From Staff Reports
Wal-Mart Stores Inc. (NYSE:WMT), the No. 1 U.S. retailer, is about to get a taste of its own medicine.
Wal-Mart said it is considering acquisitions in its home U.S. market, and will move to reduce its growth reliance on its gigantic all-everything Supercenters store by focusing on smaller stores.
Wal-Mart is being forced to do this because of a flanking assault by Great Britain’s Tesco PLC (LON: TSCO) “Fresh & Easy Neighborhood Markets” stores, which are jumping across the Atlantic Ocean as new locations open up across the United States.
SoWal-Mart is having to respond. It’s trying to hire an executive who can assess the “strategic implications of any possible M&A on our overall portfolio,” London’s Financial Times wrote, citing Wal-Mart’s job posting. The position is part of a refurbished executive team that will develop a “comprehensive multi-format growth strategy,” the report said.
The New Kid in Town
Analyst Philip Dorgan of Panmure Gordon maintains his "Buy" rating on Tesco’s shares. In an Aug. 20 research note, Dorgan wrote that, given the generally favorable weather conditions, Tesco’s sales are likely to have improved over the last few weeks, Panmure Gordon adds.
The site for one of Tesco's first “Fresh & Easy” stores in the United States is a sun-scorched intersection in the valley near Phoenix. It’s opposite two payday loan firms and a gas station mini-market, the Reuters news service reported. There is a dollar store nearby and a Mexican butcher's shop, but the nearest supermarket selling fresh food is several long, hot city blocks away. This is what Tesco calls a "food desert,” and which is just what it is targeting for its new Fresh & Easy Neighborhood Markets stores.
Tesco is the world’s No. 3 food retailer, and now is going after American consumers with the ”Anti-Wal-Mart” concept: Smaller convenience stores of around 10,000 square feet—emphasizing ready-to-eat meals and fresh produce in areas that are veritable deserts as they have few, or no, supermarket and grocery store chains. The strategy is being watched, as Tesco builds the first of more than 100 new stores in Las Vegas, California, and Phoenix. There’s a real buzz building, analysts say.
"People in the area are excited about Fresh & Easy coming in,” Vice Mayor Claudia Walters told Reuters. “They see it as a good use of the building and a great addition to their neighborhood."
Taking Food to the City
Tesco trails only America’s Wal-Mart and France's Carrefour in the global food-retailing market, and can boast more than has more than 3,200 stores in Britain, Central Europe and the Far East. The U.S. rollout, with the first food stores tipped to open in November, is based on the Tesco Express format in Britain and follows meticulous market research here in the U.S. market.
Tesco, which posted net profit of more than $3 billion in 2006, has been looking at the American market for two decades. It apparently mocked up a store amid great secrecy in Los Angeles and groups of customers were invited in to shop – and then comment honestly on their experiences. The result identified a ready niche market for fresh food and prepared meals in areas outside cities, where ready-prepared meals are overlooked by the few U.S. supermarkets with operations there, analysts say.