Tesco’s plans to expand live on in scaled-back format
Fresh & Easy chain expects 45 new locations by February
British grocery chain Tesco, which predicted it would become one of the largest grocers in the U.S. when it started opening its first Fresh & Easy stores five years ago, announced a far less ambitious plan for its growth and profitability Wednesday.
Tesco, the third-largest retailer in the world, issued its first profit warning in more than 20 years in January. In announcing its earnings Wednesday, Tesco was slightly more upbeat: It said losses at its 185 Fresh & Easy U.S. stores had “fallen for the first time.”
The company has rejected calls by some investors to close its struggling U.S. operation, and it said it expected to open 45 more locations by February. It has already opened 11 since the end of its fiscal year this February, putting total stores at 196, says Fresh & Easy spokesman Brendan Wonnacott.
Tesco initially planned to have about 200 Fresh & Easy locations by 2009 but has continually revised down its projections in the last several years. Earlier this year, it announced plans to close 12 underperforming stores.
Tesco had also predicted Fresh & Easy would be profitable by early next year; it now says it will take about a year longer.
“We expected them to do better than they did,” says John Rand, lead grocery analyst at research and consulting firm Kantar Retail.
Tesco initially hoped to bring fresh produce to food deserts with its smaller grocery stores, currently located in California, Nevada and Arizona, which sell mostly prepackaged food and rely almost exclusively on self-service checkouts. But Rand says poor marketing is one of several reasons the Fresh & Easy stores have “missed the mark,” and says some customers felt neglected because of the lack of staff.
Wonnacott says the stores have changed to satisfy customers, adding bakeries and introducing more “loose produce” along with the store’s prepackaged items. He says “the progress we’ve made has been encouraging.”
However Tesco originally set out to rival top grocery chains, including Safeway, and even be “as ubiquitous as Starbucks,” as CEO Tim Mason was once quoted as saying. Safeway has more than 1,700 stores in the U.S. and the world’s largest coffee company operates almost 10,800 stores in the U.S.
Making matters worse, the company has been under fire from the United Food and Commercial Workers Union, which says Tesco’s problems in the U.S. are due in part to its refusal to allow workers to organize. The National Labor Relations Board has ruled against Tesco 13 times in the last two years, including for interrogating workers about union activities. Of the cases, Wonnacott says, “We have learned from that and moved on.”
The chain has “been somewhat of a failure” in the U.S., says Patrick O’neill, UFCW’S organizing director. “And they’ve just aggravated that by picking a fight with labor in the communities.”
But Rand downplays any role labor disputes have had and says “there’s a lot of things Fresh & Easy does that are very much on trend with where U.S. retail is heading.”
“I still think it has a place,” he says.