US failure costs Tesco £1 billion as store calls time on American venture

 

Tesco's bid to take on Wal-Mart in its own back yard was consigned to embarrassing and costly failure today, with the supermarket giant £1 billion poorer than before the launch of Fresh & Easy in 2007.

Tesco's California-based arm has yet to make a profit and with latest figures pointing to another dismal sales performance, chief executive Philip Clarke said the group was not afraid to make "big decisions" by calling time on a venture that would take too long to deliver value to shareholders.

His strategic review, which is expected to see Tesco's presence in the US come to an end in its current form, met approval in the City as Tesco's shares jumped more than 3 per cent.

Clive Black, retail analyst at Shore Capital Stockbrokers, said the review of the near 200-strong Fresh & Easy chain was "one of the most high profile and perhaps defining moments" in Mr Clarke's near two-year tenure as chief executive.

It is also the group's second withdrawal from an international market in less than a year, having announced in August it was pulling out of Japan after ploughing more than £250 million into the venture and spending eight years trying to crack the market.

The decisions mark a reversal of some of former boss Sir Terry Leahy's ambitious expansion strategy and have prompted questions over the group's handling of the more recent international launches.

Bad timing was partly to blame for the Fresh & Easy woes, with the chain arriving amid a housing market slump in California and just before the financial crisis struck.

But the team's strategy - under Sir Terry and US chief executive Tim Mason - also appeared to be flawed from the start.

Its decision to launch Fresh & Easy as a small store format meant it faced a lot of upfront costs, while its self-service checkout model led to the often-quoted gibe that it was "not very fresh and not very easy".

The group remodelled some stores and mothballed others, but the damage was done to its reputation in the early days.

Nick Bubb, an independent retail analyst, added that it was "pretty arrogant" to believe there was a gap for it in the world's most competitive grocery market.

Even renowned US investor Warren Buffett said he believed Tesco had been "foolhardy" to enter the US grocery sector.

If it had worked, Tesco could have made a lot of money, but it was a £1 billion gamble that did not pay off.

Mr Clarke said: "For us, the lessons are clear - in the future we'll make sure we do the things we have done in other markets."

Its expansion into emerging markets such as Asia has been hugely successful, thanks to a strategy to roll out hypermarkets with a focus on general merchandise.

"They make a ton of money in markets such as South Korea - they should just focus on the Far East," said Mr Bubb.

The review of Fresh & Easy has seen Mr Mason - who is also the company's deputy chief executive - quit Tesco after 30 years with the firm, with Mr Clarke saying only that it "felt like the right time for Tim to leave".

For its 5,000 staff in America, the decision leaves them facing months of uncertainty.

Pat O'Neill, vice president of the United Food and Commercial Workers union in the US, said: "Thousands of Tesco workers at Fresh & Easy stores in the US now face their holiday season filled with uncertainty and fear whether their jobs and their stores will be there in the new year.

"These job losses could have been avoided if Tesco had chosen to engage with community stakeholders and its customers to address the many underlying problems and warning signs of the troubled Fresh & Easy model."

PA

Start your day with The Independent, sign up for daily news emails
Sport
Seth Rollins cashes in his Money in the Bank contract to win the WWE World Heavyweight Championship
WWERollins win the WWE World Heavyweight title in one of the greatest WrestleMania's ever seen
Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Arts and Entertainment
tvPoldark, TV review
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor