Nearly six years ago, British grocery giant Tesco embarked on an bold and expensive experiment—coming to America. "The British are Coming ... to Aisle 3" is how we covered the opening of Tesco's Fresh & Easy stores in California in November 2007.
Unfortunately for the British, the grocery invasion ended like the Revolutionary War. Failure and retreat.
Tesco has announced that it's in talks with other retailers to sell off all or part of the 200 Fresh & Easy stores as it prepares to leave the U.S. The company said Wednesday that after losing billions of dollars on the enterprise, becoming profitable is "just going to take too long."
CFO Lauri McIlwee added that "a number of parties" have expressed interest in buying Fresh & Easy, and though the business is expected to continue losing money until a sale is complete, JPMorgan reports that "Tesco anticipates no additional cash costs on the exit."
What went wrong?
I've shopped at Fresh & Easy many times. I like it. It's a bit like Trader Joe's but without the fun and luau vibe, and the overall "euro" feel may put off some shoppers. Its selection of fresh foods and low prices is attractive, and I particularly like the prepared meals. However, some shoppers may be unwilling to buy the myriad of private-label products from a brand they really don't know. You also have to scan your own groceries at checkout, which some may find inconvenient.
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Tesco also suffered from bad timing. It opened its first store in California's Inland Empire as the housing market was collapsing and as the entire country—especially the Golden State—was sliding into recession.
By the time the first store opened, Tesco had spent $1 billion and three years researching the U.S. market. Back then, Fresh & Easy CEO Tim Mason said, "We've created a unique store ... designed for Americans by Americans." The chain ran into union protests, but Mason said the biggest surprise was the discovery that Americans go to several places to gather groceries: Costco, Whole Foods, Vons, Trader Joe's, etc. Fresh & Easy hoped to provide a one-stop shopping source where the food was fresher and "less messed around with."
Tesco had predicted Fresh & Easy would break even by 2010 or 2011. That never happened. Mason has since left the company. But back in November 2007, success seemed possible. When asked at the time if he was under tremendous pressure, Mason joked, "Oh, that's a terrible question." He recognized he challenges ahead. "It's a very, very competitive market. It's full of highly experienced, world-class companies. So you've got to be absolutely on your game."
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