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Outlook '08 - Consumer

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UK retail behemoth Tesco is challenging Safeway (SWY), Whole Foods (WFMI) and other grocers right here on their home turf. Can the world's 3rd-largest retailer take a bite out of the competition and carve out a healthy slice of the American market?

Tim Mason, Chief Executive Of Tesco’s Fresh & Easy Neighborhood Market joins the panel for this conversation. Following is a synopsis of his main points.

Other foreign retailers have tried and failed. What makes you think you’ll succeed in the American market?

"We’ve done the research and we’ve done something uniquely different for the American market," says Mason. "Rather than buy an existing business, we have a new proposition and that’s what gives us a much better chance."

Okay, so what does the American consumer want?

“One of the things we observed around the world in all the countries we trade in – is neighborhood retailing is on the increase,” replies Mason. “If you can get great prices into the neighborhoods where people live – they like to shop in small stores a bit more frequently -- closer to where they live.”

He adds, “The reason they don’t use those stores currently is because the prices are no good and the quality is no good. So if we can find a way of re-engineering that retail model, it will make us new and attractive.”

So the premise of Fresh & Easy is a store the size of a 7-11 but with a better assortment?

“One of the trends you will spot is limiting assortment,” explains Mason. “When you go to the dressings (section) and there are 100 different varieties it just blows you away. So more editing goes on (at our stores) -- and we select the products that the people really want.”

You'll need to service a large number of smaller stores. Will you be able to put the infrastructure together?

“I think the distribution is the key,” says Mason, “and what we’ve done is build a central distribution system in Riverside California which services all our stores in Phoenix, Nevada and Southern California.”

He adds, “It also has a kitchen that makes fresh and convenient meals. And within two miles we have our floral vendor, our produce vendor, and meat and poultry vendor. It’s a different model and that core enables us to get this wider range of fresher foods to the stores.”

Dylan Ratigan asks the panel, “what’s the trade?”

If Fresh & Easy is successful the first people that will likely fall are convenience stores, says Jeff Macke. But then the grocers such as Safeway could be in trouble.

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