Fresh & Easy Sales Jump in Tesco Turn Around

Tesco sales in the United States gained 174 percent in the latest quarter and it’s claiming traffic gains as an international strategy to provide lower priced products seems to be paying off.

In announcing first quarter sales, Tesco said it had regained some momentum. Comparable stores sales in the core United Kingdom market gained 4.3 percent excluding fuel and value-added tax, a pick up from 3.4 percent in last year’s fourth quarter.

Overall, U.K. sales gained 9.3 percent with 2.2 percent of that coming from Tesco’s personal finance operation, one that observers expect to have a big impact on the company. Tesco offers everything from insurance to banking and continues to add financial services in stores and on line. Finance is tied firmly into the overall operation, with customers who buy an insurance policy, for instance, earning points on the retailer’s loyalty cards that be spent on cameras, groceries, whatever the company carries. U.S. retailers who are expanding financial services, Wal-Mart among them, may well have Tesco in mind as they explore how to build that business.

Tesco saw improvements in general merchandise, too, with discretionary purchasing categories such as electronics, housewares, lawn and garden, stationary and toys gaining. A relaunch and expansion of its loyalty card program also contributed to gains.

Tesco doesn’t provide comparable store sales – those at locations open for a year — for its international operations, so the 174 percent sales growth, to $359 million, is hard to gauge except to say that a lot of it comes from the company’s store expansion. Still, the bald declaration of customer traffic gains – bald as the company doesn’t provide an actual figure – is at least evidence that more consumers are looking over its Fresh & Easy stores.

Tesco has introduced lower priced options for its customers worldwide after seeing its market share erode in the U.K. and its expansion waver in the U.S. after recession hit both national economies. In the U.S., Fresh & Easy responded with initiatives such as the launch of 98 Cent Produce Packs to make it less expensive for customers to continue eating fresh fruits and vegetables. In March, Fresh & Easy rolled out 40 to 45 ounce family-sized prepared meals for $8, and they proved such a hit various of them became the six top selling items of the more than 110 produced daily at Tesco’s Riverside, Calif., commissary.

In February, after full year results were announced, Terry Leahy, Tesco’s CEO, said consumers are accepting the Fresh & Easy store proposition and responding to the lower price initiatives. However, Fresh & Easy has eased its pace of store growth, and while its plans for about 60 new units are significant, the number represents a slower pace of expansion than originally envisioned. Fresh & Easy should reach 175 stores by fiscal year’s end, but that’s well short of the 400 or more that it needs to operate profitably. Leahy acknowledged that the U.S. business would remain a challenge for some time, the kind of admission that might make the investment community in the U.K. impatient with the retailer. Leahy said:

We are putting a lot of up-front investment into our central team, into our central manufacturing and distribution facilities and it’s a unique new store format with a lot of up-front costing in systems and so on. Now those losses are a bit greater than we originally envisaged simply because we opened up into a pretty stiff downturn rather than into a growing economy and that meant that we haven’t been able to accelerate the openings as we planned, and to accelerate our way out of the initial up front investment. It means I think we’ve got to grow at a slower rate — but we are growing — take our time, work with the pace of the recovery and that means that the losses are going to be around a bit longer.