Fresh & Not-So-Easy
So maybe it was a not-so-grand experiment.
In an increasingly globalized world, one where IKEA is seemingly in every nation on Earth and Walmart is getting there, why wouldn’t British supermarket giant Tesco succeed in opening markets in the United States?
On paper, opening small grocers to serve a time-pressed populace seemed like a great idea—go in, grab it and leave. But in the latest step in its plan to exit the United States, Tesco’s Fresh & Easy chain filed for bankruptcy protection on Monday. The move eases the sale of 150 stores at auction to the ever-growing Yucaipa Cos. by allowing Fresh & Easy to exit a number of highly overpriced leases prior to the court-mandated auction. According to the Los Angeles Times, a number of stores have already closed.
What went wrong? Certainly the chain had horrendous timing, opening in California, Nevada and Arizona right before the recession (seriously, how did they miss Florida?). Others note that the stores are decidedly urban in nature, but are located largely in suburban markets. Still more observers say that the stores themselves were too highly automated for what many consider a personal experience in food shopping, and didn’t accept coupons. Even the meals to go didn’t appeal to local tastes, it seems. The result: up to $1 billion in debt on just $500 million in assets, according to its Chapter 11 filing.
For Tesco’s shareholders, Fresh & Easy (and its other international ventures, including Asia) may have been a grand distraction: its just-released second quarter results saw sales rise 1.7 percent (including fuel), but profits declined 7.4 percent year over year as the company also faced challenges in the Eurozone. It’s also placing its stores in China into 20 percent of a joint venture with the state-owned China Resources Enterprise, merging those stores into CRE’s Vanguard chain. At home, it’s abandoning plans for more than 100 developments in the United Kingdom as it retrenches.
But what of Fresh & Easy’s stores? If Yucaipa wins the court-required auction, as is expected, it will take over some 150 stores (with Tesco remaining a minority partner thanks to a $120 million loan to Yucaipa). Will Yucaipa relaunch Wild Oats Markets in some of these spots, as the Times story says? What will landlords do with the closed locations, which range from 3,000 square feet to 10,000 square feet? In a market where more consolidation is expected, is this the opportunity for Aldi to progress with its planned expansion in Southern California?
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