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Fresh & Easy's U.S. experiment appears to have failed

Though its U.K.-based parent company, Tesco, is not showing its hand at this point, widespread reports indicate that the firm is close to selling its 220 Fresh & Easy stores, located in the West.

In December, Tesco announced that the chain was "under review" because of its substantial losses and no turnaround in sight. When the effort was launched a handful of years ago, Tesco expected that 2013 would be the year it turned a profit.

"The word on the street is that when the first quarter financials are released for 2013, it will show a loss for this quarter of around $100 million," said Dick Spezzano of Spezzano Consulting Service Inc. in Monrovia, CA.

The longtime Southern California retailer said that it appears as if the multi-year experiment has cost the European supermarket giant about $1 billion. Press reports indicate that the company is in talks with other companies to buy Fresh & Easy's U.S. holdings, but Mr. Spezzano said the size of those holdings seems to be a stumbling block.

"I'm sure they'd like to sell it to one entity, but that's going to be difficult," he said.

Besides the 220 small-format stores, the company has several very large distribution center buildings in Riverside County east of Los Angeles that seem to be overkill for the number of stores those buildings service.

Speculation is that the German company Aldi might be a good fit. That German chain and corporation was founded by two brothers, Theo and Karl Albrecht, and Aldi currently operates a successful discount chain by that name in the Midwest. Aldi's U.S. operations are now owned by Karl Albrecht. Among Theo Albrecht's holdings are part of Aldi's operation in Europe as well as Trader Joe's.

Because of the connection, Mr. Spezzano speculated that if the sale to Aldi went through, some Fresh & Easy stores might become Trader Joe's locations.

As a Southern California resident, Mr. Spezzano said that he doesn't closely watch the Aldi chain but said it has a very good reputation and he believes they could do a good job in California, where most of the Fresh & Easy's are located.

Ed Odron, another longtime California retailer who offers retail consulting services as Ed Odron Produce Marketing Consulting, based in Stockton, CA, agreed that Aldi could do a great job with the Fresh & Easy outlets.

"They are in many different cities in the Midwest and seem to do very well adapting their stories to the local clientele," he said.

Mr. Odron believes Fresh & Easy's failure was the result of its inability to connect with U.S. consumers.

"It just goes to show you what works here [the United States] isn't necessarily going to work in other parts of the world, and what works there isn't necessarily going to work here," he said.

Ron Pelger, another longtime retailer who is now a columnist for The Produce News as well as a consultant with RonProCon and FreshXperts, said that the situation reminds him of one he was involved in with at A&P more than 30 years ago.

A German company had bought the U.S. retailer, he said, and after doing some studying of the U.S. marketplace "we opened some small stores called PLUS, which stood for 'Price Low U Save.' We had a limited line just like Fresh & Easy, but the banner never worked. A lot of customers want to go to one store and do all their shopping. They don't want to drive around, so you lose those people."

Mr. Spezzano gave the same reason why Fresh & Easy didn't work. He said that there are too many people that it didn't appeal to, including those that don't like self-checkout, shoppers who don't like private labels, shoppers who use American Express and shoppers that like to buy produce in bulk rather than packaged.

By having a limited assortment and these above-mentioned restrictions, Mr. Spezzano indicated that their potential customer list was just too small. He added that their workmanship with their meat was sub par and their in-store produce people were undertrained.

"They recognized some of the problems and changed some things, but it was too little too late," he said.

Mr. Odron said he was disappointed the first time he walked into a Fresh & Easy store.

"I was excited like everyone else," he said. "I read about it and I was anxious to see it. But I have to say I was underwhelmed. I had high expectations, but it was a pretty boring store."

Mr. Spezzano said he had the exact same reaction. He noted that Tesco did lots of research before opening Fresh & Easy, including operating a dummy store on a trial basis and drilling down into the habits of U.S. consumers. Still, when he first went into their initial stores, he said his reaction was, "Is this all they can come up with after all that research?"

He said Fresh & Easy did have some "sharp pricing," but they needed more than that to succeed.

Mr. Odron even took exception with the firm's pricing philosophy, finding it as underwhelming as the feel and look of the store. "Their pricing was OK but it wasn't 'Oh My God' low pricing."

On the other hand, he said that Aldi's is known for being the low-price leader in virtually every market in which it participates. Fresh & Easy just didn't have anything positive to set itself apart.

In the end, Mr. Odron said that its "grab and go" concept appealed to a small group of customers. Maybe it appealed to those looking for a quick lunch, but not to the consumers doing their weekly shopping.