Analysts believe Tesco is “beginning to enjoy the benefits of its global scale” after the grocer ran an investor trip to Asia this week.
Oriel Securities analyst Jonathan Pritchard said the rewards of internationalisation were showing through “in terms of buying but also in terms of systems and trading platforms”. He said while there were a few “local vagaries”, the big picture was “Asian countries rebounding out of recession”.
Analysts visited South Korea and China, two of the grocer’s key markets in Asia. South Korea is Tesco’s second biggest market outside of the UK.
Tesco issued updated figures for Asia on Monday, showing sales in China were up 8.3% in the nine weeks to October 31, and up 6.7% in South Korea. In Malaysia, sales edged up 0.5%, while in Thailand sales jumped 3.4%. Japan lagged, suffering a 5.7% decline.
Shore Capital analyst Clive Black said Korea was the “second engine” for Tesco, but “it is not one that has the maturity profile of the core market, particularly in grocery” because traditional wet markets account for a large share of retailing in the country.
He said it was “hard not to admire” Tesco’s Korean fascia Homeplus. “It is such a young brand and yet its stores exude retail authority,” he noted.
Pritchard said space growth of 9% per annum in South Korea “should ensure market share leadership is won from [market leading rival] E-Mart”. He also points out internet penetration is well advanced and Tesco is “well positioned, and will take the systems expertise gained in the UK and apply it to this market”. Tesco’s own-label penetration is currently 26%. The grocer expects to increase that to 38%.
Tesco China chief executive Ken Towle told analysts the grocer intends to double its number of hypermarkets to 200 and open 50 Lifespace malls. It expects the changes will result in a trebling of customers per week to 12 million.
At present Tesco has 82 hypermarkets and four 500,000 sq ft Lifespace malls. Black said the Lifespace mall in Anshan was “impressive”. He said: “It will be another three years or so before we can hand on heart say Lifespace is a success.” He added that the visit “gives us comfort enough to state that it may be onto something”.
Incoming Tesco chief executive Phil Clarke also told analysts overseas returns were starting to improve and would build as the economic recovery takes hold.