Nearly eight years after its debut, the British-conceived supermarket chain Fresh & Easy is ending its American shopping experiment by closing or selling its remaining 100 stores.
The struggling El Segundo-based chain, bought two years ago by billionaire supermarket magnate Ron Burkle, said Wednesday it would liquidate all stores in the coming weeks. Some will close; others will be sold. A second bankruptcy protection filing, rumored last week, was not mentioned in a company statement released Wednesday.
“Over the last two years, we have been working hard to build a new Fresh & Easy. While we made progress on stemming our losses and moving the business closer to break even, unfortunately we have been unable to obtain financing and the liquidity necessary to continue to fund the business going forward,” company spokesman Brendan Wonnacott said.
Yucaipa Cos., a Burkle investment firm, bought most of the Fresh & Easy operations after it sought protection from creditors in 2013. The chain, created by British retail giant Tesco, filed for bankruptcy protection after losing millions of dollars on the concept.
The Yucaipa purchase included 167 stores, as well as distribution and manufacturing facilities in Riverside. Stores that were not purchased were closed.
Today, Fresh & Easy is down to 100 stores in California, Nevada and Arizona. On Wednesday, 3,000 employees were sent layoff notices as the company said it would try to sell parts or all of the brand’s locations and operations.
“As we start the process for an organized wind down of the business, we continue to work to sell all or part of the business,” Wonnacott said.
Craig Rosenblum, a grocery analyst at Willard Bishop, said Fresh & Easy “underestimated the cost of the infrastructure to be successful.”
“I applaud them for trying to make an attempt to become the health and natural convenience store,” Rosenblum said. “Unfortunately, the cost associated with fresh, natural organic products and the infrastructure is too great to allow them to pull off their objectives.”
Fresh & Easy’s lackluster results and seesaw marketing strategies have endured since Tesco launched the first store in 2007. At the time, the company promised low prices on natural and organic foods, takeout meals, and speedy self checkouts for time-pressed shoppers.
As the recession hit, Fresh & Easy made swift changes to adapt to Southern California shoppers who criticized the chain’s no-frills look and grocery selections. Pressured by investors, Tesco filed for bankruptcy protection and sold the chain to Yucaipa. Tesco invested about $1.6 billion in the venture before deciding to bail out.
Under Yucaipa, Fresh & Easy launched a turnaround plan that called for stores to focus on convenience, low prices, ready-to-eat meals, a wider selection of craft beer and more fresh foods.
In 2014, Yucaipa began downsizing stores that were unprofitable. At least 69 markets have closed this year, including seven in Orange County.
As it puts locations on the market, possible suitors could be discounters Aldi and Grocery Outlet. Both plan to open dozens of Southern California stores.
Grocery Outlet, which sells overstock brands up to 70 percent off, has already snapped up closed Fresh & Easy locations in Westminster and Costa Mesa. Those first two stores will open in early December, while a third opens next year in La Habra — also a former Fresh & Easy.
German-owned Aldi, which has family ties to the operators of Trader Joe’s, sells copycat versions of the nation’s 1,300 most popular brands.
The chain, with 1,400 stores in 32 states, said its first 25 California stores will open between March and July. Locally, the first Aldi stores are opening in Buena Park, Fountain Valley and Anaheim.
Analysts say Aldi and Grocery Outlet will shake up the $44 billion Southern California sector at the expense of nearly every player – from Wal-Mart to conventional markets like Vons, Ralphs and Albertsons.
Rosenblum said most Fresh & Easy stores are in good locations and will likely be sold quickly.
Who buys them, however, is dependent on the terms of Fresh & Easy’s current leases. Discounter outlets Aldi and Grocery Outlet may use Fresh & Easy’s liquidation as an opportunity to seize a bigger portion of the Orange County market, or the cost per square foot of the leases might be too high for low cost grocers to absorb.
Haggen, a Pacific Northwest grocer that filed for bankruptcy a mere six months after entering the Orange County marketplace, has store leases up for sale that offer other opportunities for grocers to expand.
Smart & Final and Gelson’s already have deals, pending bankruptcy court approval, to take over 36 Haggen locations.
Fresh & Easy and Haggen exiting the marketplace is “not going to scare people off. The opportunities in Southern California are still great,” Rosenblum said. “The reality is that you have to have the right infrastructure and differentiated offering to be successful in the Southern California market.”
Orange County Fresh & Easy stores are in Costa Mesa, Orange (2 locations), Anaheim Hills, Laguna Hills, Laguna Niguel, Garden Grove, Fullerton.