Every little helps

Retail & leisure
EUROPE Tesco is “considering the sale of its CEE businesses,” according to media reports from a few weeks ago. The market rumours came soon after the struggling British retailer announced that it was set to sell its biggest international business, South Korea’s Homeplus, to private equity company MBK Partners for over GBP 4 bln.
The deal was aimed at trimming the company’s debts, then estimated at app. GBP 8.5 bln (net indebtedness). Over FY 2014/2015 Tesco has continued to suffer significant losses in the aftermath of its accounting scandal, while at the same time being impacted by stronger competition from discount retailers. Earlier this year, the company, which currently operates in six European countries outside the UK (Ireland, Poland, Hungary, Slovakia, the Czech Republic and Turkey), closed several British stores and some of its CEE locations. Are the rest of Tesco’s CEE operations likely to share the fate of its Korean business?

Fixing time

At the end of its 2014/2015 financial year ending in February 2015, Tesco had 449 stores in Poland, compared to 455 a year before. In Hungary, the retailer operated 209 locations, down from 220 at the end of FY 2013/2014, and in the Czech Republic its portfolio contained
209 stores, down from 211. In the CEE region, only Slovakia saw an increase in the number of stores: at the end of FY 2014/2015 there were 155 Tesco stores in the country, up from 150 a year before. However, in the first half of FY 2015/2016, Tesco continued to reduce its portfolio in some CEE markets. At the end of August 2015, it had 203 Czech stores and 442 Polish locations. In Hungary the number of stores remained the same, while in Slovakia Tesco increased its presence with three stores. Tesco denies it is aiming to sell off any of its remaining international businesses. “We have done a full review of all the operations that we have and the focus has clearly been on the retail core business operations (…). The decision for us to make a disposal in Korea is connected to our strategy for the assets we have in Central Europe and in Southeast Asia, which are key to the group and that we want to invest in and rebuild. The review of our retailing business is now complete and we should all focus ourselves on how to improve the performance of those assets. But there will always be speculation,” insisted Dave Lewis, the CEO of Tesco. “The unifying thought on which we have built the trust in our brand is that we are a business dedicated to serving customers wherever they are and better than anyone else is,” he added.

Will less mean more?

In H1 2015/2016, Tesco’s like-for-like sales grew in all European markets (a 3.2 pct surge compared to a 0.8 drop in FY 2014/2015), with improving sales trends particularly evident in Poland and Slovakia. The company attributes these results to the investment it has made in its fresh food offer and the regional restructuring process in the CEE region that has been recently completed. As part of the reorganisation, which is to provide better buying opportunities and improve operational activities leading to the much expected cost cuts, Tesco Poland has laid off 34 employees of its investment department. “The creation of a single business unit for all Central European operations has allowed us to unlock more opportunities to invest in what we offer our customers,” a Tesco Poland representative told ‘Eurobuild CEE’. This seems all the more important as the grocery business becomes increasingly competitive, with such discount retailers as Lidl, Aldi and Biedronka continuing to expand across the region. In the first half of the 2015/2016 financial year Tesco’s revenue in local currencies rose 2.8 pct y-o-y in Poland, while in Hungary the figure grew by 4.3 pct y-o-y. A 8.9 pct y-o-y increase was registered in the Czech Republic and Slovak business posted a 6.4 pct y-o-y boost. “We are focusing our efforts in the four CEE markets on improving the experience of our customers and improving sales in the existing retail space,” he added. At the end of August 2015, Tesco Poland’s stores had a combined area of app. 901,000 sqm, but the company announced plans at the time to reduce this by February 2016 through either closing or selling eight stores. In the Czech Republic, where Tesco’s portfolio amounts to 517,000 sqm, nine stores are to have been closed or sold by that time. Tesco does not plan to make any changes to its Hungarian portfolio, however, which has now reached app. 644,000 sqm.