Tesco sets sights on American expansion with hit-list of stores
Saturday 03 December 2005
The supermarket group is believed to be targeting medium-sized US rivals with sales of about $10bn (£5.8bn). Analysts said regional players such as Texas-based HE Butt, Giant Eagle in Pennsylvania, and Wegmans Food Markets, based in New York State, were all potential targets.
Sir Terry Leahy, the chief executive, is thought to be keen to pull off a major deal before handing over the helm of the world's fifth largest food retailer. Yesterday, Sir Terry rubbished a report that he was planning an imminent departure. "There's no truth in those stories at all," he said.
Although Tesco has been looking at the US market for the past two decades, it has intensified its focus this year, sending scores of senior executives over there for extended stretches.
But it is struggling to identify any companies that would make a good fit at the right price. Most of the mid-sized, regional players are family owned, and not for sale. The Meijers, who own Michigan-based Meijer, turned down a recent approach from Tesco.
One food retail analyst said: "They will make the move at some point because they need to grow. There would be a lot of potential from buying a small to medium-sized chain. But they need to go somewhere they won't meet Wal-Mart head on, such as California or the North-eastern Seaboard."
As with all its other overseas ventures, Tesco would probably seek to create a joint venture by taking a minority stake in the established chain. Its Tesco.com arm already owns a stake in California's Safeway's online grocery business, GroceryWorks.
Jonathan Pitkanen, supermarket analyst at the ratings agency Fitch, said: "Tesco would struggle to find suitable targets. It would need a big box player that sells a mixture of food and non-food ... It would be a very high-risk strategy. It has already got pins in enough countries on the map. Why would Tesco want to expose itself in a market where it may come unstuck?" A spokesman for Tesco said: "We would never say never."
The IGD, the grocery industry think-tank, predicted half of all Tesco's stores would be based outside the UK by 2010 in a report released this week.
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