July 5, 2020

Tesco Backing Away From U.S. Operations

Tesco said that it was considering different options for the business and that it had in recent months been approached by several parties to buy all or parts of Fresh Easy. Tesco said it might also team up with other companies.

Tim Mason, Fresh Easy’s chief executive, will leave Tesco after more than 30 years with the company, it added.

Aldi Group, the German discount supermarket chain, could be among those interested in acquiring the business, while Wal-Mart Stores could bid for parts of it, analysts said.

“It is now clear that Fresh Easy will not deliver acceptable shareholder returns on an appropriate timeframe in its current form,” Tesco said.

The Tesco chief executive, Philip Clarke, said during a conference call Wednesday that it was “likely that our presence in America will come to an end.”

Mr. Clarke turned his focus on the company’s home market this year with a $1.6 billion investment program to reverse a drop in profit in Britain. The decline had alarmed some investors, who had criticized Tesco for falling behind rivals at home while plowing money into an expansion abroad, including into the United States, that failed to pay off.

“They’ve given it a good go in the U.S. but clearly it has proven to be more difficult than they believed it to be,” said Robert Talbut, chief investment officer at Royal London Asset Management.

Tesco started its Fresh Easy brand about five years ago, hoping to have discovered a market niche for smaller stores offering warm meals. But despite pouring as much money into in Fresh Easy as it invested in its British operations — £1 billion, or $1.6 billion — only a few U.S. stores made a profit.

Earlier this year, Mr. Clarke pushed back the target date for when the business would break even. He also said Tesco would slow new store openings in the United States and remodel the existing stores, with in-store bakeries and stands selling fresh flowers.

Analysts have repeatedly warned that the U.S. business would struggle to make a profit amid fierce competition and a difficult economic environment.

Tesco’s shares jumped 2.8 percent in London after the announcement Wednesday, illustrating some relief among investors that the company was limiting future losses in the United States. The shares ended 3.3 percent higher.

“Whilst the business has many positives, its journey to scale and acceptable returns will take too long relative to other opportunities,” Mr. Clarke said in a statement. “I have therefore decided to conduct a strategic review of Fresh Easy, with all options under consideration.”

Food retailers around the world are confronting the challenge of consumers becoming more cost-conscious as a result of the economic crisis. Many companies have cut prices to retain customers, while growth in Asia — once enough to offset sluggish business elsewhere — has started to dip as well.

Tesco is likely to incur some one-time costs by scaling back in the United States, but the withdrawal would allow Mr. Clarke to focus his attention on repairing the ailing British business and on operations in Asia.

Tesco has said it plans to open seven more stores in China in the next month.

In Britain, Tesco expanded its product range and added services to its online business. Despite that, sales, excluding gasoline, fell 0.7 percent in Britain in the third quarter from a year earlier, Tesco said Wednesday.

The company said it hired the advisory firm Greenhill to help review its options. It expects to give an update on its plan for Fresh Easy in April.

Article source: http://www.nytimes.com/2012/12/06/business/global/06iht-tesco06.html?partner=rss&emc=rss

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