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Safeway Anxiously Awaits Tesco's U.S. Entry

December 14, 2006 · Wire Services

Safeway Inc. is "anxiously" awaiting the U.S. arrival of British retail giant Tesco Plc and believes it is ready for the competition, Safeway's chief executive said on Tuesday.

Britain's largest retailer plans to open small convenience stores on the U.S. West Coast starting in 2007, but it has not disclosed much detail.

Safeway Chairman, President and Chief Executive Steve Burd said Tesco has a great reputation and appears to be going after consumers looking for prepared meals and convenience items, areas where the No. 3 U.S. grocer has already made its own strides.

"We don't think we're neophytes in this area," Burd told analysts and investors when asked about Tesco during a meeting on Tuesday.

Safeway has introduced items such as refrigerated gourmet soups and fresh sandwiches and side dishes aimed at consumers looking to dine at home without having to prepare a full meal. Such products help give the company confidence that it can grow its long-term earnings per share by 12 percent to 15 percent.

One area Tesco is focused on is Southern California, where Safeway has been competing for a century, Burd said.

He said Safeway knows where Tesco is looking to open stores and that they range from low- to high-income neighborhoods, making it tough to know exactly what Tesco's goals are, he said.

"We anxiously await their arrival," said Burd. "We don't take them lightly, they're a good retailer."

Safeway has more than 300 Vons stores in Southern California, more than in any of its other operating areas.

Vons and other retailers in Southern California came under scrutiny during a bitter labor dispute in late 2003 and early 2004. A strike and lockout affected nearly 900 stores owned by Safeway, Kroger Co. (KR.N: Quote, Profile , Research) and Albertsons in the area and was the longest work stoppage in the history of the U.S. grocery industry.

The union contracts in Southern California will be up for renewal in 2007 for the first time since that strike, just as Tesco prepares to open its doors.

Shares of Safeway, based in Pleasanton, California, were up 58 cents, or 1.8 percent, at $33.04 in afternoon trading on the New York Stock Exchange.