Downsizing in Tesco

 Family with a shopping cart filled with their purchases at a modern Tesco-Lotus shopping center super market in Chiang Mai, Thailand.
Family with a shopping cart filled with their purchases at a modern Tesco-Lotus shopping center super market in Chiang Mai, Thailand.
By Reidar Molthe

16 December 2019 11:07

Downsizing in Tesco

The history of Tesco has some parallels to UK. The supermarket chain has grown from a modest foundation to an admired world power with arguably the best stores in the world. Now it is withdrawal and downsizing that applies. If the trends continue, Tesco is soon reduced to ‘UK only’.

Over the years, this writer has recommended countless leaders in the grocery industry to go to the UK to study Tesco. However, it has been a few years since it applied the last time. Now they should rather unfortunately for Tesco study Lidl and Aldi to see what the future may bring.

After a period of global expansion that saw Tesco expand into Europe, Japan, South-Korea and the US, the group has pulled back in many places. It withdrew from the Japanese market in 2012 after failing to win significant market share, and from the US the following year and South-Korea in 2015; losing big money.

Big in Thailand but good margins not enough

With almost two thousand stores and sales of £4bn, Thailand is Tesco's most important market outside of the UK, with operations spanning large stores, convenience stores and online. Its Malaysian business is much smaller. With a turnover of approx. £0,8bn.

Tesco's operating margin is now higher in Asia than in any of the other regions in which it operates. Nearly 7% compared to 4,2% in Ireland and UK, and only 2.,2% in Central Asia, writes IGD.

As late as in June 2019 Tesco announced that it planned to dramatically increase its presence in Thailand.

Prospects in Asia were described as very positive as late as last June by Tesco management. Thus, it is even more difficult to understand that Tesco will sell its Thai business six months after such statements.

Tesco sold Japan in 2012, the United States in 2013 and South Korea in 2015. Now many analytics ask the question: When do Tesco sell its central European chains?

The Thai business is considered a “jewel in Tesco’s crown”, says Clive Black, an analyst at Shore Capital, who added that any bid would have to be “knockout” for the company’s board to consider it. (FT)

Out of Central Europe also?

Mr. Black said that news of a bid for the Asian businesses undoubtedly will lead to more questions also over the timing of how long central Europe will stay in the group.

Tesco’s operations in central Europe have suffered as a result of a focus on hypermarket-sized stores at a time when people are becoming more likely to do smaller, more regular grocery shopping and to buy online.

It has also been affected by changes to Sunday trading laws in Poland, its largest European market, that have resulted in 25 fewer trading days.
Tesco closed 62 stores in Poland last year.

Sources: FT; IGD; Guardian, Reuters, Tesco

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