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Tesco is expected to concede that its first U.S. operation, Fresh & Easy Neighborhood Markets, will not be profitable this year when it announces full company results later this week. According to a report in the United Kingdom by the Guardian, the giant British supermarket retailer is blaming the U.S. recession for Fresh & Easy’s failure to meet the company’s lofty aspirations.
When launched in the fall of 2007, CEO Tim Mason predicted the new Fresh & Easy small-format grocery chain would open 200 stores within a few months and grow to as many as 1,000 stores on the West Coast, from Seattle to San Diego. The company built a giant centralized warehouse and ready-to-eat meal commissary in El Segundo, Calif., and had been looking in the San Francisco area for a second warehouse to service 500 additional Fresh & Easy stores.
One analyst, quoted by the Guardian, estimated that Fresh & Easy racked up losses of £100 million (US $145.2 million) in the year just ended. The first signs of a slowdown in the planned rollout of Fresh & Easy came last spring, and the chain currently operates only about half the stores originally planned by this time, reported the Guardian. The three markets chosen for startup operations -- Southern California, Las Vegas and Phoenix -- have been among the hardest hit by the economic downturn, especially in the real estate market.
The company also recently admitted that its vaunted research -- which included having Tesco executives live in the homes of American consumers to watch what they ate and how they shopped -- was flawed. However, executives haven’t explained why their strategy focusing on fresh foods, private label groceries and EDLP pricing didn’t attract more U.S. consumers, especially during a recession where lower-priced stores like Walmart have benefited.
The Guardian also reported that analysts estimate the U.S. venture will cost Tesco £1 billion (US $145.2 billion) if it is abandoned. The company is currently spending at a rate of £250 million (US $363.1 million) a year on the U.S. division, although that figure is expected to be scaled back.