Jim Prevor’s Perishable Pundit, November 2, 2007
As Tesco prepares to enter the US market, if it finds some success, a logical question to ask is: “What will Tesco do next?”Well, without a doubt, Tesco will continue to expand its small footprint concept. We know it has already signed several leases in the San Francisco Bay area and needs to build many more stores within range of its distribution center to efficiently utilize its enormous size.
We also suspect it will have to open many new stores because we think it will likely close some. Anyone who opens this many stores this quickly is not waiting around for primo real estate, so it has taken some marginal sites. Some won’t make it.
It also has taken a diverse set of sites in various ethnic and demographic areas and will learn that its concept won’t work with some of these areas.
Still if it has success, Tesco will certainly try to roll out its Fresh & Easy Neighborhood Market concept as fast as it can.
But it will find itself blocked as other supermarkets roll out their own versions of Tesco’s stores.
Tesco, though, is big, with enormous ambition and, in other markets it typically operates a range of concepts. We suspect if it has the slightest success it will want to quickly move into other concepts.
Most especially, it will want to compete with its arch-rival Wal-Mart in the supercenter arena. Yet because of the difficulty of getting zoning approval to open these stores, it will want to do an acquisition and, in the supercenter business, the only independent option left is Meijer.
So we will issue a Pundit prediction that Tesco will offer to acquire Meijer.
This time, however, things May be different. On Tesco’s side, its move to America is now a certainty, not an aspiration. It May make them willing to pay up for this opportunity.
On the Meijer side, the company has felt the increased burden of competing with Wal-Mart and realizes that every penny made will now be paid for with very hard work. Without outside capital, this family-owned business — Forbes ranked it as #10 in America in 2006 — will have difficulty expanding. They May see this as an opportunity to cash out while also being the best thing for the business.
Of course, others May also have interest in Meijer. Kroger owns the Northwest-based supercenter chain, Fred Meyer. If Kroger acquired Meijer, it could have a supercenter concept strong in both the Northwest and Midwest and be in a real position to roll out a more competitive threat to Wal-Mart.
But the Meijer family has competed against Kroger and not against Tesco. Meijer is an old Dutch family and the Dutch and British have been allies before. Maybe one more time.