Why Tesco’s Fresh & Easy US Chain Failed

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It turns out that Fresh & Easy was neither, in the end.

Tesco, the third largest retailer in the world, has announced that is ready to pull up stakes and close its 200 Fresh & Easy supermarkets in California and Nevada after a largely unsuccessful five-year run.

As Tesco CEO Phil Clarke put it about why the US grocery store brand is “under strategic review,” “It just became clear to us that the journey to sustainable returns was going to take too long. … It’s likely but not certain that our presence in America will come to an end.”

Tim Mason, deputy chief executive in charge of the U.S. business, has left the company, effective immediately, after 30 years of service. But as we reported back in July, the writing has been on the wall for Tesco’s US expansion.[more]

It’s a bittersweet ending to an ambitious retail experiment, even as Tesco just released a new recruiting video and app for its US Fresh & Easy retail chain.

As the Guardian recounts, “within weeks” of opening its first store in southern California five years ago Tesco said it planned to grow the chain to “1,000 stores across California” and then move on to the east coast — before giving itself a chance to really understand the market.

To support the operation, “the retailer built a vast warehouse, complete with America’s biggest expanse of solar panels to help power it, and a food factory next door.” it may have been efficient and sustainable in terms of operations and its green mandate, but wasn’t a sustainble business model as it misread the US market. The store size — smaller than a typical American supermarket but larger than a convenience store — was an oddity, more in keeping with British tastes. The chain’s line of “ready meals,” popular in the UK, failed to resonate with US shoppers. The large percentage of private-label store brands under the unknown Fresh & Easy name also backfired as Americans looked for trusted brands in the grocery aisle.

Now Clarke is acknowledging those mistakes, stating in a blog post: “Whilst the business has many positives, its journey to scale and acceptable returns will take too long relative to other opportunities. I have therefore decided to conduct a strategic review of Fresh & Easy, with all options under consideration.”

Natalie Berg, global research director for market research firm Planet Retail, commented to The Wall Street Journal, “The main thing is that they underestimated how Americans shop,” calling the stores “too clinical.” She added, “They didn’t have a very clear proposition.” The Journal reports that Tesco has engaged an investment bank for a “strategic review” that will most likely lead to “a sale, closure, or another arrangement — such as a joint venture — that would reduce exposure to losses at Tesco’s US unit.”

It was in September at the World Retail Congress that Tesco CEO Clarke proclaimed the “tectonic plates are shifting” in retail. How right you are, Mr. Clarke, how right you are. At least in the UK, Clarke and Co. have a new branding campaign and a six-point plan to look forward to in the new year.

Below, Fresh & Easy employees in the United Food & Commercial Workers Union spoke out last year about what they’d do to fix the company:

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