Tesco takes over Fresh & Easy suppliers

by Jonathan Birchall - 22/06/2010

"Tesco is taking over the US operations of two key suppliers to its fledgling Fresh & Easy business after its slower-than-expected expansion. "

Tim Mason, the head of the Fresh & Easy business, told the Financial Times it was a sign of its commitment to the US business. While not large enough to require disclosure, he said the transaction involved “tens of millions of dollars” and “a real amount of money”.

EDITOR’S CHOICE
Falling food inflation takes a bite out of Tesco sales growth - Jun-16.Tesco executive resigns in wake of Leahy move - Jun-10.Lex: Tesco - Jun-08..The two suppliers – the privately owned Wild Rocket Foods and 2 Sisters Foods – agreed to follow Tesco to the US some five years ago. The companies respectively provide fresh produce and meats from two facilities they built adjacent to Fresh & Easy’s massive distribution centre some 50 miles east of Los Angeles.

Wild Rocket is owned by Langmead, Tesco’s main UK produce supplier, while 2 Sisters is Tesco’s largest meat provider, and owner of the Buxted brand.

Mr Mason said the move would lead to “synergies and economies by putting the management teams of the units together. . . we think will be very beneficial for the business”.

The move will add about 750 staff to Tesco’s US payroll.

But he also admitted that the two suppliers had not performed as well as their owners had hoped, as Fresh & Easy slowed its expansion plans. Tesco had originally expected to have around 250 stores open by this year.

“Has Fresh & Easy gone more slowly than we initially planned and they initially planned? Well, yes. And that has obvious consequences,” he said.

But Mr Mason insisted that the company’s small neighbourhood stores were continuing to gain customers and establish a strong brand, despite the challenges posed by the US recession. “We do really believe we are developing a significant brand here that will be of huge value once the economy recovers,” he said.

The UK’s largest retailer opened its first US stores in southern California, Nevada and Arizona in late 2007, saying it would invest about £1.25bn over five years.

But its expansion plans have been hit both by the recession and by a slower-than-expected response to its innovative small store format that has disappointed analysts.

While the stores have yet to break even, Tesco said last week that annualised comparable store sales were growing at “a high single digit” percentage rate.

Mr Mason said that sales at its oldest stores were still growing at the same rate as the rest of the chain, and that some of its highest turnover stores were also delivering the highest sales growth.

Tesco intended to combine the buying of fresh produce for the chain with its overall purchasing of fruit and vegetables from California through a new global sourcing office that would replace local buying agents.

Mr Mason said Fresh & Easy was still planning to have open only about 50 new stores in its current fiscal year ending in April 2011, and as yet had no plans to reactivate its expansion into Northern California.
.Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

More Details: http://www.ft.com/cms/s/0/476b0648-7d73-11df-a0f5-00144feabdc0.html