Tesco Ready to Take on Wal-Mart's Small Format

The plan by Wal-Mart Stores to open small-format stores in the U.S. comes as no surprise to Tesco, which remains confident it can withstand such competition, as it believes its own Fresh & Easy Neighborhood Market stores are a unique concept. Opening a small store is exactly what I'd do, said Philip Clarke, international and IT director at Tesco, speaking at the IGD Global Retailing conference

LONDON — The plan by Wal-Mart Stores to open small-format stores in the U.S. comes as no surprise to Tesco, which remains confident it can withstand such competition, as it believes its own Fresh & Easy Neighborhood Market stores are a unique concept.

“Opening a small store is exactly what I'd do,” said Philip Clarke, international and IT director at Tesco, speaking at the IGD Global Retailing conference here last month. “When Wal-Mart bought Asda, we started opening hypermarkets. But we believe our [model] is unique and that they'll need to find something to compete.”

He suggests the temporary break in the rollout of Fresh & Easy stores has given its kitchens, which package the chain's private-label perishables, and its supply chain some time to “catch up,” and that some “fine-tuning and tweaking” is also now taking place. Refuting claims that the business is doing poorly, he said the stores should be judged over a 10-year time frame rather than only 10 weeks.

The U.S. is only one of a number of key targets for Tesco as it looks to grow its international business, including in China, where it currently operates 60 stores. Clarke reckons China will be the battleground of the future, with heavyweight chains Tesco, Wal-Mart and Carrefour each building businesses in the country.

However, he said he believes Tesco will be able to use the experience it's gained from operating around the world to better localize its food offer compared with that of its two major rivals, which are both working hard on better tailoring their ranges to the Chinese market.

Among emerging economies, Tesco also intends to enter India. “It would be irresponsible not to be in India,” Clarke said. “We've been researching and hope to be there soon. We are trying to find the right partner, but the courting takes a long time.”

In contrast, Clarke said the company has no plans to set up shop in Russia, because “there is only so much you can do. Spreading yourself too thinly can be a problem.”

He suggested the major limiting factor for Tesco in growing its business will be in recruiting employees of a sufficiently high caliber. “It [overseas growth] is not about putting flags down in countries, it's about the quality of people,” he said.

Clarke also discussed Tesco's plans to roll out its online shopping service to major cities around the world, and he said that over the next 10 years, consumers in places like Bratislava in Slovakia and Shanghai in China will have access to a Tesco home shopping service.