Tesco to sell off 150 US stores

TescoSupermarket Tesco has agreed a deal to offload the bulk of its loss-making Fresh & Easy chain in the United States in a move that will see more than 4,000 jobs secured.

It will sell 150 stores and Fresh & Easy's distribution and production facilities to American investment firm Yucaipa Companies.
But Tesco admitted 50 stores were not part of the deal and will close over the coming weeks, affecting around 1,000 US jobs.

Around 400 full-time roles are expected to be axed across the stores that will close, with another 600 part-time or temporary workers also set to lose their jobs.

Philip Clarke, Tesco chief executive, said the sale represents " the best outcome for Tesco shareholders and Fresh & Easy's stakeholders".

"It offers us an orderly and efficient exit from the US market, while protecting the jobs of more than 4,000 colleagues at Fresh & Easy," he said.

Tesco will loan Yucaipa Companies around £80 million to support the new business following the deal, but said that this, together with the closure of the unsold stores and other expenses, will cost it a total of £150 million to draw a line under its ill-fated US venture.

The deal is expected to complete within three months.

Yucaipa - founded by US supermarket billionaire Ron Burkle - has not yet decided if it will keep the Fresh & Easy brand.

Tesco confirmed recently it would quit the US after putting Fresh & Easy under review last December, having pumped more than £1 billion into the chain since its launch in 2007.

But the chain has never made a profit and a £1.2 billion hit on the US business contributed to a slump in the group's recent annual bottom line profits, down 95.7% to £120 million in the year to February 23.

The US sale marks the group's second withdrawal from an international market in just over a year, having announced in August last year it was pulling out of Japan after ploughing more than £250 million into the venture and spending eight years trying to crack the market.

It also recently revealed talks with China's largest retailer to merge their operations in the country in a move marking a major shift in strategy over one of its key growth markets.

The tie-up with CR Vanguard leaves a question mark over the future of the Tesco brand in China and would bring an end to the group's independent business in one of the world's fastest-growing retail markets.

These decisions mark a reversal of some of former boss Sir Terry Leahy's ambitious expansion strategy and have prompted questions over the group's handling of the more recent international launches.

Bad timing was partly to blame for the Fresh & Easy woes, with the chain arriving amid a housing market slump in California and just before the financial crisis struck.

But the team's strategy - under Sir Terry and former US chief executive Tim Mason - also appeared to be flawed from the start.

Its decision to launch Fresh & Easy as a small store format meant it faced a lot of upfront costs, while its self-service checkout model led to the often-quoted gibe that it was "not very fresh and not very easy''.

The group remodelled some stores and mothballed others, but the damage was done to its reputation in the early days.

The review of Fresh & Easy saw Mr Mason - who was also the company's deputy chief executive - quit Tesco after 30 years with the firm.

Tesco has been retrenching from its more difficult overseas markets and putting efforts instead into turning around its UK business.

It is scrapping more than 100 major UK store developments and focusing growth on convenience stores and its online offering.

The group is also hoping to transform stores into family -friendly retail destinations, snapping up the 47-store Giraffe child-friendly restaurant chain for £48.6 million under plans to open the eateries alongside larger stores.

The deal follows recent similar investments in the Harris + Hoole coffee shop chain and Euphorium Bakery.

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