Tesco’s US experiment may end within months

By JAMES DAVEY
Published on 27/10/2012 00:00

Tesco’s billion pound gamble to crack the United States may have only months to run as investors and management focus more on its struggling home business and slowing growth in emerging markets.

Fresh & Easy (F&E), having absorbed nearly £1 billion of capital since its 2007 launch, remains stubbornly loss-making in the cut-throat US grocery market where it competes with larger rivals Ralphs, Trader Joe’s, Vons and Whole Foods Market.

Earlier this month Tesco, the world’s third-biggest retailer, posted its first profit decline in nearly 20 years that reflected investment to address a loss of share in the UK as well as underlying sales declines in South Korea and eastern Europe.

At the same time F&E, which trades from 199 stores in Arizona, California and Nevada, posted first-half losses of £74 million, similar to last year.

That put a big question mark over a target – already repeatedly pushed back – for the chain to break even in its 2013-14 fiscal year, and prompted a renewed clamour for chief executive Phil Clarke to call time on Tesco’s US adventure.

“We never liked the US expansion, never thought it would work and never believed it will work, so the sooner they acknowledge this and exit F&E the better,” said one of the top 25 largest shareholders in Tesco, on condition of anonymity.

Launched with great fanfare five years ago, F&E was a gamble on a new format for US shoppers – a convenience store, with self-checkouts and a focus on cheaper own-brand goods.

But it is was quickly clear that Americans attached to their brands and used to customer service would not easily be won over, leading Tesco to start a series of changes and experiments – like some assisted-service checkouts and even smaller-format F&E stores – that continue to this day.