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Tesco to take on America?

By Anita Awbi , 23-Nov-2005

UK retail giant Tesco is today playing down rumours of a multi-billion pound deal to acquire 49 per cent of leading American grocery chain Meijer, amid growing concern that the company's domestic dominance is damaging British retail.

The world's third largest food retailer is yet to rule out expansion into the notoriously competitive American market, as the UK's Office of Fair Trading (OFT) debates whether to refer the company to the Competition Committee for inquiry into it's domestic market share of more than 30 per cent.

And rumours regarding imminent Indian expansion suggest Tesco is keen to branch out further from its European base to tap previously unexplored territory.

Currently Tesco has a 65-strong team of top executives in the United States to case out development opportunities, fuelling speculation of an impending deal. They are in talks with major suppliers such as Proctor and Gamble and Unilever.

Family-owned Meijer is said to be the first US entry point for the ambitious retailer. It operates 170 supermarkets in Illinois, Indiana, Kentucky, Ohio and Michigan, which are open 24 hours a day, 364 days a year.

The deal is rumoured to cost £2.5 billion, posing an attractive joint-party venture for Tesco, which already operates in 12 countries.

British trade magazine The Grocer said Tesco will announce the deal within two weeks, but a company spokesperson refused to confirm the allegation.

"We've been looking at the possibility for 20 years now - it's a 'never say never' approach," the spokesperson said to Reuters.

The urgent need to expand overseas has been compounded by mounting criticism over Tesco's UK market dominance.

Retailers and suppliers are queuing up to protest about the company's ability to distort the supply chain, and an all-party parliamentary committee has launched a full investigation into the company's damaging effect on the British High Street.

Of the almost £25bn increase in the grocery market in the past five years, from £110bn to £134.8bn, Tesco has captured more than half as it has consolidated its hold on the UK market leadership, according to latest research by market analysts Verdict.

And in the High Street and convenience retail sector, giants such as Tesco and Sainsburys achieve four times greater sales per store than non-affiliated smaller independent stores.

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