Tesco's Fresh & Easy Chain Flops in U.S.; CMO Is Out

Retailer Will Review Options, Including Closing Or Selling U.S. Operation

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Tesco, one of the world's biggest retailers, is admitting defeat so far in the U.S. market by announcing a "review of options" for its loss-making Fresh & Easy grocery business. Tesco's CMO Tim Mason, who is also CEO of Fresh & Easy, is leaving after 30 years at the company.

The California-based grocery chain opened in 2007 with plans to take on Tesco's main international rival, Walmart, but conceded in a statement, "It is now clear that Fresh & Easy will not deliver acceptable shareholder returns on an appropriate timeframe in its current form."

Tesco is considering several options. The company could sell or close Fresh & Easy, or possibly look for a partner to drive growth.

Investment bankers Greenhill have been called in to assist with the Fresh & Easy review. Further announcements on plans for the chain will be made in April 2013 when the company's annual results are announced.

Tesco CEO Philip Clarke said in a statement, "While [Fresh & Easy] has many positives, its journey to scale and acceptable returns will take too long relative to other opportunities. I have therefore decided to conduct a strategic review of Fresh & Easy, with all options under consideration."

The Fresh & Easy premise is to be a small, local neighborhood store providing fresh food at affordable prices, but the chain has struggled to lure shoppers away from bigger grocery stores and hypermarkets.

Tesco has ploughed around $1.5 billion into the U.S. venture, with almost 200 stores employing more than 5,000 people since opening the West Coast region in 2007 in Southern California, Arizona and Nevada. In March 2011, the first Fresh & Easy stores opened in Northern California, San Francisco and the Bay Area. The chain's U.S. agency is Deutsch LA.

Earlier this year, Tesco withdrew from Japan after nine years, handing control to Japan's second-largest retail group, Aeon. Elsewhere in the world, sales in China, and Eastern Europe fell during the third quarter of 2012, although sales in Thailand, and Malaysia improved.

Tesco appointed Wieden & Kennedy, London, to handle its $175 million U.K. advertising business in July 2012. Matt Atkinson, who oversaw the review, has been promoted from group marketing and digital officer to replace Mr. Mason as CMO.

In October, Tesco announced its first fall in profits since 1994. The retailer is still the U.K.'s biggest, but its market share is sliding, according to Kantar Worldpanel. Tesco's share of the U.K. grocery market dropped by 0.5% to 30.5% for the 12 weeks ending Oct. 28 compared to the same period the previous year. At the same time, the second largest retailer, Walmart-owned Asda, lost 0.1% share to 17.3%, and the third largest, Sainsbury, gained 0.2% to 16.9%.

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