Wednesday, 05 December 2012

Tesco to check out from Fresh & Easy debacle?

Tesco seems to be finally bowing to pressure to exit its £1bn American venture, confirming it wasn't so fresh and easy after all...

Tesco launched the ambitious Fresh & Easy chain with much American-style whooping only five years ago, building massive warehouses and plans to spread the good word of the ready meal to Americans from coast to coast. But investors have increasingly called on it to put them out of their misery by selling or closing the business. Now Tesco is sticking its (re)tail between its legs and launching a strategic review into what to do with it. CEO Phil Clarke says it’s ‘likely though not certain’ that it will close.

This has to go down as an embarrassing turnaround. Tesco had powered across the Atlantic in 2007 in an attempt to take on its main rival, Wal-Mart, and build a business as impressive as its UK operation. Of course it had to sail past the wreckage of flotillas of similarly cocksure predecessors on the way. And it didn’t take long for the rocks to appear: the original concept for Fresh & Easy became radically overhauled, changing its plans for store design, pack sizes and self-service tills. The venture faced opposition from trade unions. Of course, none of this was helped by the small matter of trying to create a national presence from scratch under the shadow of the global financial crisis.

Whereas a few years back this would’ve been a distant blip on Tesco’s otherwise impeccable fortunes, something it could have chalked up to experience, these days things are looking far sketchier all round. This year profits across the group have dropped for the first time in 18 years, and this news of Fresh and Easy comes only days after the retail giant was voted down 130 places in our own rankings of Britain’s Most Admired Companies, at a lowly 171st.

Tesco also admitted that non-food sales in the UK hadn’t been good enough either. UK like-for-like sales fell 0.6% in the third quarter. Compare this to Sainsbury's, which recently reported a 1.7% increase and has been gaining market share. Clarke said the money it’s investing in the chain would be better spent elsewhere. Like an executive counseling program perhaps? With Tesco losing out to Waitrose at one end and discount chains like Aldi at the other, Clarke must be wondering whether it was such a good idea following Sir Terry Leahy into the post in the first place.

Tesco says it has received a number of approaches from parties interested in all or part of the Fresh & Easy business. It’s going to clear that up in April next year, when it reports its full-year profits. Meanwhile the chief executive of Fresh & Easy and deputy CEO of the group, Tim Mason, is stepping down after 30 years at the company.

But it’s not all so bad at Tesco. While Fresh & Easy clearly hadn’t gone to plan, and consumer spending has weakened further in Central Europe, and a new law in Korea limiting opening hours may cost the chain £100m, and its performance in China has slowed, at least sales in Thailand and Malaysia are improving. One can’t help comparing this approach to news with a football team like Arsenal. Invincible in 2004, its supporters are now forced to find positives in stuttering their way to a fourth-placed finish.

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