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LONDON -- Tesco is expected to concede that its first U.S. operation, Fresh & Easy Neighborhood Markets, will not be profitable this year when it announces full company results later this week.
According to a report in the United Kingdom by the Guardian, the giant British supermarket retailer is blaming the U.S. recession for Fresh & Easy failing to meet the company’s lofty aspirations.
When launched in the fall 2007, CEO Tim Mason predicted the new Fresh & Easy small format grocery chain would open 200 stores within a few months and grow to as many as 1,000 stores on the West Coast, stretching from Seattle to San Diego. The company built a giant centralized warehouse and ready-to-eat meal commissary in Segundo, Calif., and had been looking in the San Francisco area for a second warehouse to service 500 additional Fresh & Easy stores.
One analyst quoted by the Guardian estimated Fresh & Easy racked up losses of £100 million in the year just ended. The first signs of a slowdown in the planned rollout of Fresh & Easy came last spring, and the chain currently operates roughly half the stores originally planned by this time, reported the Guardian. The three markets chosen for start-up operations—southern California, Las Vegas and Phoenix—were among the hardest hit by the economic downturn, especially in the real estate market.
The company also recently admitted that its vaunted research—which included having Tesco executives live in the homes of American consumers to watch what they ate and how they shopped—was flawed. However, executives have not explained why their strategy focusing on fresh foods, private label groceries and everyday low pricing didn’t attract more U.S. consumers, especially during a recession where lower-priced stores like Walmart have benefited.
The Guardian also reported analysts estimate the U.S. venture will cost Tesco £1 billion if it is abandoned. The company is currently spending at a rate of £250 million a year on the U.S. division, although that figure is expected to be scaled back.
-- Fresh & Easy Launches Multi-Buy Discount -- April 17, 2009
-- Fresh & Easy to Enter Stockton, Calif., Market -- April 15, 2006
-- Fresh & Easy to Launch 25 New Wines -- March 29, 2009