Tesco set to admit defeat in dream to establish American chain

Tesco will finally admit its American Dream is over this week, as the grocery giant posts its first fall in group profit for nearly 20 years.

The world's third biggest retailer launched Fresh & Easy to a fanfare at the end of 2007, but the chain has failed to capture the imagination of US shoppers and has racked up losses of about £850m.

The German discounter Aldi is thought to be the front-runner to buy the biggest chunk of Fresh & Easy, including possibly its Californian distribution centre. But sources believe that a piecemeal sale of its 199 shops is the most likely scenario, with US grocers, such as Trader Joe's and Dollar General, also interested in parcels of stores.

Philip Clarke, the chief executive, will confirm Tesco is abandoning the US on Wednesday after launching a strategic review in December, although this week's results may come too soon to unveil a full, or partial, sale of Fresh & Easy.

A significant writedown in the value of its American operation will lead to Tesco's profits taking a hit of up to £1bn for the year to February. Even before this charge, the grocer is still expected to post an 11 per cent fall in pre-tax profits to £3.43bn, according to Deutsche Bank.

Tesco's UK business is expected to have delivered lacklustre sales growth of 0.1 per cent in its fourth quarter, but Mr Clarke will say substantial progress has been made after it invested £1bn in its domestic operation last year.

The grocer has recently surprised the City by investing in, or acquiring, the Euphorium bakery, Harris & Hoole coffee shop and Giraffe restaurant chains. Mr Clarke will be quizzed on his rollout plans for these.