Turnaround in Tesco’s overseas strategy

I’ve taken a lot of interest in Tesco’s overseas strategy, which took them to the United States in 2007 with their Fresh and Easy store chain. The set-up was bold; adding lots of capacity but high fixed costs, meaning the enterprise has consistently struggled to break even. Now Tesco have just confirmed that they are launching a strategic review that may lead to the sale or closure of its US operations. Dramatic news. What’s behind it?

According to the BBC (this page also has a good video clip), the UK's largest supermarket group has spent nearly £1bn on the loss-making US venture in an attempt to take on its main rival, Wal-Mart.

Fresh and Easy was launched 5 years ago, but one important stakeholder group - investors - have increasingly called on Tesco to sell or close the business. Tesco’s bosses seem to have come round to this view, sensing the opportunity cost of such lavish investment. In other words, they would get better returns elsewhere: "While the business has many positives, its journey to scale and acceptable returns will take too long relative to other opportunities."

Sometimes firms have bad luck – the launch of Fresh and Easy coincided with the start of the financial crisis. Or was this bad judgement? There will be plenty to read about this over the next months, in the meantime watch the video clip and see what you think.

PS Some pretty straightforward and direct observations at Why Tesco's Fresh & Easy turned Americans off