The United Kingdom-based retailer said Dec. 5 a strategic review of its Fresh & Easy business in the U.S. might lead to pulling out of the U.S.
Fresh & Easy, Tesco’s small-format supermarket concept rolled out in Southern California, Arizona and Nevada in 2007, has since expanded into northern California with about 200 stores.
Philip Clarke, Tesco chief executive officer, said in a statement that returns haven’t been acceptable for Tesco to sustain its investment, which news media accounts so far put at close to $1.6 billion.
“It is now clear that Fresh & Easy will not deliver acceptable shareholder returns on an appropriate timeframe in its current form,” he said.
Clarke said other companies have expressed interest in buying all or part of the Fresh & Easy chain, or in partnering with the U.S. company.
“Innovation is the bleeding edge,” said Don Goodwin, president of Golden Sun Marketing, Minnetrista, Minn. “They tried to be innovative and they bled profusely.”
More retail consolidation may be ahead with the divestiture of Fresh & Easy and pending sales from large retailers like Supervalu, he said.
Fresh & Easy had rigorous labeling and traceability compliance standards for suppliers when it entered the U.S. market, which created tension and pushback because the company had few stores, and needed less produce to stock shelves.
“If they entered today, it might go a little easier because of the compliance standards we are working toward with the traceability initiative,” Goodwin said.
Fresh & Easy’s sterile store environment and initial commitment to packaged produce hurt them greatly, Goodwin said, because the West Coast sells less packaged produce than any region of the country. He said the chain also could have gained from bringing in experienced U.K. and American supermarket executives to lead the chain.
Bruce Peterson, president of Peterson Insights, Bentonville, Ark., said the chain stocks similar items in its stores, even though the neighborhoods they are in are very different.
“The moniker on the building was Fresh & Easy, but it wasn’t always particularly fresh and it wasn’t always particularly easy,” he said.
Despite a tremendous investment in research by Tesco to find out what the U.S. shopper wanted, Fresh & Easy stores never hit the mark, said Bill Bishop, chairman of Willard Bishop LLC, Barrington, Ill.
“From the first time I went into the stores, they were very dull and whatever their value proposition was not clear,” he said.
Bishop said Fresh & Easy never bridged the huge cultural gap between U.K. and U.S. retailing.
As opposed to a beautiful wet rack and a stunning leaf lettuce display, prepackaged produce didn’t have the “fresh” appeal implied in the Fresh & Easy image, said Ed Odron, owner of Stockton, Calif.-based Ed Odron Produce Marketing Consulting.
“In California the expectations were different than people saw when they walked in the store.”
Bishop said Fresh & Easy’s struggles were compounded by strange store locations that didn’t seem to properly value traffic and demographics, he said.
Goodwin said there is speculation that Wal-Mart could go after Fresh & Easy stores for a small-format store.
If Tesco is shopping its Fresh & Easy stores to U.S. retailers, Bishop said operators like Dollar General or Aldi may be interested. Aldi hasn’t yet established a foothold in California and Dollar General also is in an expansion phase.
Peterson said the locations of the Fresh & Easy stores could hold back interest from other retailers.
Bishop said small-format stores have a bright future, despite the failure of Fresh & Easy.
The consumer migration to the Internet in purchasing during the next 10 years should make smaller stores more attractive in the future, he said.