Tesco's Tough Time with Fresh & Easy

Fresh & Easy has turned out to be costly and difficult for its parent Tesco, the UK's largest supermarket retailer.

Tesco's researchers observed US shoppers at close quarters and studied market dynamics for two years before the first Fresh & Easy stores opened in Arizona, California, and Nevada in 2007.

Based on what they learned, Tesco's original strategy was to exploit a gap in the market between small-format convenience stores and large-scale supermarkets and superstores.

Fresh & Easy was to be a neighborhood market featuring easy-in, easy-out shopping for fresh fruits, vegetables, and prepared foods, with everyday low pricing (EDLP). In other words, the merchandise would be fresh and the shopping would be easy (and easy on the wallet).

The long-term plan was to have 1,000 stores stretching the coast from California to Washington state. Never mind that those states already have plenty of supermarkets and superstores selling produce and related foods, including powerhouses like Trader Joe's, Costco, Walmart, and Whole Foods. Tesco believed its fresh concept and core competency in food retailing would bring something new and different to the US market. Tesco even invested in a gigantic distribution center to serve the huge network of stores in the works.

However, Tesco soon found that competition was much fiercer than expected. Even worse, the global financial crisis pushed the economy into a tailspin and the Western states where its first Fresh & Easy stores were located suffered particularly severe and prolonged downturns. Shoppers became accustomed to bargain-hunting for promotional pricing, not Fresh & Easy's EDLP pricing strategy.

Meanwhile, Fresh & Easy lacked the high profile and positive brand associations it needed to attract and retain shoppers. Even though a belated advertising campaign, new color scheme, new merchandise categories for US shoppers' preferences, and promotional pricing helped slow the losses, these moves couldn't boost sales and customer counts to break-even levels quickly enough.

After years of multimillion dollar losses and no break-even date in sight for Fresh & Easy, Tesco today announced it was conducting a strategic review of the US grocery chain. Whether Fresh & Easy is sold or shuttered, the experience has been painful and profit-sapping for Tesco.