Tesco U.S. in Trouble?

There may be some chinks in Tesco’s armor after all. The UK Supermarket giant Tesco received a double blow today as City analysts claimed the grocer’s new U.S. operations are in deep trouble, while its core UK business is being battered by the economy and losing ground to rivals.

One claimed the new California-based convenience stores are missing sales targets by as much as 70% as US shoppers spurn the new Fresh & Easy stores, according Guardian News, a UK-based newspaper. Separately, analysts at Goldman Sachs downgraded the retail giant, urging investors to sell Tesco shares after they fell to their lowest level since October 2006.

In a research note entitled "Miles Off Target", Mike Dennis of US broker Piper Jaffray said research among the grocer’s US suppliers suggests first half sales at Fresh & Easy could be just $30 million, the report said, compared with the $100m the broker had expected.

The analyst says "the issue is very weak footfall" and points to the appointment of Jeff Adams, an American executive recruited from Tesco’s operation in Thailand, as evidence of a growing crisis within the West Coast-based business.

The Piper Jaffray note says Adams has been parachuted in as deputy to Tim Mason, the former Tesco marketing director who was sent to start U.S. operations with a team of other British executives. "He is tasked with understanding what has gone wrong with the concept and how they are to recover, if at all, their $700m+ investment so far," Dennis said in the report.

However, a Tesco spokeswoman said the analyst’s assertion that Adams had been appointed as Tim Mason’s deputy was "not how we would describe things. His role hasn’t been defined yet, but he is joining the senior team because the business is growing".

Tesco’s top boss Sir Terry Leahy has big ambitions for the Fresh & Easy business. He has said it could be as big as the core UK business and Mason has outlined plans to build the chain, which opened last November and has already opened 50 stores, into a network of 1,000 stores stretching across California, Nevada, Arizona and north to Washington state. The stores have basic fittings and aim to focus on fresh food and ready meals at market-leading prices.

Last week Tesco announced that it was expanding Fresh & Easy into northern California and had identified 19 sites around Sacramento. It also plans to build vast a new distribution centre in the San Francisco Bay area to service hundreds of stores as far north as Seattle.

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