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Tesco in Trouble with the ‘Tesco Fresh & Easy Law’

May 08, 2011 | About:
Supermarket giant Tesco faces a tough new challenge regarding its US Fresh & Easy operations.

Proposed legislation would ban alcohol sales at self-service checkouts in California.

Analysts say the bill will affect Fresh & Easy more than its competitors. MF Global analyst Mike Dennis says that ‘it’s the beginning of the end’ for Fresh & Easy.

Fresh & Easy has 126 stores, from 175 stores in total, in California and is the only chain with self service checkouts. For these reasons the bill has been nicknamed the ‘Tesco Fresh & Easy Law’.

The bill proposed by California Democrat Fiona Ma is unlikely to be vetoed by California governor Jerry Brown. Similar legislation was passed in 2010 but was vetoed by then - Republican state governor Arnold Schwarzenegger.

In conjunction with current problems such as a high fixed cost base with weak sales densities the bill could hasten Tesco’s departure from US soil.

Recently super investors Warren Buffett and Charlie Munger, Chairman and Vice-Chairman of Conglomerate Berkshire Hathaway, urged Tesco CEO Philip Clarke to take a hard look at Tesco’s US operations.

Clarke mentioned in Tesco’s preliminary results, released mid-April, that Fresh & Easy losses must come down and that Fresh & Easy will break even at the end of 2013 when the chain has 300 stores.

Disclosure: I hold Tesco stock




I am a partner at www.shareladder.com for whom I write a newsletter. Currently the portfolio constructed from the newsletter is up 42% over the last year. The investment principles I follow are mainly derived from the Benjamin Graham school of investing.

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Comments

clemo69
Clemo69 premium member - 3 years ago


Hopefully it will force Tesco to pull out of the US. It is ridiculous trying to compete with Walmart etc on there home turf. With strong and growing businesses in Asia and Europe the US is a distraction, drain on funds that Tesco dont need.

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