Fresh & Easy failure: Can UK firms make it in the US?

Fresh & Easy store in Hollywood Fresh & Easy's failure has cost Tesco £1.2bn

Aspiring actors, tourists, mothers and office workers are packing the Hollywood Fresh & Easy supermarket, shopping for a quick sushi lunch, a post-workout protein fix, or their weekly grocery stop.

It doesn't look like a business in turmoil and many regular customers are surprised to hear that its future is in doubt.

"It's always busy," says Nayeli Gonzalez as she bags her groceries with her two young children.

"It's convenient. I can walk from home. Otherwise I have to take a train."

When Britain's largest supermarket chain opened in California six years ago, there was talk of revolutionising the way Americans shop and bringing fresh, wholesome food to all neighbourhoods, rich and poor.

The stores had only self-checkouts, for example, an unusual concept in the US where Americans were used to being helped by a clerk, and typically having someone bag their groceries for them, or at least offer to help.

Start Quote

The mistake many British retailers have made is to treat the US as one country”

End Quote Richard Lowe Head of retail, Barclays

But on Wednesday, Tesco announced it would be abandoning its 199 Fresh & Easy stores, which are all on America's West Coast.

Critics say the chain miscalculated the market and failed to cater to American tastes. It has been an expensive mistake, costing Tesco £1.2bn.

"My sense is that what they tried to do was make a European model," says Prof Anthony Dukes, at the USC Marshall School of Business.

"Europeans tend to make more frequent trips to grocery stores, maybe every day or every other day, where Americans are used to going for bigger trips less frequently," he says, adding that busy Americans prefer to buy in bulk.

Cracking the US market

Nearly half of British retailers believe the US remains the hardest market in which to achieve commercial success, according to the findings of a survey released by Barclays last week.

Nayeli Gonzalez packs her groceries with her children Nayeli Gonzalez likes Fresh and Easy as she can walk there

Despite a shared language and heritage, Britons view the US as more difficult to master than China, which ranked second in the survey.

"The mistake many British retailers have made is to treat the US as one country," says Richard Lowe, head of retail at Barclays.

"The US is a little bit like Europe. When you go there you have be more targeted.

"Different states are not exactly like different countries, but they have very different markets."

According to Prof Dukes, Fresh & Easy's shop-more-often convenience store format may have worked better on the East Coast of America.

"The East Coast is denser and has perhaps more pedestrian traffic, on the West Coast we have more cars. That might make a difference," he says.

But some UK retailers have had great commercial success in the US, and getting the location right played a big part, analysts say.

Pret's success in New York

Pret in New York

Early lunchtime in Manhattan and the Pret on the corner of 29th and Seventh is already filling up.

"I come here every day," says one female customer. "I work right down the street. It's easy and fast and healthy."

Convenience and a healthier alternative to other fast food outlets make Pret a popular choice in New York.

There is no noticeable difference with the portion sizes in the UK, despite Americans' infamous love of large helpings.

Despite its French name, most people seem aware that the company is actually British, though few in this cosmopolitan city seem to care.

Some point out that the prices aren't always that cheap, but as one customer puts it, "This is New York, nothing's that cheap."

Topshop now has four stores here including a new 25,000 sq-foot store in Los Angeles. Its boss Sir Philip Green has decided to concentrate on big cities and has said he hopes to turn the fashion into a $1bn US business in the next five years.

And it is difficult to walk a few blocks in Manhattan without stumbling on a Pret A Manger restaurant.

The chain has purposely grown gradually since it launched in 2000 and now has 34 locations in New York City, with another opening soon; seven in both Washington DC and Chicago and two in Boston.

Pret A Manger's choice of New York as its entry point to America was a shrewd one, according to Faith Hope Consolo, chair of the retail group at Douglas Elliman Real Estate, which advises international retailers looking to enter the US.

"London and New York are so similar in many ways, both demographically and architecturally. Both cities are on the go, with a desire for quick meals, not fast-food," she says.

"Pret A Manger satisfies that. [It offers] quality food, but also the ability to grab it and go.

"They're a natural for any great busy city, so yes, they really did choose their entries well."

The packaged sandwich chain has also tailored its UK products to the local market, according to its marketing director Mark Palmer.

"Rather than crayfish and rocket sandwich on sale in the UK, Pret has a Maryland spiced shrimp and spinach sandwich in the US," he tells BBC News.

"Pret has also learned that there is a distinctive difference in the coffee tastes in the US. In the UK Pret sells more cappuccinos and lattes than the US, the US customers prefer filter - or drip - coffee."

'Unfortunate timing'

Fresh & Easy did its homework. It hired anthropologists and studied Californians' eating and shopping habits.

Fresh & Easy's difficult journey

  • First stores opened Nov 2007
  • Sixty stores opened in first five months and 150 by the end of the first year
  • April 2009: Fresh and Easy makes £142m loss
  • June 2009: Criticised for employing only part-time workers and rejecting a request to recognise a union
  • April 2011: Losses climb to £186m
  • Jan 2012: 12 stores temporarily closed in California, Arizona and Nevada because of weak local economies
  • April 2012: Losses narrow for first time, to £153m
  • December 2012: New Tesco chief executive Philip Clarke announces strategic review of the US chain "with all options under consideration"
  • April 2013: Tesco confirms it will exit the US business, at a cost of £1.2bn

Its stores opened to great fanfare in neighbourhoods around California considered "food deserts," dominated by the cheap, fast-food driving America's obesity epidemic.

That noble goal to locate in gentrifying and poor neighbourhoods may have hurt their prospects, says Bryan Roberts, the UK-based director of retail insights for Kantar Retail.

"No doubt they made some fundamental mistakes in terms of store locations, merchandise and marketing," Mr Roberts says, adding that the recession played a big part in Tesco's failings in the United States.

"Not to absolve responsibility from Tesco but it was unfortunate timing. No one could have predicted the sub-prime crisis and the consequences of it. If they'd timed it five years earlier, it might have been a different story."

It is also worth noting that the stores' smaller, neighbourhood market feel is one being adopted by mega discount retailer Wal-Mart.

The big box chain plans to open a smaller store in LA's Chinatown - if it can get by a lawsuit filed by neighbourhood activists fighting its plans.

The confirmation of Tesco's exit from the US puts the future of the stores in doubt, although it said it had received some expressions of interest from third parties.

The Hollywood Fresh & Easy is one of the chain's busier branches and it is in an area with a lot of foot traffic, located on Hollywood's Walk of Fame.

"I love it because it's a neighbourhood market," says aspiring actor Yohan Lefevre, while enjoying his Fresh & Easy sandwich after working out at the gym next door.

"I like the size, there is not much else like this in Hollywood. I can walk here. If they close I will take a national day of mourning and mark it every year! I'm serious. I will be really sad."

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