Breaking News ... Plus Analysis
Tim Ashdown, the former CEO of United Kingdom-based Tesco's Asia operations, who's essentially been running Fresh & Easy Neighborhood Market as its chief operating officer since arriving in May of this year, has been named CEO of the El Segundo, California-headquartered chain, replacing Tim Mason who departed Fresh & Easy and Tesco, where he was deputy CEO and chief marketing officer in addition to being CEO at Fresh & Easy, this week as part of Tesco CEO Philip Clarke's decision to exit the U.S. by either selling the 200-store grocery chain as a whole or in pieces, or if that fails, closing its doors.
Ashdown, who is responsible for the various changes (like testing full-service checkout in two stores) and workforce reduction measures at Fresh & Easy over the last eight months, was named CEO yesterday. The announcement was made to employees at Fresh & Easy's corporate office in El Segundo. Tesco's CEO, Philip Clarke, has been in Southern California this week.
Ashdown's key task as CEO, in our analysis, is to keep Fresh & Easy on life support until Clarke and Tesco's board can, the hope, find a buyer for the chain, which opened the doors of its first store in November 2007. That first store, in Hemet, California, has since been closed, along with 23 other Fresh & Easy units , because it failed to come even close to meeting the weekly sales numbers needed to continue in operation.
Tesco, which truth be known has no idea what to do with Fresh & Easy - and hasn't for a number of years - has hired the Greenhill investment firm to find a buyer for the chain. Failing to do that, Greenhill, which is also the firm trying to find a buyer for Supervalu, Inc., has been charged by Tesco to come up with other alternatives, which include selling the stores and the massive Riverside, California distribution center (and related campus properties) piecemeal.
Greenhill, which actually has been working on the project for some time, is going to have a difficult time of it. For example, only about 20% (30-40 units) of Fresh & Easy's 200-store base are in the black - and not by much. Additionally, many of those money-losing remaining 150-plus stores are bleeding tons of red ink, so much so that Tesco reduced the operating hours of 30-plus stores earlier this year, as we reported exclusively in Fresh & Easy Buzz.
Ask yourself this: Would you buy a grocery chain with only 30-40 of its 200 stores in the black?
Selling the stores piecemeal will be no easy task either. Only a few of the 200 units have sales of $150,000 or more per-week, for example. A few more are doing around $100,000 in average weekly sales. Still others, the bottom tier, aren't even close to approaching weekly sales of $100,000.
The 850,000 square-foot distribution center in Riverside is also a white elephant, which continues to bleed red ink for Tesco. The campus was built for a chain of 1,000 stores doing at least $3 billion a year in annual sales - and with a profit. There are 200 Fresh & Easy stores. Annual sales is a bit over $1 billion.
The facility is also custom-built for the "Fresh & Easy" way of doing business, logistics and distribution. It should eventually sell, but at a very low price, in our analysis.
Tesco of course wants to sell Fresh & Easy as a whole. Good luck.
As we've reported exclusively, discount grocer Aldi (we're still looking for another publication to do some reporting on what is a major development) plans to enter California in 2013. Aldi has an interest in some Fresh & Easy stores and the distribution center, according to our multiple sources. However we would be stunned were they to buy the entire Fresh & Easy operation, unless they get it at a fire sale price, which is possible.
Discounter Dollar General, which is opening numerous dollar stores and Dollar General Market grocery stores throughout California, Nevada and Arizona - the three states where Fresh & Easy does business - also has an interest in the chain. Again we would be stunned if Dollar General were to acquire Fresh & Easy as a whole. Dollar General has been acquiring vacant buildings for its stores in the three states on the cheap. The discounter also has a distribution center in Bakersfield, so doesn't need the Riverside facility.
Bottom line: We predict Tesco will have no choice but to sell Fresh & Easy off piecemeal; groups of stores and single stores, along with marketing the distribution center individually, or perhaps as a package along with a group of stores.
Tesco also has more than a score of Fresh & Easy locations sitting fallow; some with completed but empty stores, others undeveloped locations. It's nightmare; so many leases for so many fallow properties are out there we suspect many landlords are not getting all that much sleep this week.
There is interest out there for some of the Fresh & Easy stores. For example, more than one commercial real estate agent specializing in retail properties has contacted Fresh & Easy Buzz, seeking information about the chain and its stores. Our take from these interactions is that many retailers out there think they can get some stores for a huge bargain.
We've also been asked questions - looking for an informed and objective third party we take it - from representatives a couple retail chains, who are gleaning information about individual Fresh & Easy stores.
We also know of one party that has proposed a joint-venture of sorts with Tesco. In our analysis, it wouldn't fly.
But back at the ranch in El Segundo, Fresh & Easy's new CEO, Tim Ashdown, who's had a trial by fire since arriving in sunny and recently rain-soaked California in May - we reported his being moved from Asia to California exclusively here [ May 2, 2012: Reshuffling at the Top at Tesco: Retail Chief Adams Leaving Fresh & Easy For Turkey; China CEO Ashdown to Replace Him; Richie to Head China Operations] - has plenty more fire to wade through. We suggest a truckload of own brand, perhaps "Tesco's Finest," fire extinguishers might be a good idea.
Ashdown's biggest task, as we've said, is going to be keeping Fresh & Easy on life support between now and about March-April 2013, which is the time CEO Clark and the Tesco board hope to be able to dispose of Fresh & Easy - one way or the other.
Related Stories
December 4, 2012: The End is Here For Fresh & Easy: Mason Out as CEO; Tesco To Figure Out How to Exit U.S.
December 4, 2012: The End For Tesco's Fresh & Easy is Here
August 8, 2012: Fear & Loathing in the Aisles: Reduction in Hours and Selected Firings Begin Today at 33 Fresh & Easy Stores
July 28, 2012: Fresh & Easy Neighborhood Market Planning Major Renovations at Two California Stores
July 28, 2012: Fresh & Easy Neighborhood Market to Test Full-Service Checkout at Two California Stores
July 26, 2012: Fear and Loathing in El Segundo: Mass Firings, Reduction in Store Hours at 33 Fresh & Easy Stores ... and More
June 4, 2012: West Coast Bound - Aldi USA Headed to Southern California; First Stores to Open in 2013
April 10, 2012: Dollar General's California Dream Becoming Reality
Should we see F&E as a lesson in corporate arrogance, bad luck or an example of myopic decision making?
ReplyDeleteGee. fail to understand what American consumers want so let's send in another foreigner to figure it out. Awesome plan. Yea that should work.
ReplyDelete-Bubba
I've been arguing for 2 years that its not that Tesco might want out - its that they can't get out. Not at any acceptable price. Tesco will pay someone to take fande over and will never disclose the deal in order to protect its brand. My guess is Tesco sells to an investment company who then subsequently breaks it up after 2 years hoping the market comes back. A. I don't believe any major retailer would realistically buy it in full. B. I don't think Tesco can break it up. It would be messy and take too long and hurt the Tesco Brand C. Bankruptcy for the USA business unit is not an option. I guess Yucaipa takes it for $500 M in Tesco stock with a promise to not break it up for 2 years.
ReplyDeleteWould be a huge shame to see walmart open their express stores in these locations.
ReplyDeleteIf the stores do close, itll be curious to see who, if ever, takes the retail location over....so many of the stores were built in places that dont make sense. And the good locations were never built on....almost like they were being saved to turn things around, but never got the chance to.
I realized this company is a joke and Store Managers don't believe everything you are told! I will leave it at that.
ReplyDeleteClosed Christmas Day?!?! Kidding me! Something is wrong here.
ReplyDeleteThe Brits came to America to teach us a bit of how to do business right, they ignore our suggestions, ridicule our culture and mostly humiliated many of their loyal and hardworking employees. Treated vendors un ethically and expected everyone to jump for them because they are TESCO, did Tesco send the best team or the people that didn't have place at home any more?they're the most arrogant, stubborn and unprofessional TOP MANAGEMENT team I've seen. The showed us American right? Now, we know why they don't like them around the world. We welcomed them in our country and not only they failed flat in their face but even after announcing it, try to get a fake smile out of them, oh yeah, I'm not a Brit or one of those sad American toys that are closed to them. You stink, you don't have any true management skills and of course, you don't kow how to run a business, try one of these days to treat people with respect and follow first your own dumb mission statement hypocrates!
ReplyDeleteI'm shocked by the number of people (Brits mostly)defending F&E on this website. If you worked at F&E, then you would know that their failure was a result of nothing less than the poor decision making and poor execution of the executives and their direct-reports.
ReplyDeleteThey knew what their problems were, and they spent endless board meetings discussing the very issues that eventually caused them to fail. In several cases, their American employees knew the solutions but were ignored. It's true that Americans were openly insulted.
For example, they knew that their distribution model didn't work in the sprawl of So Cal, Nevada,and AZ. But they stuck to their ways, and they commented frequently about how their system worked much better in the UK.
They knew that their ordering system was prone to user error and that their minimum orders were too large for the store's sales volumes. But they wanted to keep the same ordering and stock presentation rules as the British stores. The result was a lot of product expiring on the shelves and going to waste. More than once, and entire product order went unsold.
They knew their rents and construction costs were higher than market rates, but they were unable to do better. In some cases they paid more than double the rent of the other tenants in the same plazas. The real estate team was British and unfamiliar with local markets.
They knew their product range was too small, too specialized, and not relevant to consumers. But they were determined to push their own personal tastes, and the result was average sales of about $18 per checkout.
I could go on and on about each and every department in the company. The locations were bad. Marketing was ineffective. Petty grievances led to wrongful terminations and a lot of out-of-court settlements. Every time you contacted HR, Accounting, or IT, you'd find that a third of their staff had quit of been fired, and you had to deal with someone new.
The truth is that F&E failed by it's own actions. It was not the fault of an antiquated American system, a housing downturn, or any other external influence. Kroger, Trader Joe's, Walmart, Target, Walgreens, and others managed to do well during the same period. Each part of the F&E business simply got it wrong. The company spent upwards of $3 billion on this experiment, and at no point did anyone of any influence stand up and say "We are screwing up. It's our fault. Let's begin listening to others who may know better."
Having worked at F&E for 2 years and a Brit i agree with all you have said- the arrogance of Tesco is unbelievable and only has its self to blame along with the senior British management - they should have had Americans at the healm to run it in a nimble robust fashion- to many fat salarys in all the wrong places- they have some good people left who should now look to leave and not wait as tesco will leave them high and dry...those who think it wont close its time to wake up and smell the coffee and get out.
DeleteI hear my manager is being offered a big package for staying till the end which includes a full year salary paid for2014.Does anyone have any info on this?
ReplyDelete"I hear my manager is being offered a big package for staying till the end which includes a full year salary paid for2014.Does anyone have any info on this?" I have no info on this specifically except that this is common practice in a company which might plan to close the doors. Employees are not stupid. They can see the writing on the walls and only a fool would not begin a job search early. People who can get better jobs will do so and the only thing that might keep them is the promise of a big bonus for staying until the end. I was offered this type of thing once as I recall it was 6 months salary in a lump sum for staying for 3 months. I got that bonus check with my last check. For me it made sense since I had only recently been promoted to assistant manager. 6 months in the position looked better than 3 on my resume. -Bubba
ReplyDeleteEven if there was a big package for these SM's (store mngrs) do u really think that it's going to be easy to stay till the end? These new execs (specially the new ass of the town Paul) will make it so hard on u and treat u soo bad that SM's will start quitting. ...lawsuits anyone?
ReplyDeleteClarke has halted the "strategic review". Does this mean there is a buyer?
ReplyDeleteSprouts and Dollar General have been in the rumor mix. Any ideas or inside leads?
I believe in the next 2 months all of the 281 stores will close. I have been told no store will will close this fiscal year which ends at the end of Feb.
ReplyDeleteI agree this new RM is a ass. He has ALL the managers upset. Give us some tools to do our job but no he wants more with A LOT less. Like we care anymore
ReplyDeleteThe new Regional Director in S. Cal is causing so much stress in the stores. Very unpleasant person. Employees are dealing with an uncertain future and this guy is hell bent on creating an even worse work environment. Extremely critical and nothing is right. So sad that the company put this guy in charge. They are cutting hours and he is demanding the most ridiculous little things that add nothing to the quality of the shopping experience. Very rude guy. Will not even let you finish speaking without constantly talking over you with his interrupting (I guess that's a British thing). I just wonder what he expects to accomplish with this hostile work environment he is creating.
ReplyDeletemorale is low in the stores, yet as a manager the New RM (Paul) chews me out because he is not happy with the store. Wow cut hours cut people and blame me
ReplyDeleteI think someone's "strategic review" is complete... ?
ReplyDeletehttp://www.samauctions.com/auction_detail.php?id=197170
The "silence" is deafening!
ReplyDeleteClarke is already in California. He visited the Paramount store.
ReplyDeleteI thought I would offer this info for those who do not access Twiiter.
:-)
I wonder if Tesco Shareholders know that Fresh & Easy chiefs just spent more of their money on a NEW advertising campaign that will eventually include TV.
ReplyDeleteBlog author: I realize you do not post comments any longer. I am not a member of twitter, so could you please feed the above comment for all to see?
Wait until all Fresh & Easy part timers find out what is in store for them in March of 2014!!!!!!
ReplyDeleteVery bad :-(