Fresh & Easy parent company looking to leave U.S.

SACRAMENTO -- Fresh & Easy, part of a wave of grocery stores that have opened in Northern California in recent years, is beating a retreat.

The company's British parent, Tesco Plc, announced Wednesday it is likely to exit the U.S. market after concluding that the stores are too much of a financial drain. Tesco said it is undertaking a "strategic review" of Fresh & Easy and probably will sell the stores.

The Fresh & Easy unit, based in El Segundo, has opened 200 stores in California, Nevada and Arizona, including one in the Oakmore Plaza shopping center on Oakdale Road in Modesto. Although it hasn't made much of a dent in the Central Valley, it is part of the invasion of nonunion stores that has crippled traditional supermarket chains such as Raley's and Modesto-based Save Mart Supermarkets.

Both chains are losing money, and Raley's endured a 10-day strike last month over the company's demands for labor concessions. Raley's said it needed labor savings to compete with the nonunion stores.

Although Fresh & Easy "has many positives, its journey to scale and acceptable returns will take too long relative to other opportunities," said Philip Clarke, chief executive of Tesco, in a news release. In Tesco's third-quarter interim management statement, released Wednesday, the company reported that Fresh & Easy's same-store sales rose a slight 1.8 percent year over year.

Fresh & Easy had hoped to set itself apart in the hypercompetitive U.S. grocery market by offering a combination of convenience and fresh food. The stores are about 10,000 square feet — roughly the size of a Trader Joe's — with a few even smaller versions having opened recently.

The idea was for busy shoppers to pop in to pick up fresh produce and healthy prepackaged meals and then pay at one of the self-checkout terminals.

The Fresh & Easy stores apparently did not attract enough shoppers such as Vicky Little, a customer since the Oakdale Road store opened in March 2011. "I love the store; I'm really bummed," she said Wednesday.

Little said the store has plenty of organic products and it's closer to her workplace than the Trader Joe's in northwest Modesto.

Another fan is Zach Edgmon of Modesto, who said the prices are "great." He likes the selection of wine, plus the ready-made items that he can pop in the oven at home, he said. "It has exactly what you need."

Bob Reynolds, an industry consultant in Moraga, said U.S. shoppers weren't very interested in Tesco's small stores.

Tesco has hired investment bank Greenhill to help review options. The British retailer said that in recent months it has received "a number of approaches" from potential suitors interested in buying all or part of Fresh & Easy or partnering with Tesco to develop the chain.

The company will update investors on its strategic review in April, when full-year financial results are reported.

Modesto Bee staff writer Ken Carlson and the San Bernardino County Sun contributed to this report.