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Tesco's Fresh & Easy Secures a Buyer

YUCAIPA, Calif. -- Investment firm The Yucaipa Cos. LLC is purchasing the Fresh & Easy Neighborhood Market chain from United Kingdom-based Tesco plc, and plans to retool the operation into a more successful format. Just what that format will be – and its potential for success – is up for debate.

“Fresh & Easy is a tremendous foundation,” said Ron Burkle, managing partner of Yucaipa. “Tesco should be applauded for giving their customers an affordable, healthy, convenient shopping experience. Its dedicated employees and great base of customers give us a solid starting point to complete Tesco's vision with some changes that we think will make it even more relevant to today's consumer."

Burkle said he plans on continuing to build Fresh & Easy into a "next-generation convenience retail experience," providing busy consumers with more local and healthy access for their daily needs.

The chain operates 199 stores in Nevada, California and Arizona. According to Fresh & Easy, the company’s assets include a world-class infrastructure designed to facilitate the manufacture and distribution of high-quality, fresh products. This capability gives Fresh & Easy the ability to provide the highest level of freshness and convenience available.

Yucaipa said the purchase is expected to be complete within three months. In the meantime, it is business as usual for most Fresh & Easy stores.

“Yucaipa is a very savvy firm. However, I'm not sure what they see in the Fresh & Easy stores,” said Jeremy Diamond, director of The Diamond Group, a retail consultancy in Baltimore, Md. “Fresh & Easy was a money-losing enterprise from the beginning as Tesco entered one of the most competitive supermarket regions in the U.S. Its biggest asset is the real estate for the Fresh & Easy locations, as well as the distribution and manufacturing facilities.”

Bill Bishop, chief architect of retail consultancy Brick Meets Click, said Yucaipa's success will depend largely on how much they had to pay and how well they can repurpose the assets.

“If I were them, I’d change the stores to a limited-assortment, hard-discount model similar to Aldi and Save-A-Lot. This business model can be extremely profitable and there is nothing like it today operating in those markets," Bishop explained. "Even if only four out of five stores converted successfully, it would be a homerun financially.”

Previous media reports have hinted that if Yucaipa bought Fresh & Easy, it would utilize the stores to relaunch the Wild Oats brand. Jim Keyes, former CEO of 7-Eleven Inc. and Blockbuster Inc., who owns the Wild Oats name, would reportedly serve as CEO of the new company.

As CSNews Online reported in April, Phillip Clarke, CEO of London-based Tesco, confirmed the company's plans to exit the U.S. market due to the continued underperformance of the Fresh & Easy stores. Tesco had to take an approximate $1.5 billion writedown as part of the exit.

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