Blog: Katy AskewTesco needs time on Fresh & Easy - but will it get it?

Katy Askew | 29 October 2012

Tesco is again facing speculation that it could be forced to abandon its efforts to grow in the US through Fresh & Easy.

Reports have - once again - highlighted a level of investor concern over the five-year-old endeavour. Shareholders, it seems, are worried that Tesco will not be able to stem losses at Fresh & Easy as quickly as they would like.

Verdict analyst Cliona Lynch told just-food Tesco is facing "constant" speculation that it will pull out of the US. "As long as Fresh & Easy continues to trade at a loss the speculation will intensify," she said.

Tesco has said that it aims to reach a break-even point in the 2013/14 fiscal year. However, Lynch observed Tesco group chief executive Philip Clarke is facing an increasingly difficult job justifying retaining a US position due to the difficulties faced in the UK and Europe. Indeed, some have argued Tesco is overstretching and that management has enough on its plate sorting out difficulties in markets that contribute significantly more to the bottom line.

"Clarke will be closely assessing whether continued investment in the US can translate to profits in the next year. If not, it is likely they will step away," Lynch predicted.

Nevertheless, speaking at the release of Tesco's interim results earlier this month, Clarke insisted the company still views Fresh & Easy as a good growth opportunity that could offer "decades of value for shareholders".

"What strikes me when I visit the USA is that the format and the offer are absolutely in tune with the emerging consumer trends of American, and particularly West Coast, consumers. They want healthier food; they want wholesome food; they want convenient food," Clarke said.

However, while Tesco clearly got a lot right in the development of the Fresh & Easy format, it is just as interesting to note what it got wrong.

At the time it was initially looking at launching in the US, the group had "top secret" test stores in a huge warehouse where it trialled different concepts on consumers. With all that market research, I was astounded to see that Fresh & Easy was launched with self-checkout tills only.

As Clarke observed, the US is the "land of customer service". My American husband, who lives in the UK, would rather wait in line than use self-checkouts and I think he is always slightly surprised to have to bag his own groceries. This service attitude is deeply ingrained in US retailing and - for a company that prides itself on adapting to local markets - it seems strange Tesco felt it could go against the flow on this issue.

Another problem Tesco has faced is its US merchandising and, again, to operate in the US you have to provide a huge array of well-known brands. Perhaps, in 20 years, when Fresh & Easy IS the brand, Tesco will be able to ignore this rule and offer a significantly streamed-down array with a decidedly own label focus. Not today.

But Tesco has not sat on its laurels. Clarke said these issues have been identified and changes - such as the reintroduction of manned checkouts - have been rolled out to a number of stores. Where alterations have been made, positive trends have followed.

To make Fresh & Easy profitable, Tesco needs time to focus and adjust its US offer. The trouble is, without turning a profit, time is possibly the one thing that Fresh & Easy does not have. 


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