Tesco pays private equity firm to take over Fresh & Easy chain
Publish Date: September 11, 2013
British retailer Tesco is unloading its Fresh & Easy business to private equity firm Yucaipa Cos. in a deal that basically pays Yucaipa $235 million to assume the U.S.-based supermarket chain’s liabilities. About 50 of the chain’s 200 stores will close. Yucaipa will own and operate the remaining 150 and distribution facility in Riverside, Calif. Tesco is even making a loan of $126 million to help Yuscaipa fund the operations.
“The decision we are announcing today represents the best outcome for Tesco shareholders and Fresh & Easy’s stakeholders,” said Tesco CEO Philip Clarke, in a press release. “It offers us an orderly and efficient exit from the US market, while protecting the jobs of more than 4,000 colleagues at Fresh & Easy.”
Tesco opened the first Fresh & Easy stores on the cusp of the recession in November 2007, hoping a concept designed for convenience and a focus on fresh produce, meats, seafood and freshly prepared meals at modest prices would resonate with U.S. consumers. Since then Tesco has invested about $2 billion in the chain. The Fresh & Easy business, including real estate, had a gross asset value of $362 million in February, according to Tesco, and generated net losses $253 million during the fiscal year ended 23 February 2013.
Fresh & Easy stores typically measure between 13,000 and 15,000 square feet, but some units are as small as 10,000 square feet in some locations. It set down roots in what would become some of the country’s hardest-hit markets: Southern California, and Phoenix and Las Vegas. Within those markets, it opened stores in affluent areas and also in low-income areas underserved by leading chains, including the south side of Los Angeles. Owing to the high price of real estate at the time, particularly in Southern California and Arizona, many of Fresh & Easy’s first stores opened in secondary locations, including small centers with insufficient parking capacity for the weekend rush, analysts say.
Yucaipa Cos. is confident it can turn around the struggling chain, says managing partner Ron Burkle, who worked as a bag boy at his father’s grocery store in California before founding the Los Angeles-based private equity firm. Yucaipa’s current or past supermarket investments include Dominick’s, Food 4 Less, Fred Meyer, Ralphs and Wild Oats. “Fresh & Easy is a tremendous foundation,” he said in a press release, “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. We plan 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.”