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.
