How super is the U.S. market for Tesco?

Marketplace Staff Aug 2, 2007

How super is the U.S. market for Tesco?

Marketplace Staff Aug 2, 2007


Kai Ryssdal: There was big news for residents of Downtown Los Angeles couple of weeks ago. A brand new Ralph’s grocery store opened up. That’s not ordinarily something that would merit a mention, but it’s the first real grocery store anywhere in downtown.

Not too far away, though — away from the fancy lofts and the high-rise apartment buildings — it’s a different story. Most supermarkets stay away from low-income parts of big cities.

But the British grocery giant Tesco sees opportunity where others see risks. It plans to roll out a hundred stores in the western United States during the next year. Many of them in the kinds of places other supermarkets won’t go. Jordan Davis reports.

Jordan Davis: Rosa Giron lives just south of Downtown Los Angeles, in full view of its sparkling skyscrapers. Her neighborhood grocery store is less than sparkling. Bottles of vodka, gin, brandy are stacked to the ceiling behind the register.

Rosa Giron: You can see it’s a very small market.

The market’s single aisle is too narrow for us to walk side by side. We squeezed past a display of lettuce greens turning sickly shades of brown.

The refrigerators are stocked with sugary yogurt, lard, packets of American cheese slices, and gallons of milk — just about to expire — for $4.

Davis: So you’re saying these prices are high.

Giron: Oh yeah, very high. Very high.

You get the picture. Rosa Giron’s neighborhood is a food desert. A supermarketless Sahara where low-income residents are stuck getting something to eat at a liquor store or a fast food joint. British supermarket chain Tesco sees opportunity in neighborhoods like these.

Tesco’s announced plans for a dozen “Fresh and Easy” markets across the L.A. area, including one in Compton. It’s in negotiations for seven more locations in underserved Los Angeles neighborhoods. Stores will be on the small side, but they’ll offer fresh produce, meats and prepared meals.

Simon Uwans is Fresh and Easy’s Marketing Director. He says customers want the same thing, no matter how much they earn.

Uwans: Almost irrespective of the type of household, we went into, people were telling us what they wanted was fresh wholesome food and they wanted it to be affordable and they wanted it to be in their neighborhood.

That might go double for South Los Angeles grocery shoppers. Supermarkets pledged to build new stores there after the 1992 riots. But a decade and a half later, residents often have to go miles out of their way to get quality groceries.

Uwans says Fresh and Easy wouldn’t be looking at the inner-city if it couldn’t make money.

Uwans: Clearly, we’re not a charity. The reason that we’re going there is that we believe we can be successful there.

Tesco may find it tough to make money in these areas.

Amanda Shaffer is a researcher at the Urban and Environmental Policy Institute at Occidental College. She says supermarkets who’ve tried this in the past found their profit margins squeezed. Low-income customers tend to make smaller, more frequent trips to the store.

Amanda Shaffer: So that means that the operating costs on a per-customer basis end up being higher in a low-income neighborhood.

Driving through her neighborhood, Rosa Giron says life without a half-decent supermarket has hidden costs for the people who live in the community. She’s a health educator and she sees the results of poor diet in her work every day.

Giron: This community is an emergency for obesity and diabetes for childrens, because they don’t eat right.

Tesco says as many as a dozen Fresh and Easy stores could spring up across the city by the end of the year. But so far, the company has a firm commitment to just one inner-city location. Residents hope the plans for these oases in the food desert of south L.A. don’t turn out to be a mirage.

In Los Angeles, I’m Jordan Davis for Marketplace.

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