The site for one of Tesco Plc's first stores in the United States is a sun-scorched intersection in the sprawling Phoenix valley, opposite two pay-day loan firms and a gas station minimarket.

There is a dollar store nearby and a Mexican butcher's shop, but the nearest supermarket selling fresh food is several long, hot city blocks away. The site is what Tesco calls a food desert, which the company is targeting with its much anticipated Fresh & Easy Neighborhood Markets.

The world's third-largest food retailer is seeking to woo U.S. shoppers with smaller convenience stores of around 10,000 square feet emphasizing ready-to-eat meals and fresh produce in areas that are underserved by supermarket and grocery store chains.

The entry into the world's largest consumer market is being watched closely by investors, and now as the first of more than 100 new stores in Phoenix, Las Vegas and Southern California take shape behind hoardings, there is a buzz building in local communities.

People in the area are excited about Fresh & Easy coming in. They see it as a good use of the building and a great addition to their neighborhood, Claudia Walters, the vice mayor of Mesa, told Reuters.

People think it will be convenient to get in, get some things they like, and get out. They are also interested in the fresh food concept, she added.


Tesco, which trails only Wal-Mart and France's Carrefour in the global food retailing market, has more than 3,200 stores in Britain, Central Europe and the Far East.

The U.S. rollout, with the first food stores tipped to open in November, is based on the Tesco Express format in Britain and follows meticulous market research here.

Greg Sage, Tesco's international corporate affairs manager, said the firm, which posted net profit of more than $3 billion in 2006, has been studying the U.S. market for 20 years.

In preparation for its U.S. debut, Tesco mocked up a store amid great secrecy in Los Angeles and invited a group of customers in to shop.

We worked with more than 60 U.S. customers who we asked to keep a diary for two weeks while we looked into their cupboards to try and understand how American consumers lived their lives, said Sage, who is British.

The result identified a ready niche market for fresh food and ready prepared meals in areas of cities that had largely been ignored by rival U.S. supermarkets, analysts say.

There is a gap in the market for this kind of operation, they are not going head to head with Wal-Mart or any of the big supermarkets, said Bryan Roberts, an analyst with Planet Retail.

Big supermarket operators tend to locate at out-of-town or edge of town locations. You can't slap a store of 80,000 square feet slap in the middle of Phoenix or Los Angeles, he added.


Roberts said he is broadly positive on Tesco's prospects stateside. One of the venture's key advantages would be its ability to draw on the chain's strength in targeting merchandise and product selection extremely well.

In Britain, Tesco has cemented its lead over rivals by tailoring produce in individual stores to Polish, Mexican or Chinese tastes thanks to data it receives from its popular loyalty card scheme, which is expected to be launched in the United States.

For Cecile Calderon, a Hispanic shop worker at a Family Dollar store next to the Mesa site, the store's success would depend on its ability to cater to the tastes of the local Mexican community at prices they could afford.

A lot of shoppers are just looking at the ads to see where it's cheaper (so) a lot would depend on price. A lot of Hispanics go toward spicy food ... and more go for tortillas. If they had that, it would work for them, she said.

But potential customers eyeing a store being fitted out 30 minutes drive away in prosperous north Scottsdale, where household incomes are more than three times those in homes near the Mesa site, have very different expectations.

In the office people are pretty excited about it as an option for lunch or as a place to pick up groceries before the drive home, said Debbie Clark, who works at a real estate firm beside the site.

It will be good for anyone who shops at gourmet or higher end grocery stores. It's just right there, she added.


Reaching into food deserts spurned by large grocers is a key part of Fresh & Easy Neighborhood Market's branding, as is its commitment to using energy saving technologies and renewable resources like solar power.

Tesco has also pledged to source much of its food from local farmers and producers, and offers healthcare and a bonus program to workers, winning it further kudos ahead of its launch in the United States.

For researchers who have studied the move carefully, national success down the road will be contingent on Tesco being able to ramp up and expand swiftly from its beachhead in California and the southwest, while also keeping to its pledge to consumers.

Amanda Shaffer, of the Urban and Environmental Policy Institute at Occidental College in Los Angeles, said that in order to meet consumer expectations, Tesco will also have to treat workers better than its large rivals like Wal-Mart, which is plagued by complaints that they underpay staff.

People here feel very positive about the image of the Fresh & Easy Neighborhood Food Market that has been put forth to this point, Shaffer said.

If it's really all that it has been advertised as ... then they will be successful. If it turns out that it is just really impressive marketing that covers up a business that is not much different from its competitors ... then the American public will figure it out in a while.

(additional reporting by Rachel Sanderson in London)