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Clock Could Be Ticking on Tesco's Fresh & Easy

EL SEGUNDO, Calif. -- Fresh & Easy Neighborhood Market's days could be numbered as its parent company, London-based Tesco plc, turns its focus on its home business and slowing growth in emerging markets.

According to Reuters, Tesco's attempt at breaking into the United States may only have months left in business. Fresh & Easy, which has absorbed nearly $1.6 billion of capital since it launched in 2007, continues to post losses as it competed with larger rivals like Trader Joe's, Ralphs and Whole Foods.

Earlier this month Tesco posted its first profit decline in nearly 20 years that reflected investment to address a loss of share in the United Kingdom as well as underlying sales declines in South Korea and Eastern Europe. At the same time, Fresh & Easy posted 2012 first-half losses of 119.1 million, the news agency reported.

That figure put a big question mark over a target for the chain to break even in its 2013-14 fiscal year, and prompted a renewed clamor for Chief Executive Phil Clarke to call "time" on Tesco's U.S. adventure, the report added.

Tesco had already pushed back Fresh & Easy's break-even date in April 2012, as CSNews Online previously reported.

"We never liked the U.S. expansion, never thought it would work and never believe it will work, so the sooner they acknowledge this and exit [Fresh & Easy] the better," one of the top 25 largest shareholders in Tesco told Reuters, on condition of anonymity.

Clarke has said progress is being made and customer feedback is hugely positive, with 55 Fresh & Easy stores profitable in the first half, up from 30 at the start of the year, and nearly half targeted to be profitable by the end of the year. But though sales growth at outlets open over a year rose to 6.9 percent in the second quarter from 3.6 percent in the first, it is well down on the double-digit rates of previous years.

"We think that the deadline is the prelims (Tesco's annual results) in April," Panmure Gordon analyst Philip Dorgan told the news agency.

Investec analyst Dave McCarthy said that, though management seemed loathe to admit it, "it seems it is preparing to exit."

Fresh & Easy operates 200 stores in Arizona, California and Nevada.


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