Tesco set to pull down shutters on American store chain dream

0
Have your say

TESCO is poised to abandon its £1bn attempt to break in to the cut-throat US grocery market.

The UK’s leading supermarket chain has spent five years trying to make a success of its Fresh & Easy US chain.

But now it will focus on its UK market, where it is struggling to compete against arch rivals Leeds-based Asda and number three player Sainsbury’s.

Tesco has launched a strategic review of the loss-making Fresh & Easy chain that could lead to the sale or closure of its 200 stores.

Tesco’s chief executive Phil Clarke said: “We’ve now concluded that it is not going to deliver acceptable shareholder returns in an appropriate timeframe in its current form.

“It’s likely but not certain that our presence in America will come to an end.”

Fresh & Easy chief executive and deputy group chief executive Tim Mason, who has been at Tesco for 30 years, is leaving with immediate effect.

The announcement was made alongside Tesco’s third quarter trading figures, which showed a 0.6 per cent fall in UK like-for-like sales during the 13 weeks to November 24.

Mr Clarke admitted the general merchandise performance was “not good enough”.

Tesco said like-for-like sales in food, the main focus of the recovery plan, grew 1.2 per cent, ahead of the market overall.

The group’s shares rose 3.31 per cent to 337.45p as the City gave its approval to the review.

Clive Black, retail analyst at Shore Capital Stockbrokers, said it was the right decision and marks “one of the most high profile and perhaps defining moments” in Mr Clarke’s tenure since taking on the top role last March.

Mr Clarke said the review could see the US business sold off, closed or placed into a partnership with another retailer.

Tesco said it has received a number of approaches from parties interested in acquiring either all or part of Fresh & Easy, or in partnering with the firm.

Mr Clarke stressed that the business and its 5,000 staff will continue as before while the review is under way.

Tesco, which recently reported its first drop in profits in 20 years, has invested £1bn in Fresh & Easy since its launch in 2007.

But the chain has never made a profit and lost £74m in the first half of this year.

Its third-quarter underlying sales growth eased to 1.8 per cent from the second quarter’s 6.9 per cent.

Mr Clarke did not say how much it will cost to pull out of the US, but said the priority is to deliver long-term value for shareholders.

Tesco will report its findings when it publishes full year results in April.

Investment bank Greenhill will help with the review.

Independent retail analyst Nick Bubb said: “It will be costly to pull out, but the stock market has been urging Clarke to make up his mind and he will probably get credit for that.”

Mr Clarke said finding a solution to Fresh & Easy will allow the group to focus resources on other parts of the business that promise better returns.

“There are clear opportunities to put our people and our resources into other growing, more profitable, better returning businesses in markets where we are already strong and growing,” he said.

Tesco has suffered more than its rivals, partly because it sells more non-essential non-food goods where shoppers have cut back the most.

In April Mr Clarke launched a strategy to revive the company’s UK fortunes, investing in more staff, revamped food ranges, smartened stores that allocate more space to food and refined advertising.

Asda and Sainsbury’s have both recently reported sales increases and the only major rival to report a decline at the checkout was the fourth-placed player Bradford-based Morrisons.

Tesco’s problems are not confined to the UK and the US.

In South Korea, its biggest overseas market, underlying sales fell 5.1 per cent as legislation allowing local governments to impose shorter trading hours continued to hurt trading, while in Eastern Europe underlying sales were down 3.6 per cent.

ros.snowdon@ypn.co.uk

Back to the top of the page