Fresh & Easy Neighborhood Market’s trademark apple logo is green, but the chain of small grocery stores is bleeding red ink.
Tesco, the British parent of the 130-store company, said Tuesday that its American division would lose about $259 million this year, or about $2 million for each of its stores.
Fresh & Easy is struggling with the overhead of a large infrastructure designed to support hundreds of stores and a price war that has broken out in the supermarket industry.
There are 70 stores now open in Southern California, which has been hurt more than other regions by the recession. Fresh & Easy also opened stores in other areas with poor economies, including Phoenix and Las Vegas.
Tesco Chief Executive Terry Leahy tried to put a chipper spin on the losses, which are about what Fresh & Easy lost last year during its first full year of operation.
“We have been making good progress in developing the Fresh & Easy business, despite the prolonged weakness in the California, Nevada and Arizona economies,” he said in a statement about Tesco’s financial results for the six-month period ended Aug. 29.
The company is adapting “to customer feedback” by adding cereal and pet food choices and offering larger package sizes for families, he said.
Though the losses are heavy, Tesco is one of the world’s largest retailers, and it is making money in its other divisions. The company’s revenue rose 9.3% to 27.8 billion British pounds ($44.3 billion) during the six-month period, excluding international value-added taxes. Net profit rose 1.3% to 1 billion pounds.
“This represents an investment. . . . North America is the big prize, and they clearly have a big appetite for it,” said Bill Bishop, chairman of retail consulting firm Willard Bishop in Barrington, Ill.
“If they stop now, they will only be recognized as making a mistake.”
But if Tesco keeps plowing money into Fresh & Easy and years from now has a 2,000-store chain that dominates the market for small-format grocery stores, “everyone will be talking about their foresight,” said Bishop, who believes that is Tesco’s goal.
Still, he said that Fresh & Easy had made a number of missteps since its first store two years ago.
“They started the parade on their left foot rather than their right foot” by picking up a number of poor store sites and failing to understand U.S. consumers, he said.
Other retail experts were more critical.
“Everything has gone awry, from store operations to pricing to variety and selection to their locations. You could not do much worse unless you did it on purpose,” said David J. Livingston, a Waukesha, Wis., grocery industry consultant. “They were arrogant and totally misjudged the American consumer.”