October 4, 2009 5:44 pm

Tesco’s media spree points to new US push

Tesco has embarked on its first significant advertising campaign for its Fresh & Easy stores as Britain’s biggest retailer fights to make a success of its foray into the US.

The media advertising campaign, based on the premise that Fresh & Easy can save customers money by keeping things simple, follows initial leafleting to attract shoppers to the stores in southern California, Nevada and Arizona.

People familiar with the situation said that with about 125 stores, launching a significant campaign now made sense. Others suggested that Tesco had chosen to go ahead because of signs of stability in the US economy.

However, the campaign for the US operation, of which former Tesco marketing executive Tim Mason is chief executive, is likely to rekindle speculation that Tesco is gearing up to start expanding the lossmaking US chain again, after its assault on northern California was put on hold.

Tesco has continued to invest in sites in northern California, while it has also completed work on the structure of a distribution depot in an industrial park in Stockton that it will use to service new northern California stores when they open. The supermarket chain is set to face questions on its progress in the US when it reports interim results on Tuesday.

Clive Black, analyst at Shore Capital, is forecasting losses from Fresh & Easy of about £80m in the six months to August 22.

Tesco will also be under pressure to show that its UK underlying sales performance is catching up with faster growing rivals, as the supermarket is lagging behind Asda, J Sainsbury and Wm Morrison in UK like-for-like sales growth.

Investors and analysts will be particularly keen to see how successful a recent revamp of Tesco’s Clubcard loyalty scheme has been.

The market will also be looking for progress on cutting borrowings, as net debt ballooned to £9.6bn at the end of the year to February 28.

“Going through these, they are all kind of problems for Tesco to solve, and it’s not what we are used to,” said one analyst.

But, according to Mr Black, Tesco should “hopefully be able to say that they are through the eye of the storm” and forecasts first-half pre-tax profit of £1.57bn.

Investors and analysts will also be keen for an update on Tesco’s aggressive expansion in financial services, after the retailer pledged to offer current accounts and mortgages within the next two years.

J Sainsbury is also due to report second-quarter sales on Wednesday, with the consensus of analysts’ forecasts for a 5.5 per cent increase in like-for-like sales, down from 7.8 per cent in the first quarter, amid falling food price inflation.

Greg Lawless, analyst at Collins Stewart, said: “We are over the high watermark of like-for-like sales performance, as food inflation comes down.”

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