“It is now clear that Fresh & Easy will not deliver acceptable shareholder returns on an appropriate time frame in its current form”, said a company statement. In October, the retailer said new capital investment in Fresh & Easy was to be tightly constrained, while the business focused on reducing costs and improving the profitability.
Philip Clarke, Tesco’s chief executive, said: “While 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.”
Selling the business
One option under review is selling the business. A statement from the retailer admitted: “In recent months, we have had a number of approaches from parties interested in acquiring either all or part of Fresh & Easy, or in partnering with us to develop the Fresh & Easy business.”
Brian Roberts of retail analyst Planet Retail told BBC Radio 4’s Today programme that a potential buyer for the business could be Aldi. Wal-Mart was not a likely contender because Fresh & Easy stores were too small, he said.
Roberts added that the Fresh & Easy business had lost £2bn in the past five years. “It’s not the biggest retail loss but then it’s not the finest achievement either,” he said.
The Atlantic “was difficult to bridge for retailers”, he said. “Certainly in the grocery trade, it’s not been a happy time.”
Shore Capital predicted that Tesco would find adopting a fresh approach in the US far from easy.
‘Exiting the USA’
Its analysts Clive Black and Darren Shirley said: “Shore Capital reads this as a signal that Tesco will be exiting the USA and is seeking to gain the best outcome for investors. That Tim Mason is leaving the company underscores this opinion, in our view.”
Black and Shirley described the decision as a defining moment in Clarke’s position as ceo. But the review followed decisions that introduced capital discipline by Tesco, which if sustained “will transform free cash flow generation and potentially lead to shareholder-friendly outcomes”.
Earlier this week, Tesco reported Fresh & Easy like-for-like sales of only 1.8% compared with Shore’s expectation of 4−5%.
Shore Capital retained its ‘Hold’ advice on Tesco stock.
Tesco said it would provide more information on the future of the chain with its full-year financial results in April 2013.
Fresh & Easy at a glance
- Fresh and Easy launched in 2007
- Main rival Wal-Mart
- Operates 200 stores, mainly in California and Nevada.