Your next grocer – from Britain?
Tesco, the world's third-largest retailer, plans to open 50 stores in the next year in the Southwest.
Los Angeles — Pamela Nelson holds up a $3.99 carton of spicy tuna sushi at Fresh & Easy, a month-old grocery outlet in the low-income neighborhood of Glassell Park.
"I love it. I come here almost every day," says the retired schoolteacher. "This [sushi] would be $9 to $11 at my other supermarket."
This is the sort of reaction that executives at Tesco – Britain's biggest supermarket group and the world's third-largest retailer – have hoped for. The company intends to build 50 Fresh & Easy stores in southern California, Las Vegas, and Phoenix by February 2009, and 200 more stores per year after that in these areas – becoming a $10 billion operation by 2015. In the words of the British weekly The Economist, Tesco "is setting out to change the way Americans shop and eat."
That means offering organic, locally grown produce, fresh sandwiches and smoothies, and other prepared meals at a quality and price somewhere between the bargain-basement prices of Wal-Mart and the posher-end outlets such as Whole Foods and Bristol Farms. It also means cheaper prices – but fewer "peripheral" items such as dog food and prescription drugs. The shopping floor is several times the size of a corner convenience store, but perhaps less than half the size of a typical supermarket.
Not everyone is pleased with how Tesco is setting up shop, however. The company is running into resistance from those who say Tesco needs to better live up to promises about fair labor, environmental practices, and store locations in underserved areas.
"Their opening has not been a home run by any sense. They will get some things wrong, but they are a very intelligent bunch and will tweak their formula over time," says Mark Husson, a retail analyst in New York for HSBC Securities, which provides securities services to corporate and institutional clients. "The things they have got right are good fresh food at good honest prices in a much more convenient location than a traditional supermarket."
Still, first-month customer ratings have been higher than Tesco has experienced in any market it has entered, says Simon Uwins, chief marketing officer for Fresh & Easy Neighborhood Markets. And newspaper reviews have been generally positive, if occasionally peppered with complaints about not enough selection, bad layouts, and chaotic self-checkouts.
After four stores opened in Phoenix last week, the current total is 21 Fresh & Easy stores in southern California, the Las Vegas area, and Phoenix. To serve its expanding domain, Tesco has built an 800,000-square-foot distribution center – the size of 14 football fields – on a former Air Force base near Riverside, Calif.
But as Fresh & Easy has moved into the Los Angeles area, the number and placement of the stores have become a giant point of contention. A coalition of labor, community, faith, and environmental groups has been picketing the grand openings here, hoping to nudge – if not push – Tesco into making commitments to underserved communities in poorer areas. Called the Alliance for Healthy and Responsible Grocery Stores, the group wants Tesco to agree to so-called community benefits agreements (CBAs) – enforceable contracts between communities and corporations, developers and government agencies that ensure benefits for local residents.
"We very much want these stores in our communities, but we also want them to be good corporate neighbors. And how can you be that when you won't put your commitments in writing?" asks Maria Elena Durazo, executive secretary-treasurer of the L.A. County Federation of Labor.
After the 1992 riots decimated the poorer areas of South Central and East Los Angeles, four major grocery chains promised to put 32 stores there. But 15 years later, only one such grocery has been established, and the region is known as a so-called "fresh food desert" that relies on fast-food outlets. Rates for obesity and diabetes are higher than in surrounding areas.
Ms. Durazo and others say that – despite the new Glassell Park store – Tesco has not fulfilled its promise to put several more stores in the poorer areas. She and others also say that too many jobs at Fresh & Easy outlets are low paying – not enough for employees to make a decent living. (However, wages start at $10 per hour for a workweek of 20 hours.)
"When they refuse to sit down and talk to us, we have no other choice but to look at their record of living up to their promises in other parts of the world. And we are worried by what we see," says Durazo.
Occidental College's Urban & Environmental Policy Institute recently completed a study about how Tesco's promises of social responsibility have aligned with its actions.
"The deeper story to watch is that Tesco is making this big move into the US market and pitching themselves as a different company than they really are," says Robert Gottlieb, one of the report's authors. "We think there really needs to be mechanisms that create binding agreements."
Fresh & Easy officials say they stand by the promises they've made to local officials for sites in "food deserts." They also say that 40 percent of employees in southern California stores work full time and that any employee working 20 hours or more is eligible for comprehensive health benefits.
"We say give us some time, and the community will see us meet our promises," says spokesman Brendan Wonnacott. "We invite the public to come and see and judge for themselves."