Tesco CEO Philip Clarke said today (19 April) that it was “essential” that losses from its US business Fresh & Easy come down this year after the division’s bottom line worsened over the last 12 months.
The UK retailer said that Fresh & Easy’s trading losses widened by 9.7% to GBP186m (US$303.5m) in the year to 26 February, despite sales growing 38.1% to GBP502m. It attributed the widening losses to the integration of the two fresh food suppliers it acquired last year – 2 Sisters and Wild Rocket Foods.
Clarke was confident that the business would break-even towards the end of 2013. Key to its success, Clarke said, would be increasing the number of customers.
“The ones [customers] who use Fresh & Easy now really love it, but we just need more of them, and I can see quite a few things we can do to drive customer traffic,” he said.
The Tesco boss highlighted how Fresh & Easy is opening its stores an hour earlier and offering coffee as well as fresh baked bread and pastries. “It’s normal in America, but we weren’t doing it. There are many more things we can do like that, but I see some promising signs already,” said Clarke.
When asked if not offering these sorts of things from the start suggested that the retailer had not fully understood the US before it entered the market, Clarke said that the model for Fresh & Easy was “brilliant” but that it “pulled away a little bit too much from the mainstream”.
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However, Tesco, he insisted, was “putting that right, and we’ll see the fruits of those labours in the future”.
He said that like-for-like sales in the fourth quarter of the last financial year were up around 10%. “We mean that to increase this year, and it won’t be just because we added some fresh bread and some coffee,” he said.
He also insisted that the retailer’s success in other international markets was proof that Tesco could do the same in the US.
“In 2000, we went to Malaysia. In 2004 the four stores were making no money and going nowhere, but we weren’t idle in those four years, we were learning a huge amount,” Clarke said. “Inside of 18 months we got it to profitability, because we took a fresh look at it and changed it, and now it’s a market leading business in Malaysia with the prospects of decades of growth.”
Clarke also said that the retailer’s UK performance over the past year has been “below par”. He admitted that the business had “lost momentum” and that it had not “had a great year by its own standards”.
“We didn’t lose share, but like-for-like sales were below the market in the second half,” Clarke admitted. He acknowledged that Tesco had “some work to do” but said the issues facing the business were “not structural”.
Clarke said that the issues faced by Tesco’s UK operations were “in the detail”, adding that the retailer would work to “execute better”.
While many of the retailers issues are around its non-food offer, Clarke also plans to drive a “faster road to product innovation” and “sharper communication to customers”. While he would not be drawn on the specifics of the retailer’s plans, he said that changes are already taking place and that there will be “more to come”.