EL SEGUNDO, Calif. -- U.K.-based Tesco PLC has halted the rollout of Fresh & Easy Neighborhood Stores, its chain of U.S. grocery/convenience stores, while it reviews the performance of the fledgling business, according to The Telegraph. The three-month "pause for breath" will spark renewed speculation about the performance of Britain's biggest retailer in the world's largest consumer spending market, said the report.
Last week, Tesco said it is halting the expansion of Fresh & Easy after opening almost 60 stores since last autumn.
Amid claims that Fresh & Easy has missed [image-nocss] internal sales targets, analysts have questioned whether U.S. consumers have been left unimpressed by the format, which Sir Terry Leahy, Tesco's CEO, has pledged will make significant inroads into America.
Tesco, which insists that the startup is on track, has earmarked more than $400 million for investment in Fresh & Easy. Leahy has staked his $19.9 million long-term bonus on the success of the venture, arguing that Fresh & Easy could eventually be as big as the core U.K. business, the report said.
The retailer, with U.S. headquarters in El Segundo, Calif., has said that it plans to have about 200 U.S. stores by February 2009. But having opened 59 stores in just four months, Tesco has halted the rollout of new stores in order to "make improvements and allow the business to settle down."
"We've given ourselves a little bit of time to kick the tires, smooth out any wrinkles and make some improvements that customers have asked for," wrote Simon Uwins, marketing director of Fresh & Easy, on his company blog last week.
"We've learnt a huge amount about running the operation, and talked to thousands of customers about what they like about Fresh & Easy, and where they would like us to improve," he added.
Uwins stressed that the rollout of new stores would resume in three months following the review. "Improving the operation and the shopping trip is what we do every day…but the next three months will allow us to accelerate this process, before we restart what's been described as an opening program on steroids," he wrote.
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In a report March 13, Mike J. Dennis, a U.K.-based analyst for Piper Jaffray, estimated that Tesco's new convenience concept is "running 70% below budget on U.S. sales," said a report by The Press-Enterprise. Based on checks with suppliers, Dennis estimated sales so far at $30 million, well below Piper Jaffray's initial estimate of $100 million for this point in time."The issue is very weak footfall," wrote Dennis in his research note, titled "Miles Off Target."
In an earlier report, Dennis said Tesco needs to revise its concept to boost customer traffic and to differentiate itself from other retailers in the California market. "It would seem that Tesco is maybe neither 'fish nor fowl' to the local consumer, who can get a total-fresh offer from Whole Foods and Trader Joe's, and a relatively cheap packaged-goods offer from a full-range superstore," Dennis said, according to the Press-Enterprise.
Dennis said the grocer is "working very hard" to address problems, some of which may stem from the overall economy, but the larger concern is "that the concept is not working."
Brendan Wonnacott, spokesperson for Fresh & Easy, said the grocer remains bullish on its U.S. prospects. "We've only been open for four months," he told the paper. "It's too early to tell what the financials will be. We're pleased with the response from our customers and from the neighborhoods," he said, adding that the stores are building repeat business."
Kathryn Cullen, a retail consultant with Kurt Salmon Associates, said Tesco has likely struggled to connect its brand to its core audience because it has introduced essentially a new type of retail venue to a fiercely competitive grocery scene. "The California market is very complex," she told the Press-Enterprise. To capture a big slice of sales, she said, grocers need to understand the differences among numerous neighborhoods, ethnicities and demographics.
Tesco executives dismissed Dennis' research as baseless and reiterated that Fresh & Easy was performing in line with expectations, said the Telegraph.
"We have been very pleased," a senior Tesco source told the newspaper.
Click hereto view previous CSP Daily News coverage of Fresh & Easy.
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