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Tesco Throws In the Towel On U.S. Retail Expansion

After Five Years of Mounting Losses, UK Retailer Reviewing Options for its 199 U.S. Grocery Stores
December 5, 2012
Admitting that its bid to crack the U.S. grocery store market has failed, Tesco plc., the largest retailer in the U.K. and one of the world's leading international retailers, announced today that it has dismissed the CEO of its 199-store Fresh and Easy U.S. chain and appointed Greenhill to review its options for its U.S. stores.

Those options include seeking a joint venture partner, although Tesco's chief executive Philip Clarke aknowledged that his decision means the firm will likely pull out of the U.S. entirely.

"It is now clear that Fresh & Easy will not deliver acceptable shareholder returns on an appropriate timeframe in its current form," Tesco said in a statement. The firm also announced that Fresh and Easy's CEO, Tim Mason, would leave Tesco after 30 years' service with the company.

Tesco made headlines in 2006 when it announced plans to break into the U.S. market with a new, smaller-sized store that emphasized convenience, ready-made meals and local produce. But its timing, just ahead of the global recession, and its choice of location -- Los Angeles, Las Vegas and Phoenix, three of the hardest hit markets in the housing bust -- could not have been worse.

As Clarke stated, "Launching Fresh & Easy in the world’s most competitive retail market was never going to be easy, but the economic backdrop made the task twice as hard."

At the same time, the retailer struggled to compete with more successful home-grown upstarts such as Trader Joe's and Whole Foods. The global supermarket retailer reportedly invested approximately $1.6 billion into its U.S. foray before pulling the plug.

Like many retailers, Tesco has suffered financial setbacks through the global recession. It announced plans to pull out of Japan earlier this year and focus on its home and other Asian markets, including China and Indonesia, where it plans to open more stores.

Tesco said it has been approached by several potential buyers but declined to identify any. The company promised to provide its shareholders with more detailed information when it releases its results for the full year in April 2013.

Analysts cited Aldi Group, a German discount supermarket chain, and perhaps even Wal-Mart could be among those interested in acquiring all or parts of the business.

Tesco modeled its Fresh & Easy Neighborhood Markets after its 1,000 Express format stores it operates in seven countries. While the store prototype is 10,000 square feet, stores slated to open generally range 10,000 to 17,000 square feet.

Following the opening of its first 14 stores in the Las Vegas area, Fresh & Easy added more stores throughout Southern California, Arizona and Nevada. In March 2011, it made another round of investment, opening its first stores in Northern California around San Francisco and the Bay Area. In addition, the company has established an El Segundo, CA headquarters and operates a 500,000-square-foot distribution center in Riverside, CA.

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