Image credit: Flickr/Missus Martian

Tesco ends its US adventure

The supermarket has gone home with its tail between its legs - but not before it had to lend the buyer of Fresh & Easy £80m.

by Emma Haslett
Last Updated: 02 Oct 2013
'Go big or go home,' goes the saying - and as Tesco couldn't do the former in the US, it's settled for the latter.

The supermarket said last night it had signed a deal with Yucaipa, the investment vehicle owned by US retail veteran Ron Burkle, to rid itself of about three quarters of its Fresh & Easy stores. Redemption doesn't come cheap, though: Tesco has agreed to lend Yucaipa £80m for the privilege.

It's the conclusion (or almost the conclusion - it is still sitting on 50 leases in the country) of a saga which has gone on for five years. Tesco made its first push into the US back in 2007, but it soon became clear that things weren't going well: not only did it have unrest from trade unions to contend with, but fairly early on it overhauled its entire strategy, changing plans for self-service tills and store designs, and even altering pack sizes.

To be fair to Tesco, the experiment did happen to coincide with the beginning of one of the longest and deepest global economic downturns in history. But that won't come as much comfort to shareholders, who have already had to lump the £1.2bn writedown Tesco took when it exited the business, not to mention a 51% drop in pre-tax profits posted in April - its first drop in 20 years.

There is a bit of a silver lining, though: as with its exit from China, where it formed a 20-80 joint venture with Chinese hypermarket chain Vanguard, its deal with Burkle belongs firmly in the 'sweets' aisle. Not only is he taking most Fresh & Easy stores off its hands (that £80m is a loan, don't forget - it should be paid back) - but if the new company is a success, Tesco has an option to buy a stake in it. None of the work, some of the gains - what's not to like about that?

So Tesco's departure from the US is, as chief exec Philip Clarke put it, 'an orderly and efficient exit'. Admittedly, it's not the best possible outcome - but it's not the worst, either. Which is, unfortunately, all shareholders could really hope for.

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