Published on: April 15, 2008The Wall Street Journal reports this morning that UK retailer Tesco is reporting that for the just completed 2008 fiscal year, total sales were up 11 percent and net profit was up 12 percent, and said that its US Fresh & Easy stores are growing strongly…though MarketWatch notes that Tesco expects to lose $200 million (US) on the nascent chain in its first year of operation.
According to the MarketWatch story, Tesco is “saying the response of customers has exceeded expectations and that sales densities are higher than the U.S. supermarket average. Its best stores exceed sales of $20 per square foot per week. It's still planning to open 150 stores this year and it's planning to expand its Riverside distribution center and kitchen operation.”
Tesco also said that for the first five weeks of the 2009 fiscal year, total sales were up 13 percent, which it noted runs against expectations that a slowdown in consumer spending might negatively affect its sales.
"We begin the new financial year confidently - with a good start in the U.K., excellent progress in our established international markets and promising early performance from our investments in future growth, particularly in the United States, China and Turkey," said Tesco CEO Terry Leahy, who also told Reuters, "Customers are more likely to look for value and value is one of the strengths for Tesco. We are a company for all seasons.”
Regarding Fresh & Easy, Leahy tells MarketWatch, “They're performing ahead of budget, and more importantly - as far as the customer is concerned - they love it … To some extent, people have got vested interests and so they want to see it fail. And I suppose the press are keenly interested in it, and are keen to rush to conclusion. But any seasoned observer will know that it takes time, and you wait for the company to report progress on a half-yearly basis.”
- KC's View:
- There is no question that even for Tesco, losing $200 million this year on Fresh & Easy isn’t the best scenario…but some sort of substantial loss was inevitable.
At the risk of repeating myself on this issue, the most important stores Tesco will open in the US will be the next ones…because these are the stores that will tell us what the company has learned and how it is applying that knowledge.
And I certainly agree with Leahy on one point – that rush to judgment simply doesn’t make sense…not when you are dealing with a retailer the size and scope of Tesco.
Beyond this, I refer you to Sansolo Speaks, below…in which Michael Sansolo draws an excellent metaphor that applies to Fresh & Easy.