the skills and the experience to make a significant impact," he predicts.
The clear blue water between Tesco and its UK rivals has increased over the past three months, reports market researcher TNS.
Tesco's share of supermarket sales rose to 30.6% during the twelve weeks to January 29 - up from 30.5% in the previous quarter.
By market share, Britain's top seven supermarket chains are:
- Tesco: 30.6%
- Asda/Wal-Mart: 16.6%
- Sainsbury's: 16.3%
- Morrison's: 11.1%
- Somerfield: 5.4%
- Waitrose: 3.7%
- Iceland: 1.8%
Comments a TNS spokesman: "Whilst Tesco remains dominant there are signs it is experiencing increased competition. It is still growing, but the year-on-year share increase is below the average we were seeing last year."
Data sourced from BBC Online and Verdict Reserach; additional content by WARC staff