For all we have written about Tesco’s Journey to America in the form of Fresh & Easy, the future of this venture has pivoted around an unknowable: What does Tesco’s new CEO, Philip Clark, think about the notion of sustaining losing businesses in the hope of building long term strategic positions in important markets?
Now we have a clue, as Tesco recently announced its intentions to withdraw from Japan and sell its venture there:
Tesco has today announced its decision to sell its business in Japan.
Philip Clarke, Chief Executive Officer of Tesco Plc, said:
“We have reviewed our portfolio in Asia and the performance of our business in Japan. Having made considerable efforts in Japan, we have concluded that we cannot build a sufficiently scalable business.
“We have decided to sell our operations there and focus on our larger businesses in the region, in line with our priority of driving growth and improving returns. I want to thank our colleagues in Japan for their continued dedication to the business.
“With good stores in good locations across Greater Tokyo, we will be undertaking a formal sale process over the coming months and the business will continue to trade as usual in the meantime.”
Japan is the smallest of Tesco’s international retail businesses. The company operates 129 small stores in the Greater Tokyo area under the Tsurakame, Tesco and Tesco Express formats. Over half of the stores are profitable and Tesco has also developed a strong own label range and a fresh kitchen to supply fish and other products to its stores.
Sometimes cutting a losing division in one place can free up capital and management time to buttress a loser elsewhere. So one could read this as a positive for Fresh & Easy.
But the U.S. chain has been flailing lately, trying various things such as super mini stores without a clear strategy as to how to achieve success.
Reading between the lines, we would guess that the phrase “cannot build a scalable business” could have been inserted to differentiate the situation in Japan from the situation in America.
The U.S. is growing in population; Japan is not. The U.S. certainly is scalable, and there is room for thousands of Fresh & Easy stores, with real estate much easier to get in the U.S. than in Japan. Tesco could buy Meijer, Whole Foods, Supervalu or A&P and become a multi-format operator.
Still, the reference to the priority of “improving returns” seems to imply that Fresh & Easy will be kept on a short leash. If losses don’t decline and if the chain doesn’t follow the path it has outlined to profitability, Philip Clark is making clear that he would rather cut off the losses of his predecessor’s adventures than continue to subsidize them.
Perhaps Aldi and Trader Joe’s would buy the U.S. chain and divide the sites among them. They could do what we suggested Tesco do way back in April 2008.