Your next grocer – from Britain?

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.

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