business news in context, analysis with attitude

The Yucaipa Companies, the private investment firm, announced today that it is acquiring Fresh & Easy Neighborhood Markets from Tesco, the British retailer that launched the chain six years ago to great fanfare but never was able to gain enough competitive traction to make it a worthwhile investment.

While the official announcement said that "term of the deal were not disclosed," the reports that "under the transaction, U.K.-based Tesco not only won't receive any money, it is essentially paying Mr. Burkle's Yucaipa Cos. to take on the liabilities," to the tune of about $235 million (US).

The deal is expected to close within three months.

Philip Clarke, CEO of Tesco, released the following statement: “The decision we are announcing today 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.”

Ron Burkle, Managing Partner of Yucaipa, made the following prepared statement: “Fresh & Easy is a tremendous foundation. Tesco should be applauded for giving their customers an affordable, healthy, convenient shopping experience.  Its dedicated employees and great base of customers give us a solid starting point to complete Tesco's vision with some changes that we think will make it even more relevant to today's consumer.  We plan on continuing to build Fresh & Easy into a 'next-generation convenience retail experience,' providing busy consumers with more local and healthy access for their daily needs."

According to Bloomberg Businessweek, "Yucaipa will acquire more than 150 of Fresh & Easy’s near 200 stores as well as distribution and production facilities ... Those outlets not included in the transaction will be closed in the coming weeks.

"Fresh & Easy has never made a profit since it was built from scratch in 2007. Tesco has invested about 1 billion pounds ($1.6 billion) in the business in that period. Many analysts saw it as a drag on resources at a time when Tesco is struggling to maintain its dominant share of the U.K. grocery market."
KC's View:
Fresh & Easy, despite the expectations of many people (including me) that it would provide a unique and differentiated shopping experience to shoppers, in retrospect seems doomed from the beginning since Tesco totally misread the market and the desires of US shoppers - remarkable since the company's research abilities always have been highly respected, and it said it spent an enormous amount of time and money researching the California marketplace.

While this won't been seen as a high point in Clarke's tenure, he'll at least get credit for getting Tesco out of a bad situation. Not so lucky will be the reputation of his predecessor, Sir Terry Leahy, who has to take the blame for the whole fiasco.

What remains to be seen is what Yucaipa will do with the chain. But it seems to me that if they just try to be another small-store shopping experience, it won;t be worth the effort. On the other hand, if they try to do something unique - finding ways to differentiate themselves from the likes of Trader Joe's and Whole Foods and all the other bricks-and-mortar competitors in the western US, at the same time as Amazon is looking to make inroads with e-grocery there, then maybe Fresh & Easy will be worthy of the name.

And by the way ... y'think it is possible that Burkle is chatting with Jeff Bezos, looking to see if there are ways in which Fresh & Easy's real estate can be turned to Amazon's advantage? It certainly might be worth a phone call...