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California bill could speed Tesco US exit -analyst

LONDON, May 6 (Reuters) - A bill aimed at banning sales of alcohol at self-service checkouts in California would be a blow to British retailer Tesco TSCO.L as it weighs up whether to continue with its loss-making U.S. business, an analyst said.

MF Global analyst Mike Dennis, a longstanding critic of Tesco’s U.S. business Fresh & Easy, said on Friday the proposed legislation could mark “the beginning of the end” for the chain.

“The bill (is) nicknamed ‘Tesco Fresh & Easy Law’ because Tesco’s Fresh & Easy has 126 stores out of 175 in California, and is the only grocery chain that offers only self service checkout and not the full service options that you would get in Stater Brothers or Safeway,” he said

“The implications are that Tesco, (which) has beer, wine and spirits on sale in nearly all its California stores, will need to have manned checkouts by law in order to sell alcohol. Tesco already has a high fixed cost issue with very weak sales densities.”

The bill, proposed by California Assemblywoman Fiona Ma, is similar to legislation passed in 2010 but vetoed by Republican state governor Arnold Schwarzenegger, Dennis said.

“The difference this time is that we do not expect the California Governor Jerry Brown, a Democrat, to veto the bill,” he said.

Tesco would not comment.

French & Easy made a larger-than-expected loss of 186 million pounds ($296 million) in the year ended February.

New Tesco group chief executive Phil Clarke said last month he was making changes, like introducing fresh bread and coffee, to attract more customers and he wanted to give the chain “a good run”. [ID:nLDE73H1RE]

Last week, influential U.S. investor Warren Buffett, whose investment firm Berkshire Hathaway has about a 3 percent stake in Tesco, was quoted by The Times newspaper as saying the retailer should “look hard” at its U.S. operations. (Reporting by Mark Potter; Editing by Dan Lalor) ($1 = 0.6274 pound)

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