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    U.S. Retailers Not Prepared for Tesco Impact

    Citigroup analysts latest to warn napping retailers.

    NEW YORK -- Citigroup equity researchers are the latest market mavens to proclaim that U.S. retailers and investors are underestimating the potential impact of Tesco's upcoming market entry on the West Coast, scheduled for the third quarter of this year.

    In a conference call with investors yesterday morning, David McCarthy, deputy head of research for emerging markets, Europe and Asia, said that if the giant United Kingdom-based international grocery and convenience store retailer is successful with its American debut, he would not rule out the potential for a rapid U.S. expansion.

    "Tesco's Fresh & Easy Neighborhood Market format could prove to be formidable competition for U.S. retail and restaurants," McCarthy said. "The company's merchandising and efficient retail model, supported by a 'heavyweight' management team and 250 million pound investment, could ultimately lead to it accelerating store growth in the U.S."

    McCarthy and Citigroup analyst Deborah Weinswig agreed that U.S. retailers could be surprised by Tesco. They said Tesco will differentiate itself from U.S. retailers through its:
    -- Efficiency (stores and distribution centers);
    -- EDLP plus pricing (EDLP with promotions);
    -- Product offering.

    The analysts said they believe Wal-Mart is working on responding with its own small format concept (smaller than its current Neighborhood Market concept) -- a speculation that CSNews Online has previously reported.

    In March, at CSNews Future Forum, Grant Wither, a former Tesco employee and current director of London-based Riverhead Consulting, also warned c-store retailers again underestimating Tesco.

    "They (Tesco) are No. 1 in many markets they serve" – and for good reason, said Wither, who presented with Riverhead principal Anthony Ruback, who added, "We consider this the most significant development in neighborhood marketing in the last decade."

    The pair outlined several factors key to the British retailer's sweeping success:
    -- A clear strategy from the top to the shop floor;
    -- Passion for better, simpler, cheaper;
    -- Hyper-efficiency in the supply chain;
    -- A culture that adapts and develops, and
    -- Total commitment to the consumer.

    "The Tesco Way" is to create value for customers and earn their lifetime loyalty, Wither said, noting that "no one tries harder for the customer than Tesco."

    For full coverage of this panel and others from CSNews Future Forum, see CSNews' May 28th issue or go to www.csnews.com/csn/futureforum_schedule.jsp to download full copies of all the speaker presentations given at the event.

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