Tesco to bring its own suppliers to US

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Tesco, the UK’s biggest supermarket chain, is taking two of its favoured British food suppliers along on its bid to open a new chain of small-sized supermarkets in the western United States next year.

Natures Way Foods, which produces prepared salads and lettuce for Tesco, and 2 Sisters Food Group, one of Britain’s leading poultry processors, are both planning to establish sites adjacent to Tesco’s planned distribution centre in southern California.

The move is the latest surprise in Tesco’s bold US expansion strategy, which centres on an unprecedented bid to establish both a store network and a proprietary distribution system at the same time.

Both suppliers are privately owned. Natures Way, headed by Robert Langmead, was initially set up in 1994 exclusively to serve rising demand from the retailer for lettuce and salad. It now supplies other customers, including McDonald’s.

The company has not previously worked outside the UK, but has now set up a US subsidiary, Wild Rocket Foods, which is recruiting staff for its US operation.

2 Sisters Food Group produces Buxted and Hermanns brand poultry, as well as own-label products for supermarkets including Tesco. In 2005, it acquired Rannoch Foods, a producer of prepared foods.

The company is owned by Ranjit Singh and operates poultry processing plants in the UK and the Netherlands, with annual revenue of more than £350m ($671m).

Tesco’s decision to rely on established relationships with British suppliers rather than new relationships in the US is believed to reflect both its desire to avoid unpleasant surprises and a belief in the industry that the prepared meals business in the UK and Europe delivers higher standard products than are currently seen in the US.

Prepared meals – including salads and cooked chickens – are expected to be play a significant role in Tesco’s plans to open about 150 small neighbourhood market stores around Los Angeles, Las Vegas and Phoenix.

It is not clear whether Tesco has taken a stake in the US operations of the two companies, which have both set up Delaware-based corporations. Both are seeking planning approval for facilities on land at a business park at Riverside, California that is adjacent to an 88 acre lot bought by Tesco earlier this year.

Planning documents describe the site as “a Tesco food distribution and manufacturing campus”.

However, their plans may be complicated by a legal challenge that is calling for additional environmental reviews of Tesco’s plans for its site, located in a business park in a former US Air Force base.

Ray Johnson, a lawyer who has in the past challenged developments by Wal-Mart, the US retailer, is calling on the planning authorities to subject both suppliers’ projects to a potentially time consuming environmental impact study.

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