EL SEGUNDO, Calif. -- As Fresh & Easy Neighborhood Stores Inc., the U.S. arm of British retailer Tesco Plc, announced the groundbreaking of the first of six small-format grocery stores planned for the Sacramento, Calif., area in 2012, Tesco CEO Philip Clarke announced that the company has decided to sell its business in Japan. The move triggered speculation about the fate of Fresh & Easy.
"We have reviewed our portfolio in Asia and the performance of our business in Japan. Having made considerable efforts in Japan, we have concluded that we cannot build a sufficiently scalable business," Clarke said in a statement. "We have decided to sell our operations there and focus on our larger businesses in the region, in line with our priority of driving growth and improving returns."
Japan is the smallest of Tesco's international retail businesses. The company operates 129 small stores in the Greater Tokyo area under the Tsurakame, Tesco and Tesco Express formats. More than half of the stores are profitable, it said, and Tesco has also developed a strong private-label range and a fresh kitchen to supply fish and other products to its stores.
"So when are you selling Fresh & Easy?" was the first question put to Clark after he made the announcement on Japan, according to The Independent. "The U.S. has been a much more high-profile international failure than Japan for Tesco, so if Mr. Clarke is the pragmatist he says he is, an exit must surely follow," said the report.
"Inappropriate" was the word Clark used to describe comparisons between Japan and the United States, said the report. "Japan has long been regarded as a graveyard for international supermarket groups, with Wal-Mart and Carrefour having struggled to make it there too. Moreover, Tesco's performance in Japan has been substantially worse of late than in the U.S., at least in terms of the way sales have been declining. A third difference is that Tesco's Fresh & Easy concept in the U.S. is a different type of offer--and the retailer claims to have a recovery plan in place for the venture that will see it break into profit sooner rather than later."
It said, "Clarke's decision to walk away from Japan, made within six months of him taking over from Sir Terry Leahy at the top of Tesco, is an important precedent. It suggests he is more focused on earnings than empire-building--and that he will not be afraid to dump Fresh & Easy if the recovery plan fails, as many cynics expect it to. Tesco's U.S. management [has] been put on notice."
And another London newspaper, City A.M., characterized the decision this way: "If a butterfly flaps its wings in China, it changes the weather in New York. And if Tesco exits Japan, it sends a chill wind through its U.S. business."
It added, "The decision to pull out of Japan was a no-brainer [and] … the future of Tesco's U.S. operation Fresh & Easy is less secure after this announcement."
Meanwhile, Fresh & Easy has opened 13 stores in Northern California so far this year, including most recently its second San Francisco store in the underserved Bayview-Hunters Point neighborhood.
El Segundo, Calif.-based Fresh & Easy operates 177 stores in California, Arizona and Nevada.
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