LONDON -- Tesco plc, the world's No.3 retailer, slashed expansion plans for its main British chain and said it would spend more than 1 billion pounds ($1.6 billion U.S.) on improving stores and online shopping as it battles to recover from a shock profit warning, reported Reuters. It also said on Wednesday it would rein in store openings at its loss-making U.S. arm Fresh & Easy Neighborhood Stores Inc., pushing back the expected breakeven point for that business.
Tesco, which predicted it would become one of the largest grocers in the United States when it started opening its first Fresh & Easy stores five years ago, announced a far less ambitious plan for their growth and profitability Wednesday, said a report by USA Today.
Tesco, the third-largest retailer in the world, issued its first profit warning in more than 20 years in January. In announcing its earnings Wednesday, Tesco was slightly more upbeat: It said losses at its 185 Fresh & Easy U.S. stores had "fallen for the first time."
The company has rejected calls by some investors to close its struggling U.S. operation, and it said it expected to open 45 more locations by February. It has already opened 11 since the end of its fiscal year this February, putting total stores at 196, Fresh & Easy spokesperson Brendan Wonnacott told the newspaper.
Tesco initially planned to have about 200 Fresh & Easy locations by 2009 but has continually revised down its projections in the last several years. Earlier this year, it announced plans to close 12 underperforming stores.
Tesco had also predicted El Segundo, Calif.-based Fresh & Easy would be profitable by early next year; it now says it will take about a year longer to reach "breakeven."
"We expected them to do better than they did," John Rand, lead grocery analyst at research and consulting firm Kantar Retail, told the paper.
Tesco initially hoped to bring fresh produce to food deserts with its stores, currently located in California, Nevada and Arizona, which sell mostly prepackaged food and rely almost exclusively on self-service checkouts. But Rand said poor marketing is one of several reasons the Fresh & Easy stores have "missed the mark," and he said that some customers felt neglected because of the lack of staff.
Wonnacott said the stores have changed to satisfy customers, adding bakeries and introducing more "loose produce" along with the store's prepackaged items. He said "the progress we've made has been encouraging."
Tesco originally set out to rival top grocery chains, including Safeway, and even be "as ubiquitous as Starbucks," as CEO Tim Mason was once quoted as saying.
Fresh & Easy's entry into the United States also raised the competitive hackles of convenience retailers because of the stores' small-format, convenience-style grocery offering. The industry has watched the chain--and other small-format forays by companies such as Wal-Mart--very closely as the trend has played out. Fresh & Easy itself has opened even smaller units, dubbed "Fresh & Easy Express" (click here for previous CSP Daily News coverage of Fresh & Easy and the small-format store trend).
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