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  3. > Tesco PLC’s US experience: How to lose £1bn, the Fresh & Easy way

Introduction

In November 2007, UK retailer Tesco PLC opened its first six Fresh & Easy branded stores in California, United States. Less than six years later, CEO Phillip Clarke announced a complete withdrawal from the market and a write-down loss of £1bn (approximately $1.6bn). This case study will examine Fresh & Easy’s history, the reasons that contributed to its failure, and what lessons can be taken.

Features and benefits

* An in-depth assessment of the operational and macroeconomic difficulties Fresh & Easy encountered.
* An analysis of the financial performance of Fresh & Easy.

Highlights

Chilled prepared ready meals which Tesco sought to build the Fresh & Easy concept on have failed to gain momentum in the US, in sharp contrast to the United Kingdom .
The sub-prime mortgage crisis impacted upon the geographical areas in which Fresh & Easy operated, as high foreclosure and unemployment rates disrupted local communities.

Your key questions answered

* Why did an internationally successful retailer such as Tesco PLC fail in the US?
* What were the reasons for Fresh & Easy's failure?
* What lessons can be learnt from Tesco PLC's US experience by other retailers?

Table Of Contents

Tesco PLC’s US experience: How to lose £1bn, the Fresh and Easy way
OVERVIEW
Catalyst
Summary
THE HISTORY OF FRESH and EASY
The rise and fall of a green grocer
Tesco spent a number of years preparing for US market entry
The opportunity to enter the US market was attractive
West Coast states were favored for launch
Fresh and Easy was positioned as a ‘green' grocer
The concept focused on fresh foods and chilled prepared meals
Sales remained disappointing as losses mounted
£1bn write-down upon sale to Yucaipa Inc.
UNDERSTANDING UNDERPERFORMANCE
The reasons for failure were numerous and multifaceted
The effects of the sub-prime mortgage crisis were significant
Foreclosure rates hurt store performance
Macroeconomic conditions were not unique to Fresh and Easy
The executive team lacked local market knowledge
The quality of store locations was questionable
Self-checkouts were not well received by consumers
A reliance on private label goods proved problematic
Investment in infrastructure led to onerous fixed costs
Chilled prepared meals did not prove a success
Convenience is a matter of context
LESSONS LEARNED FROM FRESH and EASY
Growth in the right place, at the right pace
Tesco has revised its international expansion strategy
Innovation needs time
Consumer habits take time to change
Quality over quantity matters for store locations
Local knowledge is vital
CONCLUSIONS
Failure resulted from a combination of macroeconomic and operational issues
APPENDIX
Sources
Further Reading
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