British retailer Tesco entered the U.S. market only last year but already it has managed to put Wal-Mart, the world’s No. 1 retailer, on the defensive. Tesco fired the first salvo, in a battle that retailing analysts expect will intensify, by launching Fresh & Easy, a chain of 10,000-square-foot convenience stores, in cities across California, Nevada, and Arizona in November 2007. Eleven months later, Wal-Mart returned fire, taking on Tesco in Arizona with the debut of the similar-size Marketside, its first new store format in a decade.
“It’s a direct message from Wal-Mart to Tesco saying, ‘Hey, we’re watching you,'” says Neil Stern, a senior partner at retail consultants McMillan Doolittle in Chicago. “‘And we’ll not only copy you; we will do it better.'”
Wal-Mart has good reason to be nervous. Back home in Britain, Tesco has long outpaced the Wal-Mart-owned discount chain Asda. The British giant currently has 34 percent market share, nearly double that of Asda. In a quarterly trading update on Dec. 2, Tesco reported that despite the economic slowdown, group sales rose 11.7 percent for the 13 weeks ended Nov. 22, compared to the same period the previous year, due in large part to the strength of Tesco’s international operations. While like-for-like sales in Britain rose a paltry 2 percent, the slowest growth rate in 15 years, Tesco’s international operations posted revenue growth of 28 percent. Analysts at Citigroup expect sales for the full fiscal year ending Feb. 28 to rise 13.6 percent, to $82 billion.
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Tesco’s international momentum is expected to continue. A recent report from the Institute of Grocery Distribution, a British food industry group, forecasts Tesco will continue to grow at an average of 11 percent annually through 2012, enabling it to overtake France’s Carrefour to become the world’s second-largest retailer by…