Lidl seen as legitimate threat to U.S. supermarkets

Supermarket News Reporter Neil Stern recently characterized Lidl, the European grocer that is making plans to open stores in the Eastern U.S., as a formidable threat to U.S. supermarkets. Stern cited Lidl's similarities to European counterpart Aldi, and noted Aldi's measured approach to the American market and their ability to adapt their concept to U.S. tastes. Stern believes Lidl will learn from Aldi's approach, while also taking note of Tesco's disastrous experience with Fresh & Easy stores on the west coast.

According to Stern, Lidl's assortment will be heavy on private label products and feature more SKUs than Aldi. Initially, Stern believes Lidl will carry several national brands in order to accelerate consumer acceptance of the format.

Published reports have indicated that Lidl stores may not open until 2018.

Yucaipa to get Tesco's Fresh & Easy Market stores

Ron Burkle received court approval recently to allow his company, Yucaipa Cos., to take over about 150 Fresh and Easy Neighborhood Market stores in California, Nevada and Arizona. Tesco, one of the largest and most successful grocery retailers in the world, could not make a profit with its first U.S. venture, and will now finance Yucaipa's purchase, in addition to paying Yucaipa to assume the chain's liabilities.

Former 7-Eleven CEO James Keyes negotiated the deal with Tesco and has been tapped to lead the effort to do what Tesco could not - squeeze profits out of the operation.

Analysts seem high on Yucaipa's chances, as the company has turned around grocery chains before. In addition, Fresh and Easy's natural food concept is similar to that of Wild Oats Markets, a chain that Ron Burkle invested in and was sold to Whole Foods. Not coincidentally, James Keyes is associated with the group that owns Wild Oats' intellectual property.

Tesco's Fresh & Easy chain files for bankruptcy protection

After much speculation, Tesco's Fresh & Easy Neighborhood Market has filed for bankruptcy protection, just weeks after it was announced that Yucaipa Cos. would buy most of the chain's stores. The bankruptcy filing lists debts of more than $500 million and assets of $100 - $500 million.

According to Fresh & Easy, the move is "the next step in the restructuring process" and will have no impact on customers. According to reports, Tesco plans to back out of certain leases while in bankruptcy, and then auction off the company's remaining assets. Yucaipa would have the right to bid first for the chain in a court action later this year.

Tesco previously planned to pay Yucaipa $235 million to assume the supermarket chain's liabilities. As part of the agreement, Yucaipa would own and operate about 150 of the stores we well as a distribution facility, and close the remaining 50 stores. The deal included a loan of about $125 million from Tesco to help Yucaipa fund the operations.

There is still speculation by analysts that once Yucaipa owns the chain, it will relaunch the Wild Oats Markets brand, which has been closed since 2007. As reported in the LA Times, a trademark application filed by Wild Oats Marketing surfaced this summer with a Yucaipa office address.

Supermarket analysts expect more industry consolidation

Supermarket analysts gathered at the 18th annual Supermarket News Analysts Roundtable in New York earlier this week and agreed that a new wave of consolidation will hit the industry in the near future, and that Kroger may lead the way as a buyer.

In the last two weeks two major deals have been announced: Albertsons LLC agreed to purchase United Supermarkets, and Yucaipa Cos. is planning to acquire Tesco's Fresh & Easy Neighborhood Market chain (Tesco paying Yucaipa to take on its Fresh & Easy grocery stores).

Analyst Gary Giblen (GMC Capital) said the underlying theme of future consolidation would be defensive, due in large part to the expansion of discounters creating "an impetus for companies to get bigger, to get more volume power and hopefully to get some operating synergies and economies of scale."

Scott Mushkin (Wolfe Research) said he expects Kroger, the largest supermarket chain in the United States, to get more aggressive since "the assets available aren't massively expensive, and in many cases Kroger is the most logical buyer."

Meredith Adler (Barclays Capital) pointed out that "really cheap money" promotes consolidation, but doubts there are many companies Kroger would want. She argued that Kroger's pending purchase of Harris Teeter simply shows that if you're a class act, run great stores and have positive comps, then you're an attractive takeover candidate.

The analysts also agreed that Cerberus Capital, which headed the group that acquired Albertsons, Acme and others from Supervalu earlier this year, might continue its involvement in the consolidation process, even though it has its hands full with the banners it bought.

Tesco paying Yucaipa to take on its Fresh & Easy grocery stores

Nearly three years ago I posted a story titled, "Who is Tesco and why should we care?" I pointed out that the world's third largest retailer and dominant grocer in England had 168 Fresh & Easy grocery stores on the west coast of the United States, and had the capital to make itself a supermarket player here in the Philly market by buying up stores and chains, if it so desired.

Well, that's not going to happen. In an announcement last week, it was reported that Tesco will pay private equity firm Yucaipa $235 million to assume the supermarket chain's liabilities. Yucaipa will own and operate about 150 of the stores we well as a distribution facility, and close the remaining 50 stores. Tesco is even making a loan of about $125 million to help Yucaipa fund the operations.

Tesco CEO Philip Clarke hailed the decision as one that will allow his company to exit the U.S. market and protect more than 4,000 existing jobs.

According to Tesco, Fresh & Easy stores had a gross asset value of $362 million in February, and generated net losses of $253 million in its last fiscal year.

Yucaipa and its CEO Ron Burkle are no strangers to the supermarket business. The company's buyout of A&P (Pathmark, Super Fresh) in 2011 allowed the legendary supermarket chain to emerge from bankruptcy.

There is already talk that Yucaipa may decide to convert many of the Fresh & Easy stores into a Wild Oats Marketplace to compete directly with Whole Foods, but for the time being, it's business as usual.

Fresh & Easy may exit U.S. market

U.K.-based Tesco, the third largest retailer in the world as measured by revenues, recently launched a strategic review of its struggling U.S. Fresh & Easy Neighborhood Market chain. Many analysts believe the results, scheduled to be announced at the company's annual meeting later this month, will lead to Tesco exiting the U.S. market.

There is speculation that buyers could include Trader Joe's, Aldi, Wal-Mart or real estate companies.

Fresh & Easy stores are located mostly in California, with additional stores in Nevada and Arizona.

Tesco to shut down Fresh & Easy chain

Tesco, the British supermarket giant and the world's fourth largest retailer, announced it will sell or shut down its 200 Fresh & Easy grocery stores. All of the stores are located in California, Arizona and Nevada, and the banner is Tesco's only U.S. asset.

Fresh & Easy began with its first store in Phoenix in 2007, and the grocery chain's stores are typically in the 10,000 to 15,000 square foot range. They offer fresh food and ready-to-eat meals at low prices, and the stores are touted as more convenient alternatives to traditional U.S. supermarkets.

Since 2007, Tesco has invested about $1.6 billion in the chain, but it has never been profitable.

"It is now clear that Fresh & Easy will not deliver acceptable shareholder returns on an appropriate timeframe in its current form," said Tesco CEO Philip Clarke.

Analysts say that Aldi could be among those interested in acquiring the chain, and that Walmart could bid for parts of it.