One year on, Fresh & Easy is struggling to lure shoppers

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From Times staff writer Jerry Hirsch:

Like the redcoats of old, British retailing giant Tesco is learning that America is a big and difficult place to conquer.

Tesco’s Fresh & Easy Neighborhood Market chain of small grocery stores continues to struggle, Piper Jaffray senior analyst Mike Dennis said in a research report this week. There aren’t enough shoppers, and the ones that do come don’t buy very much, he said.

The chain, which is based in El Segundo, also is falling behind on store openings in California, Nevada and Arizona that are needed to leverage the huge investment the company has made in a distribution center and kitchen facility in Riverside, according to Dennis.

What’s more, nearly one year after opening its first U.S. stores, the retailer hasn’t established much brand recognition and has been forced to offer deeper-than-expected discounts to generate even sluggish store traffic.

‘Poor locations and high value coupon discounts will not make them much profit,’ Dennis said. Fresh & Easy doesn’t accept product coupons but frequently offers $5 off of any purchase of $20 or more.

Dennis said his research shows that most Fresh & Easy shoppers limit their purchases to produce and a few other items. Sales of major brand-name items amount to only a fraction per store of what Ralphs, Vons, Stater Bros. and Albertsons garner, he said.

He predicted that Tesco’s woes would only worsen as major U.S. chains, including Safeway, Kroger, Wal-Mart, SuperValu and others, jump into the small-grocery-store format over the next couple of years.

The bottom line: Dennis believes Fresh & Easy needs a partner that better understands the U.S. market. He suggests that Tesco cut its losses by merging Fresh & Easy into a joint venture with an established American retailer with brand identity.

Tesco’s U.S.-traded shares hit a 52-week low on Thursday, falling 95 cents, or 4.6%, to $19.80. The stock peaked at $30.75 last October as the company began the U.S. rollout of Fresh & Easy.