Business World

Tuesday 30 September 2014

Tesco throws in the towel and accepts it can't crack the US market

Published 06/12/2012 | 05:00

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TESCO is pulling the plug on its 'Fresh & Easy' chain in the United States. The move follows months of speculation that the retailer would exit the market where it has invested about £1bn (€1.2bn) since it launched there in 2007.

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News of the planned departure sent shares in Tesco shooting up over 4pc in early trading.

Investors and analysts have long queried the continuing commitment to the loss-making US business, especially when Tesco is facing declining sales in its main UK market.

The company said that approaches had been made both for all and for parts of the Fresh & Easy chain in the past few months. It said interest had also been expressed by potential partners who are keen to develop the struggling business.

"It is now clear that Fresh & Easy will not deliver acceptable shareholder returns on an appropriate timeframe in its current form," said Tesco, adding that it had appointed investment bank Greenhill to review options for the US arm, which is based on the west coast.

Tesco chief executive Philip Clarke said that since his appointment to the role last year he had focused on delivering long-term value to shareholders.

Priority

"Following a year in which my priority for Fresh & Easy was to improve its performance, I have now made a fully informed assessment of its longer-term potential," he said.

Tim Mason, who heads the US division, is leaving Tesco after 30 years with the group.

"It was a discount store and it had high costs and it just proved too difficult to shift people from their traditional buying habits in big supercentres and supermarkets into a small store," said Mr Clarke.

Tesco said it would present an update on Fresh & Easy when the group reports its full-year results next April.

Delivering an interim management statement, the company said that like-for-like sales in the UK, excluding VAT and petrol, fell 0.6pc in the three months to November 24, compared to a 0.1pc rise in the previous quarter.

Its sales in Ireland – where it is the country's biggest grocery retailer – dipped 0.3pc in the period, having posted a gain in the previous three months.

Tesco said that sales in all its European markets outside the UK – bar Hungary – fell in the latest quarter. In Poland, like-for-like sales plunged 6.6pc and in the Czech Republic there was a 9.2pc collapse.

Further afield, in South Korea, where adverse changes to retail laws have recently been introduced, like-for-like sales dropped 5.1pc in the third quarter, having fallen 6.6pc in the previous three-month period.

Nevertheless, Mr Clarke insisted that he was pleased with the performance on UK food sales in the quarter.

He has initiated a significant £1bn (€1.2bn) strategy programme that has seen more staff hired and an increasing focus on food, rather than non-food items.

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