Don't bet against Warren Buffett. The Oracle of Omaha and Berkshire Hathaway have cast a vote of confidence in the form of a two percent share of Tesco's stock in the run-up to the retailer's entry into the U.S. market.
While there is no such thing as a sure bet, Mr. Buffett takes the long-term view of investments and obviously feels as though Britain's number one retailer is approaching its U.S. entry with the same attitude.
"It's going to face some real hurdles because it's a brand new market for them and one that is extremely competitive," George Whalin, president and chief executive of Retail Management Consultants and a member of the RetailWire BrainTrust, told Bloomberg. "Having Buffett buying your stock, though, is a great endorsement, and he tends to get it right."
Speculation until now on Tesco's entry with a different kind of a convenience store has focused on the impact it would have on large operators, such as 7-Eleven, as well as smaller chains and independents. Supermarkets are also keeping a close eye, but the thinking is the channel will not have to deal with a Tesco onslaught, at least not yet.
Perhaps overlooked is the challenge Tesco may pose for Trader Joe's. The U.K. retailer is looking to build stores with a similar footprint to Trader Joe's and the focus will be on high-quality prepared food items and produce.
"The products they're planning to sell are very much ready-to-eat, grab-and-go food," said Mike Dennis, an analyst for PiperJaffray. "They command high margins which are sometimes as big as 80 percent."
Trader Joe's management has told stores to "Keep their eye on the ball,' according to Richard Carlson, a store captain at a Trader Joe's in Irvine, California. Michael Stephen, a first mate at Trader Joe's in Riverside, said a headhunter for Tesco contacted him at work.
Discussion Questions: Do you see Tesco posing a more direct challenge to Trader Joe's than to mainstream convenience store operators? What do you take from Tesco apparently looking to recruit management staff from Trader Joe's?