Tesco Rethinking Fresh & Easy Strategy

Four years after moving into the U.S. West Coast retail market, Britain's Tesco is reformulating its strategy for its Fresh & Easy Neighborhood Market Stores.

According to Businessweek.com, since staking a presence in the market in 2007, the business venture has recorded $894.9 million in losses. The business' strategy, the report said, often confused consumers and drew criticism from Warren Buffet, whose Berkshire Hathaway owns approximately 3 percent of Tesco.

"They've had a real problem in California," Buffett said during Berkshire's annual investor weekend in early May.

And Berkshire vice chairman Charlie Munger added: "Tesco is God Almighty in England," he told London's Telegraph recently. "But you come into Southern California, and you have Trader Joe's and Costco. That's tough competition. It's a different world."

To turn the tides, Tesco CEO Philip Clarke is opening more stores in the United States, launching Fresh & Easy's first television ad campaign and testing in-store bakeries at about 175 locations. Clarke also vowed, according to Businessweek.com, that he would stop the chain's losses by 2013.

The news outlet pointed out that Tesco didn't understand U.S. consumers' preference for frozen food and is now adding more to its product lineup. In addition, it didn't accept manufacturers' coupons. Some consumers were also confused by the emphasis on the chain's own brands rather than widely advertised national ones.

"They were unlucky. They went out to the U.S. at a very bad time," said William Hobbs, who helps manage $264 billion in assets at Barclays Wealth. "But really they didn't get their offer right. It's a very difficult, competitive market."

There have been changes. Tesco has grown Fresh & Easy's offerings from 3,500 products to 5,000, according to Simon Uwins, the El Segundo, Calif.-based chain's chief marketing officer. Stores have also been repainted to include brighter colors. "We're very confident that we've got Fresh & Easy in a place that customers like it. We've just got to get more customers into it," he said.

And the changes may be working. Same-store sales in the United States increased 9.4 percent in 2010, the fastest pace of any Tesco division, according to the news report.