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December 11th, 2012 by Arcadia Weekly
Times are Tough for British Tesco Corporation
Tesco said it is considering selling its Fresh & Easy Neighborhood Market stores and will probably leave the United States , the British newspaper The Guardian reported r on Wednesday.
Tesco chief executive Philip Clarke has called in investment bankers to advise on what to do with the Fresh & Easy chain, which has 200 stores. However, he admitted Tesco was most likely to “exit” the business, which it had once hoped to build into a huge chain that could take on Walmart according, to The Guardian in London
Tesco has had a bad 2012. In January Clarke had to unveil the grocer’s first profits warning in 20 years. He is now battling to restore the grocer’s once formidable reputation, pouring £1bn into the core UK business to improve service, update the stores and regain the supermarket’s reputation for being unbeatable on price.
The decision to quit the US gave the company’s shares a boost, however, and they closed up 3.3% at 336.7p as investors cheered the fact that there was now an end in sight to the losses the Fresh & Easy venture has racked up.
Fresh abd Easy USA CEOMason, a former marketing man who had been with Tesco for 30 years has left, effective immediately.
The 55-year-old also has a £9m pension pot and could start drawing his £477,000-a-year pension straight away. He also separately owns £6.6m of shares, having sold 2m shares over the past 18 months.
Clarke thanked Mason for his work but said he had to make the “tough calls at the right time”.
He added: “Having assessed its long-term potential, we’ve concluded that Fresh & Easy is not going to achieve the scale and profitability it needs in a reasonable timescale.”
Fresh & Easy’s chief executive, Tim Mason, is also leaving after three decades at Tesco, the company said.
The Fresh & Easy chain launched in 2007 with much fanfare and high ambitions of creating a network of hundreds of smaller-format stores on the West Coast.
But the supermarkets never proved profitable. In October, Tesco announced plans to cut back on investing in the chain after closing 12 stores earlier in the year. There are still nearly 200 locations open in California, Arizona and Nevada.
Despite those efforts to slash costs, “it is now clear that Fresh & Easy will not deliver acceptable shareholder returns on an appropriate time frame in its current form,” Tesco said.
Philip Clarke, chief executive of Tesco, said “all options are under consideration.”
“Whilst the business has many positives, its journey to scale and acceptable returns will take too long relative to other opportunities,” he said in a statement.
In a conference call on Wednesday, Clarke said it was “likely” that Tesco’s “presence in America will come to an end.”
This decision comes at a sensitive time for Tesco, which has been trying to turn around a decline in profit at home in Britain and fighting off criticisms that it has put too much money into rapid — and so far unprofitable — expansion in some areas overseas.