Tesco USA soon to be Aldi USA?
Not Fresh & Easy: Tesco's adventure in the US has proved costly and time-consuming
CEO Philip Clarke is due to update shareholders at the preliminary results (2012/13) meeting in London on April 17.
This will conclude a four-month strategic review after accumulated losses since 2007 touched an estimated €920m on a total investment of around €1.2bn.
Doubtless the Tesco share price will jump briefly on the news of any sale, but Fresh & Easy has surely been a painful experience for the UK's leading retailer.
British daily "The Sun" seems to believe that Fresh & Easy's 220 convenience-oriented supermarkets in Nevada, Arizona, and Southern California will be purchased by German hard discounter Aldi.
Are we in the realms of fact or tabloid fiction?
USA — graveyard for foreign retailers
It is tempting to dismiss anything from a mass publication which seems intent on titillating the working man rather than challenging him to think. But what is going for the story? Well, Aldi has the money, has made occasional acquisitions in the past, and, above all, it is there.
In fact, Aldi is one of the very few European retailers not to have come a cropper in the US. These include such illustrious names as Carrefour, Marks & Spencer, or J. Sainsbury as well as German giants Rewe and Asda (later gobbled up by Metro Group). Even arch-rival Lidl jibbed at the proposed jump over the Big Pond.
Since its acquisition of Benner Tea Company in 1976, Aldi Süd (Aldi South) has expanded in a generally south-eastern direction from its base in Illinois. At times, its organic growth has been an almost painfully slow process of "learning by doing", but it was always consistent.
Today, Aldi Süd runs 1,320-odd discount stores in 32 US states (cf. interactive chart below) with estimated gross revenues of just over €7bn.
Aldi the tortoise and hare
For those who have followed Aldi's growth in Germany, Europe and Australia over the years, in retrospect its early expansion in the US was thoroughly predictable. Then, completely out of the blue, sister company Aldi Nord (Aldi North) bought California-based Trader Joe's in 1979.
This exciting cult concept, whose 430 non-discount supermarkets posted estimated gross revenues of €5.3bn last year, is unlike anything Aldi runs in Old Europe. In fact, Trader Joe's has been a hotbed of experiment for an otherwise immensely conservative retailer.
Trade intelligence company PlanetRetail sees recruitment advertising for District Managers and other job ads on its website and at Californian universities etc. as the possible harbinger of a big expansion drive for Aldi on the West coast. So, theoretically, there could be interest in individual Fresh & Easy sites.
So far, so good, but there are also reasons to doubt the logic behind an Aldi-Tesco deal. PlanetRetail's Mathias Queck, a recognised expert on international retailing, is sceptical, especially regarding a full deal.
"Aldi Süd is extremely cautious and not particularly inclined towards acquisitions, whereas Trader Joe's serves a generally different clientele. Aldi Süd would also have problems with taking over Tesco staff as it prefers to recruit its own people."
What went wrong in Malibu
Regardless of whether Fresh & Easy Neighborhood Stores (estimated revenues: €900) is sold in part or in full to Aldi or to a mixed bag of Dollar Store operators, or simply wound down, the pundits have had a field day pointing to Tesco's errors.
Criticisms include too many own label products for essentially brand-oriented US consumers; store colours which are too sober for American taste; unfamiliar payment arrangements at the tills; the packaging of some fresh produce; and self-service in those parts of the store where local shoppers expect staff to help them.
Former CEO Terry Leahy, who stood to gain a hefty bonus in the event of transatlantic success, was at pains in 2007 to explain the intense market and consumer research conducted by Tesco prior to entry in the US. Staff even lived with American families in order to study how they shopped.
But however much Tesco's overwhelmingly British top management may have enjoyed hitting the Californian beach after flying the many carbon miles from the UK, they still didn't suss the American consumer psyche.
At any rate, former talk of 1,000 outlets from Seattle to San Diego on one of the world's most intensely competitive retail markets now looks like hubris.
Quo vadis Tesco?
Tesco's bellyflop with Fresh & Easy could also reflect a more profound malaise within the whole group. Like the Roman empire, the retail giant's recent decline began immediately after reaching its maximum geographic extension.
Following withdrawal from Japan, failure in the US, stubbornly hard markets in eastern Europe, and potentially dangerous retail legislation in cash-cow Korea, former International Director Philip Clarke must surely be pondering his options.
Tesco's nearly 20-year phase of unprecedented global expansion has lead to chronic underinvestment in UK operations and ultimately the loss of local market share. Given the success of Tesco.com and the high margin potential of the British convenience segment, what countries will Tesco exit next?
Related article in German: By Mike Dawson in Lebensmittel Zeitung, no. 14, 05.04.2013
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Readers are recommended to view an interactive map, compiled by LZNet editor Marco Kitzmann, showing the store network of Aldi South (hard discount stores) and Aldi North (Trader Joe's) in the USA