Tesco prepares US exit with sale of Fresh & Easy

AP News
Posted: Apr 17, 2013 6:33 AM
Tesco prepares US exit with sale of Fresh & Easy

LONDON (AP) — Tesco PLC, Britain's largest retailer by sales, is to pull out of the U.S., selling off its lossmaking Fresh & Easy supermarket chain at a cost of 1.2 billion pounds.

The news comes as the supermarket group's net profit for the year dropped 96 percent to 120 million pounds ($183 million), following a writedown from the Fresh & Easy exit. The chain employs about 5,000 people and has about 200 stories in Arizona, California and Nevada but failed to make money despite extensive research into what Americans wanted to buy — and how they want to shop.

"It's never easy to walk away from something," Tesco chief executive Philip Clarke told the BBC. "The world is so different now from 2004 and 2005 when the research was originally taken. Who was shopping on a smartphone back then?"

Clarke hopes to sell the stores as a single unit in hopes of securing jobs.

The decision wraps up a painful expansion exercise for the retailer — but it isn't the first international grocery chain to have troubles with the vast and diverse American grocery market. A long list of companies, including Canadian, German, French and Dutch firms, has failed to penetrate the vast market with diverse tastes, shopping habits and styles.

Fresh & Easy opened in 2007 — just before the subprime mortgage crisis hit many parts of the chain's target market and dashed hopes for explosive growth.

While Tesco has done well with its range of compact Metro stores in the UK — built close to public transport links so shoppers can grab a few items of food on their way home from work — the idea did not translate well in the U.S.

In the American west, meanwhile, most shoppers drive to supermarkets once a week and therefore look for a broader range of products, said Marc Levinson, author of "The Great A&P and the Struggle for Small Business in America."

"They clearly had the wrong model for the market they were in," Levinson said.

At the same time, some analysts say Tesco executives also began to take their eye off the ball in Britain, the company's core market. Over 60 percent of the group's sales come from the U.K., where the company has 3,000 stores and employs more than 300,000 people.

It had to start a new strategy in the U.K. and says it is working so far. Sales rose 1.8 percent.

Clive Black, an analyst who watches Tesco for Shore Capital in London, said Fresh & Easy proved too distracting. The U.S. was just too different — and the company wasn't adapting to the constantly changing market.

"It was engaging in hubris and that brings arrogance," he said. "You lose touch with your customers."