Blog: Tesco's US deal is a further step in repositioning its international arm

The sale of Tesco’s Fresh & Easy business marks another step in boss Phil Clarke’s bid to reposition its international operations.

Clarke said in April that it has adopted a new approach to capital allocation between its international markets. As such it gave more cash to markets where it is strong - South Korea, Thailand and Malaysia - concentrated on holding positions and improving returns in its European markets, and in less mature markets - China, Turkey and India - it said it would focus on “pursuing a profitable approach to growth”.

The US did not fit into any of these categories. Clarke and his team felt it would take too long to reach profitability, and shareholders’ money would be better spent elsewhere.

While the deal took longer than expected, it was greeted with enthusiasm in the City. Tesco had to pump in a little extra cash but has done a bulk deal, rather than having to close the operation and sell off stores piecemeal, and once completed no longer has any financial liability in the US.

The deal puts an end to an ongoing distraction, and allows Clarke to focus on his new strategy - namely turning around the UK and positioning the grocer to become a global multichannel leader.

And as for its international plans, it revealed last month that it was in talks with China Resources Enterprise about forming a joint venture in the country. It will mean that Tesco significantly cuts its exposure there.

In India, Tesco already has a joint venture partner and its exposure is tiny.

That just leaves Turkey. The business there is under intense pressure from local competition and the wider economy and some analysts worry it will make meaningful profits or returns in its current form. A deal similar to that of China could well see a way out there.

Clarke has had a busy couple of years since taking the helm but is definitely making his mark.