Normally reticent British retailer Tesco lifted the veil a bit on its U.S. market plans, saying Monday that it was eyeing sites for 300 small grocery stores in Southern California, Las Vegas and Phoenix and was prepared to spend as much as $2 billion over five years on its launch.
Tesco USA Chief Executive Tim Mason said his management team was negotiating for 300 sites, although "not all will get opened."
The first stores will open in the second half of next year, and the pace of development will pick up as Tesco gets its distribution network operational, Mason said. He said many more stores could follow.
"If this is successful, this is a very big country," Mason said at the public opening of the company's U.S. headquarters in El Segundo.
Tesco has kept secret most of the details of its launch -- which focuses on Southern California and the Southwest -- out of fear that rival grocers will develop a strategy to foil its plans. Tesco on Monday again declined to detail any of the locations it is moving forward with. But in September, the company leased a shuttered Albertsons market in Glassell Park.
The company plans to push into underserved urban areas that need to be "re-energized," Mason said.
"We think there are a lot of good opportunities there," he said, adding that Tesco had experience in running successful stores in distressed urban areas in England.
Tesco's entrance into Southern California will provide a potent new competitor to traditional grocers such as Kroger Co.'s Ralphs, Safeway Inc.'s Vons and Supervalu Inc.'s Albertsons. The British company's arrival ratchets up the stakes at a time when the supermarkets already face pressure from the expansion by discount chains Wal-Mart Stores Inc. and Target Corp. into food offerings.
"It is already a competitive market, and I would be lying if I said the rest of our membership was looking forward to the arrival of Tesco," said Peter Larkin, president of the California Grocers Assn. in Sacramento. "But the grocery chains are accustomed to new challenges and will be ready to compete when Tesco opens its stores."
Mason said Tesco was looking for sites of about 15,000 square feet, with about two-thirds devoted to sales space. That would make the typical U.S. Tesco store about the size of an average location of Monrovia-based Trader Joe's.
Tesco expects to hire about 2,500 employees in its first year as it opens "a format that we call the 'neighborhood market,' " Mason said.
He said they would be "smaller, simpler grocery stores" that would allow shoppers to quickly pick up what they need without having to make multiple trips to a variety of stores, including packaged goods and packaged prepared meals.
"One of the things that we found unique about American consumers is that they shop frequently here, and that they shop in a lot of different stores," said Simon Uwins, chief marketing officer for Tesco USA.
Tesco plans to emphasize the freshness of its food by building what Mason characterized as a speedy, efficient distribution system.
"One of the problems of distribution in a place as vast as America is that most of the freshness is used up in trucks rather than in people's refrigerators," he said.
Tesco has bought an 88.4-acre site along Interstate 215 south of Riverside for its local distribution center. It has brought along two of its largest British suppliers, Natures Way Foods and 2 Sisters Food Group, which plan to open U.S. branches in the Inland Empire. Natures Way provides Tesco with produce, lettuce and prepared salads; 2 Sisters supplies poultry.
Mason said Tesco was looking at the range of hourly wages paid in the areas it planned to enter and would offer a competitive pay package that could include bonuses, a 401(k) savings plan and health benefits.
"We know that we have to be a good employer if we want to attract people in this market," he said.
Although he was approached by members of the United Food and Commercial Workers union at the opening Monday, Mason said the company had not decided whether it would have a union workforce.
Tesco, with about $80 billion in annual sales worldwide, already operates in 13 countries and employs more than 300,000 people.