YOU HEARD IT ON GLG FIRST

Implications: Only two days after announcing the opening of their 50th store in California, the British invasion of Tesco stores has been found to have very serious problems. After successfully demonstrating a powerful real estate and operations achievement with the opening of so many stores in such a short time in a market that historically has been difficult to find sites, the "wheels have started to come off " of Tesco's wagon.   Interviews with suppliers, competitors and store managers all confirm my prediction in previous GLG articles, that Tesco was being incredibly optimistic when they announced their amazing plans to take over the U.S. grocery market with their so called "new type of shopping experience".

Analysis: Tesco has 9 stores ready to open on which they are already paying rent  and dozens more on the drawing boards in the Bay Area, but has quietly arranged to delay their opening until 2009. Could it be due to the fact that the 50 stores they have  opened in the last 90 days in Southern California are only generating 25% of their expected sales?

In an earlier GLG article approximately 6 months ago, I predicted that Tesco would have a far more difficult time taking over the convenience grocery business than they predicted. Further, I allowed that I had never seen such an ambitious expansion plan from any major retailer in the past 40 years of observing the retail real estate scene. It seemed logical that the well entrenched U.S. convenience players would not simply roll over and play dead upon Tesco's arrival.

Actually it seemed to me to be downright insulting to the American Grocery industry to think that any foreign grocer could do what Tesco announced they intended to do. Although I must admit that their stores were quite an improvement over their well entrenched competitors, they were not so impressive as to gain an immediate major share of this very well served market.

So what does this mean for the California grocery market? In my opinion no retailer can or should sustain the enormous losses for very long that result from missing sales projections by 75%. Without a dramatic turn around (which I believe to be highly unlikely) I predict we will see Tesco quietly withdraw from California and the U.S. They will simply write off their ambitious invasion plans, fire the executive in charge of the project (naturally none of the executive committee members who approved this less-than-prudent-plan will suffer the slightest discomfort) and get on with their lives.