Tesco to review future of Fresh and Easy US chain

Retail analyst Natalie Berg: "Tesco's Fresh and Easy lost its way"

Tesco is launching a strategic review that may lead to the sale or closure of its US-based Fresh and Easy chain, the company has confirmed.

The UK's largest supermarket group has spent nearly £1bn ($1.6bn) on the loss-making US venture in an attempt to take on its main rival, Wal-Mart.

Tesco said that all options for its US business were under consideration.

Tesco also said in a trading statement that non-food sales in the UK had not been good enough.

While chief executive Philip Clarke said that he was "pleased" with its food business, he said the business was renewing its efforts on improving the general merchandise business.

UK like-for-like sales - which strip out the impact of new stores - excluding VAT and fuel fell 0.6% in the third quarter, Tesco said.

Buyer interest

Fresh and Easy was launched in 2007, but investors have increasingly called on Tesco to sell or close the business.

Mr Clarke said investment in the chain, which has about 200 stores in the US, would get better returns elsewhere: "While the business has many positives, its journey to scale and acceptable returns will take too long relative to other opportunities."

He has been under pressure after announcing Tesco's first fall in profits since 1994 at the half-year results stage in October.

Fresh and Easy stores are mainly in California and Nevada, and Tesco originally had ambitious plans for the chain.

In its statement, Tesco said that it had received a number of approaches from parties interested in all or part of the business, or in partnership with Tesco, and that it would give an update on the situation in April next year when it reports its full-year results.

The original concept for Fresh and Easy has been radically overhauled and the venture has faced opposition from trade unions.

Its launch in the US came at a bad time, coinciding with the start of the sub-prime mortgage crisis and subsequent economic downturn.

Tesco also confirmed that the chief executive of Fresh and Easy, Tim Mason, would be leaving the company after a career spanning 30 years.

International sales

In its trading update, Tesco said its international businesses had seen a mixed performance during the quarter.

Consumer spending had weakened further in Central Europe, Tesco said, with sales in Poland, Slovakia and the Czech Republic particularly affected by slower economic growth.

However, this was partly offset by a better performance in Asia, with sales in Thailand, Malaysia and Korea improving.

Tesco said it opened two new stores in China during the quarter, and planned a further seven in the next month.

However, underlying sales in China fell as a result of "a continued slowdown in economic growth and lower consumer spending".

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