There was no saving Fresh & Easy.
It struggled under Tesco and continued to sag after Los Angeles-based Yucaipa Cos. Acquired the 167-unit small-grocery chain in 2013.
“[Yucaipa] had a network of 10,000- to 15,000-square-foot stores, which had an assortment of merchandise that people were not particularly into, and there was nothing that they could do different,” says Gerald Lewis, a New York-based retail consultant, who actually predicted before Tesco’s American launch that “British arrogance” would cause Fresh & Easy to fail.
Fresh & Easy LLC, El Segundo, Calif., filed for Chapter 11 bankruptcy in October 2015 (the second time in two years), with all stores closing in November.
Bad Decisions
The new owners understood they had acquired a defective asset, but it was one with relatively new stores with square footage comparable to L.A. success story Trader Joe’s.
So what went wrong?
Yucaipa founder Ronald W. Burkle told the Los Angeles Times that his investment firm couldn’t overcome bad decisions made by U.K.-based Tesco. Burkle had brought on former 7-Eleven and Blockbuster leader Jim Keyes to resurrect the Fresh & Easy concept.
Keyes sought to refocus the model based on convenience, low prices, ready-to-eat meals, a wider selection of craft beer and more fresh foods—everything consumers want. And despite Keyes cutting losses to $50 million a year from $250 million, Burkle told the Times, it wasn’t enough.
“The business was in a free fall,” he said. “Turnarounds are tough, and falling knives are tougher yet.”
Even Keyes lamented that Tesco had the wrong store size while speaking at Winsight’s Outlook Leadership conference, held in November 2015 in Scottsdale, Ariz.
The Fresh & Easy stores were much smaller than Tesco’s U.K. supermarkets and much larger than the Tesco Express convenience stores, which average about 2,000 square feet. For its introduction into the United States, however, Tesco opted for 10,000- to 15,000-square-foot stores that did not offer gasoline and relied on a concept that Lewis says also missed the mark.
Fresh & Easy’s offer was based on a cold-chain delivery system of prepackaged fresh meals, which are prepared daily by independent fresh-food processors, delivered to cross-docking centers, consolidated and shipped to individual stores the same day.
Tesco saw that no one in the United States was offering cold-chain delivery and “thought they had found this secret that no other company had,” says Lewis.
Although popular in the U.K., the cold-chain delivery system failed here, Lewis says, because of its vastness and the country’s relatively low population density. Also, American consumers saw the food itself lacking the freshness that many of today’s c-stores and grocers are offering.
Seeking Unique
Because of their similar size, Fresh & Easy was often compared to Monrovia, Calif.-based Trader Joe’s. However, that is all they had in common.
Trader Joe’s had “developed a very unique type of offer over the years,” Lewis says. “It’s a little offbeat; it’s a little different than other food stores,” whereas Fresh & Easy “didn’t have the capability to have uniqueness.”
Fresh & Easy also faced strong competition from large retailers such as Wal-Mart, which started experimenting with small-format stores after Fresh & Easy’s introduction, as well as convenience stores and supermarkets that placed a stronger emphasis on higher-quality prepared foods.
But Fresh & Easy “never became successful enough that the competition really ganged up on them,” Lewis says.
What Tesco could have done was build on a brand, whether that would have been the Tesco name or a chain already known to American consumers.
“Fresh & Easy sounded like any other convenience store,” Lewis says. “[Tesco] would have had to acquire a major U.S. supermarket chain and use that chain and its brand name to develop a Tesco Express sort of format in the United States.”
Brand recognition is just one of several lessons to be learned from Fresh & Easy. In food and convenience retailing, there are very few ideas that are truly new, so if you think you have found a silver bullet, “be very careful to check the history and make sure you really have one,” Lewis cautions. “The key way to develop new things is to build on something that works through innovation.”
Fresh & Easy’s Core Problems (A Timeline)
2007
U.K.-based Tesco opens Fresh & Easy stores in the Phoenix, Los Angeles, San Diego and Las Vegas areas, with plans to open 100 stores by the end of 2008.
March 2008
Tesco halts the expansion of Fresh & Easy after opening almost 60 stores.
November 2008
After openings resumed in July, the 100th Fresh & Easy store opens in Fullerton, Calif., but Tim Mason, CEO at the time, says the U.S. recession could slow expansion.
April 2010
Fresh & Easy celebrates the opening of its 150th store, located in Burbank, Calif.
November 2011
Tesco opens its first Fresh & Easy Express store in Los Angeles, with plans to open more in Southern California. At 3,000 square feet, the Express format is smaller.
December 2012
Tesco announces it has appointed an advisory firm to conduct a strategic review of the struggling chain.
April 2013
Tesco says it will officially exit the United States and sell Fresh & Easy.
October 2013
Tesco puts Fresh & Easy into bankruptcy as part of a plan to sell most of its 167 stores to Yucaipa Cos.
November 2013
Yucaipa Cos. officially acquires Fresh & Easy from Tesco. Jim Keyes, former leader of 7-Eleven Inc. and Blockbuster, is brought on to come up with a new strategy for Fresh & Easy.
March 2015
Fresh & Easy announces it will close about 50 stores in California, Arizona and Nevada as the chain prepares to pursue a new fresh-food c-store concept.
October 2015
Fresh & Easy files for Chapter 11 bankruptcy, with all stores closing in November 2015.
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