Life after Tesco

In Q1 2021, UOKiK, the Polish competition authority, gave permission for Tesco Polska to be taken over by Salling Group, the owner of the Netto discount store chain. The reason for such an investment, according to Radosław Bartkowiak, the head of construction at Netto Polska, is of course that Netto was looking to expand: “Over the last 26 years of our operations in Poland, we’ve been growing at a steady pace. Now we have more than 400 stores. Adding Tesco’s premises allowed us to effectively extend our chain’s reach in a short time and change from being a regional to a national player. By converting Tesco’s stores, Netto is now active in locations where we previously had no presence and this allows us to fully realise the potential of our chain and also to tap into the full potential of the Polish retail market, which continues to be able to absorb newly developed retail space,” he explains.

Netto ready before the end of year

By taking over Tesco’s chain, Salling Group has undertaken to convert 250 stores. “By mid-November we had already converted over 150 locations by the end of the year, we had completed 188. So at the end of 2021, we had a balance of 200 open stores, not including our organic growth, meaning that Netto had a chain of 600 stores,” reveals Radosław Bartkowiak. “We had planned to finish the conversions by mid-2022, but the pace of making these changes to the acquired premises and of opening our Netto 3.0 stores in these locations has been quicker than we originally expected. As a result, we expect to complete the entire venture significantly earlier, in Q1 2022. Then our chain will have 650 stores,” he adds.

Retail parks and small malls

It’s not only Netto that has seized the opportunity to expand its network in the wake of the departure of Tesco. In October, EDS Retail Park came out on top in an auction to buy six Tesco stores and on the acquired sites the Gdańsk-based developer is to build retail parks with a combined area of 29,000 sqm gla. Michał Nowak, the chairman of the management board of EDS Retail Park, points out that Tesco entered Poland when the supply of land in prime locations was high, so many of its centres were built in ideal locations for retail. “These are currently superb retail locations,” he says. 4FI has also taken advantage of the situation to introduce its Mozaika shopping centre brand to the market. “One of 4FI’s business models is to invest in old retail buildings and breathe new life into them. By doing so we can increase their value,” claims Radosław Trzepla, the head of Polish operations at 4FI. “The formula we used to convert a store in Kraków into a Mozaika centre was based on market analysis that identified the specific requirements of local shoppers,” he adds. In 2022, DOR Group will also be completing a retail park on a former Tesco site – on ul, Drogowców in Częstochowa.

DIY comes into the act

Tesco’s former locations are also attractive to other formats, such as DIY, which Leroy Merlin specialises in. “As part of our expansion plans, we purchased eight Tesco stores, of which three have already been reopened as Leroy Merlin DIY stores. These are centres in Gorzów Wielkopolski, Bydgoszcz and Gdynia,” says Maksymilian Pawłowski, the communications manager of Leroy Merlin. According to him, Tesco’s locations have allowed Leroy Merlin to be closer to the customer in locations that are of particular importance to the chain. “We are planning more openings. Before the end of 2021, a store is to open in the Bałuty district of Łódź, and over the next few years we’re planning openings in Warsaw on ul. Połczyńska, in Głogów, ul. Serbska in Poznań and in Wałbrzych,” he reveals.

Renovation and reconstruction

The conversion and reconstruction work on an existing centre is often more expensive and more difficult than building from scratch – and when it comes to converting former Tesco stores, Radosław Bartkowiak of Netto admits that the process can be rather complicated. “After all, 250 locations across Poland have to be rebuilt, both in both towns where Netto has already been for many years and in places we’ve never been before. The difficulties involved in these conversions depend on the particular building, such as its size or condition. For some we have to undertake a full renovation, while other centres don’t require such a huge amount of work. It takes six to eleven weeks to renovate a store,” he explains. “We all know that if you’re building a centre it’s best to start off with a greenfield,” comments Michał Nowak of EDS Retail Park. “In each of our six new locations we’ve had to carry out reconstruction work, which is very likely to throw up a few surprises that could result in extra costs. On the other hand, we were very well prepared for this investment and have additional funds for this purpose,” adds Michał Nowak, who then goes on to reveal that all the stores in former Tesco centres should be open by the end of 2022. Maksymilian Pawłowski of Leroy Merlin also relates how difficult it has been to adapt former Tesco centres to new standards. “The work involves getting rid of the back rooms where food was handled and there used to be additional freezers. It’s also necessary to reinforce the floors and install new efficient sprinklers for safety reasons,” he points out. Radosław Trzepla of 4FI also says that the conversion of the Tesco store in Kraków into the Mozaika centre was not a straight- forward process. “Firstly, there was the design and construction, which for older buildings can be a challenge,” he admits. Another challenge has been extending the leases for the existing tenants and completing the tenant mix. Despite everything, the centre was ready after just half a year of work. For other projects, the work is at different stages and progressing at different speeds. For example, the repositioning of a centre in Lublin is to be completed in 2022 and many of the new tenants, including Kaufland, Maxi Zoo and Action, have already started their operations.

More, more, more

However, the difficulties developers and investors have had with adapting former Tesco stores do not seem to have discouraged them from doing the same in the future. Michał Nowak of EDS Retail Park, for one, insists that if more Tesco centres were to come onto the market, his company would certainly make a bid for them. 4FI is also considering investing in other locations vacated by the UK grocery chain.