Supermarket giant set to pull plug on troubled US venture
LONDON: Tesco Plc is set to end its five-year attempt to crack the cut-throat U.S. market and will focus on turning around its struggling home business and on faster-growing emerging markets.
The world’s third-biggest retailer said it was reviewing its loss-making U.S. unit Fresh & Easy that could lead to the sale or closure of the 200-store chain that employs 5,000.
“It just became clear to us that the journey to sustainable returns was going to take too long,” Phil Clarke, chief executive of Tesco, told reporters.
“It’s likely but not certain that our presence in America will come to an end,” said Clarke, speaking from Los Angeles.
Clarke, CEO since March 2011 and a Tesco lifer who as a youth stacked shelves in his local store, said finding a solution to Fresh & Easy would allow the group to divert resources in more profitable markets.
Tesco, which trails France’s Carrefour and U.S. leader Wal-Mart by annual sales, said it had received a number of approaches from parties interested in acquiring all or part of Fresh & Easy, or in partnering with the firm.
Tesco added that Tim Mason, Fresh & Easy’s CEO and deputy group CEO, is leaving Tesco after 30 years with the firm.
Tesco, which stunned investors in January with its first profit warning in more than 20 years, is battling to regain momentum against a weak UK economy, with consumers fretting over job security and a squeeze on incomes. The firm has suffered more than rivals, in part because it sells more discretionary non-food goods on which shoppers have been cutting back most.
In April Tesco launched a strategy to revive UK sales, investing in more staff, revamped food ranges, smartened stores that give more space to food and refined marketing.
Rivals Asda (part of Wal-Mart) and J Sainsbury Plc have both recently reported sales increases and the only major domestic rival to have reported a decline was No. 4 player Wm Morrison , albeit for different trading periods.
Tesco’s woes are not confined to the UK and United States.
In South Korea, its biggest overseas market, underlying sales fell 5.1 percent as legislation allowing local governments to impose shorter trading hours hurt trading, while in eastern Europe underlying sales were down 3.6 percent, reflecting fallout from continued euro zone instability.
And according to a report in The Guardian, Fresh & Easy’s problems started with it’s name.
“Sounds like a deodorant,” one woman was quoted as saying when the store opened. Another said it made her think of a women’s sanitary product.
The Guardian also cited Tesco’s unwillingness to embrace “the coupon culture” so beloved of American shoppers.”
In Britain coupons are considered a sign of desperation, but in America couponing is built into the culture. Fresh & Easy also could failed to lure customers from their most obvious competitor, Trader Joe’s, whose customer loyalty numbers are among the highest in the grocery business.
There also remained a distinctly British feel to the shopping experience that may have alienated American customers. The signage and language was more British than American, and the shelves were often filled with shrink-wrapped single serving meals that the British love but which have failed to catch on with Americans. The automated checkout was also confusing for many Americans, who are used to personal exchanges with their checkers and baggers. To add insult to injury, many Fresh & Easy outlets had a cold, industrial feel, which compared unfavorably to the more warm and fuzzy Trader Joe’s environment.
In the end, Tesco, which is considered such an innovative and nimble retailer in the UK, failed in perhaps the most vital objective of any foreign company seeking to woo the American consumer; the ability to slip quickly into the American landscape and make the customer feel at home. Fresh & Easy will soon be gone, and will likely be almost sooner forgotten.
