Retail analyst Sam Hart at Charles Stanley estimates the mid-sized "neighborhood market" outlets, which Tesco hopes will one day be as big as its core UK chain, made operating losses of 100 million pounds ($145.23 million U.S.) in the year just ended.
When the Fresh & Easy chain was launched, Mason said he expected to open 200 stores by February of this year and outlined plans for 1,000 stores on the West Coast, stretching from Seattle to San Diego. One vast warehouse and ready meal factory had been built in El Segundo, east of Los Aneles, and the Fresh & Easy bosses were already looking at another site in the Bay area of San Francisco to serve 500 more of the 10,000-square-foot shops, said the report.
The first signs of a slowdown in the planned rollout of the brand came last spring, and the chain currently operates only about half the stores originally planned by this time.
The Fresh & Easy chain has been hit by its location: the three areas it chose for startupsouthern California, Las Vegas and Phoenix--have been among worst hit by the U.S. downturn, according to the newspaper.
The store concept was based on minutely detailed market research, which saw Tesco executives living in the homes of American consumers to watch what they ate and how they shopped. Their response was a chain of relatively small, local stores focusing on fresh foods and private-label produce rather than the usual vast range of U.S. brands and "heat 'n' eat" meals. The chain used a straightforward "everyday low prices" strategy and said it was 15% cheaper than U.S. shoppers were used to.
In January, however, Fresh & Easy launched a 98-cent range of produce and $1 special offers, and started offering $6-off coupons to shoppers who spent more than $30 in a visit. The chain claimed the 98-cent packs increased sales by 11%.
Mason recently admitted that the research on which the chain was based might have been flawed, the report said. He had expected the Fresh & Easy concept to be embraced, and he had not expected to have to go "down and dirty" on price.
Analysts said that Fresh & Easy should be benefiting from the economic downturn as shoppers trade down to lower-priced stores, the report added. Wal-Mart has claimed the recession is an opportunity to "widen our moat."
Some analysts and retail bloggers insist the Fresh & Easy formula is faulty. Mike Dennis at Piper Jaffray has estimated that if Tesco decides to pull out of the United States, the venture will have cost 1 billion pounds ($1.45 billion U.S.), the report said.
The Fresh & Easy strategy was viewed as one of the most daring business decisions taken by Tesco boss Sir Terry Leahy, who stands to make more than 10 million pounds ($14.53 million U.S.) if the chain works. It is currently eating through capital expenditure at a rate of 250 million pounds ($363.31 million U.S.) a year, the Guardian said, although this is expected to be scaled back.
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