Tesco Shareholder Suggests U.S. Exit

Believes jettisoning Fresh & Easy would benefit core U.K. operation

LONDON -- Tesco Plc is facing fresh scrutiny after a leading shareholder said quitting America--where the international retail giant operates the Fresh & Easy Neighborhood Stores Inc. chain of small-format grocery stores--would help it get its U.K. operation back on track, reported the U.K. Press Association.

The comments from Richard Black at Legal & General Investment Management, which is Tesco's third biggest shareholder with a 4% stake, come days before chief executive officer Phil Clarke unveils his blueprint for reviving the chain.

Along with an exit from the loss-making American operation Fresh & Easy, Black has suggested Tesco ditches banking in order to concentrate on the core grocery side of the business in the U.K.

He said in the Sunday Times: "Strategically, the business needs to think about its capital allocation and return on capital.

"It needs to think long and hard about what it wants to be--can it be everything to everyone, or should it focus on its gem, the British grocery business? Of course, this is likely to raise questions about other areas of the business, such as America and the bank."

Justin King, the chief executive of rival Sainsbury's, said he believed customer service was the key difference between the two chains.

In an interview with the Sunday Telegraph, he said: "They have not executed well for customers. All retailers struggle when they stop doing a great job for customers. It was true of us during the 1990s. We've been able to see for a long while that what we deliver in service in our shops is significantly better than Tesco."

Clarke, who took over as chief executive last year, is expected to unveil a major culture change at the retailer to make it a "warmer" proposition for customers.

Since its first U.S. store opened in 2007 in Los Angeles, Fresh & Easy has been the subject of intense speculation over its financial viability. Many industry observers have questioned Fresh & Easy's ability to survive in the cutthroat American grocery sector.

El Segundo, Calif.-based Fresh & Easy operates about 150 stores in California, Arizona and Nevada. In addition to fresh prepared meals, meats and produce, it offers national brand products and household items. The chain's fresh&easy brand products have no artificial colors or flavors, no added trans fats, no high-fructose corn syrup and only use preservatives when absolutely necessary.

 (Click here for previous CSP Daily News coverage of Fresh & Easy.)