Monday, June 3, 2013

Tesco Also Withdrew from Japan

I happened to come across this Guardian article on Tesco dated August 31, 2011. After ploughing more than £250 million and eight years into trying to crack one of the toughest retail markets in the world, Tesco surrendered and announced that it was pulling out of Japan.

[At that point in time, this capitulation was described as a rare setback for the globe-trotting British retailer, which had spent much of the past decade planting its red, white and blue flag in countries, ranging from Hungary and Turkey to Thailand and Malaysia, and followed the promotion of Philip Clarke, the former head of its sprawling international business, to group chief executive. In fact, in January 2011, Tesco’s then chief executive Terry Leahy gave the thumbs-up to its international businesses, which delivered over half of the group's growth. According to one news account that I gleaned, Tesco’s US operations reported a 36.9 percent rise in total sales; Asia grew by 24.2 percent, driven by particularly good like-for-like performances in Thailand and China; and sales in Europe were up 5.6 percent, with like-for-like sales growth in every country where Tesco operated].

In Japan, the painful conclusion was made that Tesco couldn’t build a sufficiently scaleable business. The decision came after a review of the retailer's Asian arm, which also took in Korea, Thailand, Malaysia and China and had £11 billion sales in 2010.

Tesco is not the first foreign retailer to leave Japan with its tail between its legs. Boots the Chemists and France's Carrefour had also admitted defeat there.

A little bit of history. Tesco arrived in Japan in June 2003 when it acquired Tokyo convenience store chain C Two-Network for £173 million.

It made a bolt-on acquisition the following year, acquiring bankrupt convenience store chain Fre'c and taking on £16m of its debt. Analysts said it invested some £10m a year in Japan in a bid to turn the business into a major force in the country. However Tesco appears to have underestimated the difficulties it would counter in Japan, the world's third-largest grocery market after the US and China, with total sales of $356 billion. Gavin Rothwell, research manager at retail analysts IGD, said the country was "notoriously difficult" due to high operating costs and extremely demanding shoppers, with even market leaders Aeon and Ito Yokado battling to increase profits. Moreover, convenience stores dominate, particularly in the city centers, and a culture of 'immediacy' supports massive numbers of vending machines.

In 2010, Tesco had even developed an own-label range and even a fresh kitchen to supply fish and other local products to its stores but last year the business, which trades under the names Tsurakame, Tesco and Tesco Express, made an operating loss of £5 million on sales of £476 million.

Anyway, my eyes will be on Tesco in Malaysia. As each year passes, its stores look tired and tacky. How long for Tesco?

1 comment:

Patrick said...

Interesting insight into TESCO. You didnt dwell deeper into the cause of its slow growth. We need to look deeper into its operations, its overall strategies to understand further its deterioration.

Looking at the TESCO model in MY. I think its fairly safe to assume that it is doing pretty well. It has slowly integrated backwards to control distribution and processing of key food products. This not only assures consistent quality, but also control costs. It has long term contracts with local farmers, thus securing another aspect of selected products' cost and quality. Its prices are competitive. Its stores are sound. Its IT infrastructure is slightly outdated, but sufficient to support current operations. Maybe its marketing has to be sharpened more to stay ahead of the curve.

Is management utilising key data to analyse its business operations and strategies? In this day and age, any business will need to analyse key operational data to have a good grasp on its business. Its one of the key strength of the American businesses....

Perhaps you should make TESCO a key case study for MBA program. it would be very interesting topic....