Tesco Challenged by Union Group on Fresh & Easy Strategy

Tesco Plc (TSCO) needs to increase transparency on its unprofitable Fresh & Easy store division, according to a union-backed U.S. pension-advisory group that’s seeking a review of the unit for the second consecutive year.

CtW Investment Group, which works with pension funds tied to the Change to Win labor-union association in the U.S., said it has “reached out” to shareholders who control 75 percent of the Cheshunt, England-based retailer’s stock to push for amendments to the annual report, including the call for a review. A Tesco spokesman said the proposal is union-motivated and CtW Investment isn’t a shareholder.

Tesco, the world’s third-largest retailer, entered the West Coast of the U.S. in 2007 with the introduction of the Fresh & Easy in-town store format focusing on own-brand items and fresh food. The chain has more than 190 stores in Arizona, Nevada and California. Shifts in strategy and benchmarks make predicting Fresh & Easy’s performance difficult, with total investment and losses exceeding 1.94 billion pounds ($3 billion), and there’s “inadequate disclosure” of costs, CtW said.

“This is an unusual action, but Change to Win believe it’s needed to demonstrate to the board the increasing shareholder discontent about Fresh & Easy,” the investment group said in an e-mail.

Goal Delayed

Tesco scaled back projections for Fresh & Easy in April, saying the brand will break even in the 12 months through February 2014, a year later than planned. Tesco last year said it would need 300 stores in the U.S. to break even, fewer than the 400 originally anticipated. The plan announced in April means Fresh & Easy will have just 230 stores by February 2013.

David Reid, Tesco’s chairman at the time, dismissed calls calls by CtW at the 2011 annual shareholders meeting for a strategic review of Fresh & Easy. Tesco’s 2012 annual meeting is scheduled for June 29.

Same-store sales growth at the division slowed in the fiscal first quarter to 3.6 percent from 12.3 percent in the fourth quarter.

Chief Executive Officer Philip Clarke said June 11 that Tesco “needs a bit more” from Fresh & Easy. The chain this week offered a new Kitchen To Go range of 150 freshly prepared meals such as $7.99 Texan-style pork butt for two people and a $5.99 dish of lobster macaroni and cheese.

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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