Sales at Fresh & Easy, Tesco's first foray into the American grocery market, are 70 per cent below expectations as customers have failed to warm to the business, an analyst claimed yesterday.

As Goldman Sachs downgraded the supermarket giant's shares on the basis of stuttering UK sales, Mike Dennis, a senior research analyst at Piper Jaffray, said that the company's fledgeling US operation was experiencing a “substantial shortfall”.

“Fresh & Easy, Tesco's US West Coast convenience concept is, we believe, based on our checks with suppliers in the US, running 70 per cent below budget on US sales,” Mr Dennis wrote.

Citing sources close to the company, he said that the supermarket had hoped to achieve first-year average sales of $200,000 a week per store but was averaging only about $60,000. Mr Dennis wrote that this would indicate that sales would be about $30 million in the second half, “a substantial shortfall from our initial estimate of $100 million-plus. The issue is very weak footfall.”

Tesco's investment in the United States is believed to be one the reasons why it is struggling to match the sales growth of Morrisons and Asda in Britain.

One industry insider said that about a third of its chilled foods team has gone to America to help to develop the fresh food lines sold in Fresh & Easy.

The Times reported this week that Tesco had moved Jeff Adams, the American-born chief executive of the company's Lotus business in Thailand, to the US to work under Tim Mason, Fresh & Easy's chief executive.

Mr Dennis said that Mr Adams is “tasked with understanding what's gone wrong with the concept and how they are to recover, if at all, their $700 million-plus investment so far”.

Fresh & Easy is based on the Tesco Express format and is an attempt to break the dominance of chains such as Wal-Mart in southern California, Nevada and Arizona. Sir Terry Leahy, chief executive of Tesco, stands to collect an £11.5 million share bonus if the move succeeds. The company believes that there is potential for 1,000 Fresh & Easy outlets on America's West Coast.

Tesco refused to comment on the figures cited by Piper Jaffray. A spokesman said: “We're very pleased with the way Fresh & Easy is going. Where this information has come from I simply don't know. We are bewildered.”

The news came as Goldman Sachs downgraded Tesco shares from “neutral” to “sell”. In a note, analysts at Goldman wrote: “We believe that investors are underestimating the pressures Tesco faces in rebuilding strong sales momentum and managing its margins simultaneously, with the stock continuing to trade close to its all-time peak relative to an expensive food retail sector and also the market.”

Tesco recorded the weakest sales growth of the Big Four supermarkets in February, figures from TNS market research showed. Its shares closed down 13p at 380p. J Sainsbury also suffered, losing 13p to finish at 326p, while Wm Morrison lost 11p to close at 278p.

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