Tesco, the third largest retailer in the world, has announced plans to open grocery locations in the United States, in California, Arizona and Nevada. The business world has been talking about Tesco taking on Wal-Mart on its own turf, even after other European grocery retailers have attempted and given up. While Tesco is famous for competing on price, their strategy in the US is decidedly more flexible and takes on the Wal-Marts and big box groceries on their format and location by going small and close to households.

In its home, the United Kingdom, Tesco operates several configurations of stores ranging from 100,000 square foot “Extra” stores situated in suburbs (presumably in a suburban format) to “Express” stores of 1,300 to 3,000 square feet that can be found both in Tube stops and at gas stations. Other formats include the 7,000-15,0000 square foot “Metro” in town and city center locations. Even their suburban and city edge “Superstore” is only 20,000 to 50,000 square feet.

Tesco has kept the format of their new US locations a secret, but have suggested they will be modeled on the “Express” format although they will be about 10,000 to 12,000 square feet (closer to the “Metro” size). The strategy for the new line “Fresh & Easy Neighborhood Market” is to provide lots of small locations close to consumers. The new format will competing on location, convenience and a smaller range of targeted products to serve the local preferences.

I’m writing about this here, because this represents a huge opportunity for the New Urbanism and Smart Growth. This is a company that is willing to locate high quality grocery stores in urban environments starting with shops of just 1,300 square feet! Don’t let the domestic industry insist that shops must be at least 60,000 these days. Much of that assumption has to do with their current logistics, which have evolved to suit the suburban superstores and involve large trucks making deliveries. The Tesco model uses a district warehouse and supplies lots of smaller stores frequently- sometimes almost totally restocking the shelves replacing lunch sandwiches with freshly prepared dinners.

New Urban designs for retail have been caught between the dominant business model of the existing firms and an ethical obligation to do something better and in an urban model. The compromise has mostly been “mainstreet” style suburban strip centers. If Tesco succeeds they will shake up the industry. Their model is not predicated on suburban highway logistics or land uses and consequently they make a perfect fit for New Urban Neighborhoods.

In the US, such small format stores are categorized as “convenience,” and include primarily Walgreens and 7-11. Many poor neighborhoods no longer have access to local groceries and shop at 7-11 or other typical “convenience” stores. At least one Tesco shop in Phoenix will be located in one of the poorest neighborhoods. The Fresh and Easy model may also be able to improve the quality of life in these areas by providing an underserved market with inexpensive but healthy prepared foods.

This is a tremendous experiment to watch. If their general strategy works in the United States, Tesco may be another strong partner in implementing Smart Growth and New Urbanism.

Other links:
Tesco Core
Tesco Press Release