Part of the chain's red ink is because of the [image-nocss] recession and still-shaky economy, said the report. Another reason is the company's too-rapid expansion in California, Arizona and Nevada, going from zero to 172 stores in less than four years; 50 more store openings are planned by the end of the current fiscal year, which ends next February.
The company also was forced to close some stores in areas with weak sales.
And after initially vowing not spend on advertising--assuming it could communicate directly with consumers through its website, emails and a newsletter--Fresh & Easy eventually broke down and started buying ads in various media, the report said.
So, will Fresh & Easy survive? Its management says yes. The firm plans to stick it out and expects to break even by the 2012/2013 fiscal year when it hits around 300 stores. That's an improvement over its previous projection that set the breakeven point at 400 stores.
After the latest financial results were announced, new Tesco CEO Philip Clarke insisted that his company will not give up on its U.S. business. "It's very clear with the statement from Philip Clarke, and the statements from Tesco, that Tesco is committed in the very long run to Fresh & Easy and its significant investment in the United States," Brendan Wonnacott, spokesperson for El Segundo, Calif.-based Fresh & Easy, told the Breeze. "Everything is pointing in the right direction."
Clarke told analysts earlier this week that it was "essential" that losses from its U.S. business Fresh & Easy Neighborhood Stores Inc. come down this year after the division's bottom line worsened over the last 12 months, added a separate report by Just-Food.com.
The retailer said that Fresh & Easy's trading losses widened by 9.7% to $303.5 million in the year ending February 26, despite sales growing 38.1%. It attributed the widening losses to the integration of the two fresh food suppliers it acquired last year, said the report, 2 Sisters and Wild Rocket Foods.
Clarke was confident that the business would break even towards the end of 2013. Key to its success, Clarke said, would be increasing the number of customers. "The [customers] who use Fresh & Easy now really love it, but we just need more of them, and I can see quite a few things we can do to drive customer traffic," he said.
He highlighted how Fresh & Easy is opening its stores an hour earlier and offering coffee as well as fresh baked bread and pastries, the report said. "It's normal in America, but we weren't doing it. There are many more things we can do like that, but I see some promising signs already," said Clarke.
When asked if not offering these sorts of things from the start suggested that the retailer had not fully understood the United States before it entered the market, Clarke said that the model for Fresh & Easy was "brilliant," but that it "pulled away a little bit too much from the mainstream."
However, Tesco, he insisted, was "putting that right, and we'll see the fruits of those labors in the future."
He said that like-for-like sales in the fourth quarter of the last financial year were up around 10%. "We mean that to increase this year, and it won't be just because we added some fresh bread and some coffee," he said.
He also insisted that the retailer's success in other international markets was proof that Tesco could do the same in the United States, said the report.
"In 2000, we went to Malaysia. In 2004 the four stores were making no money and going nowhere, but we weren't idle in those four years, we were learning a huge amount," Clarke said. "Inside of 18 months we got it to profitability, because we took a fresh look at it and changed it, and now it's a market leading business in Malaysia with the prospects of decades of growth."
(Click here for previous CSP Daily News coverage of Fresh & Easy.)
El Segundo, Calif.-based Fresh & Easy now operates more than 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.
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