Tesco is not only gearing up for a UK bounce back, it is gaining good ground internationally. The next year will see it invest most in international markets and it is well set up for growth.
Much has been made this week about Sir Terry Leahy’s optimistic view on the recovering economy, and the grocer’s gradual return to form. Leahy said the UK economy is has “passed its low point” and things are improving – a welcome sign for retail in general.
But in terms of Tesco’s growth over the next year, the UK is obviously its key market but its international operations could prove very interesting.
Leahy said the grocer has suffered because it operates in some of the international markets which have been hardest hit by the recession, such as Asia, the western US and China. But as he pointed out, these areas also show huge long-term potential, and over 90% of Tesco’s international sales and profits are from countries in which it has the number one or two position.
Tesco will plough the majority of its cash into China next year, and it is gearing up to open its first multi-level freehold shopping centre. This model is widely used in China and as a landlord, it will give Tesco good grounding for expansion.
Elsewhere in Asia is encouraging too. In Korea, the ex-Homever stores it converted are trading at uplifts of around 40% and have moved into profitability. And in Malaysia, Tesco’s market share has grown to over 10%, strengthening its number one position.
In Europe, Tesco operates in several difficult markets but has adapted for long term growth. In Ireland for example, it has reduced the prices of 12,500 products by an average of 22%. It said customers are responding enthusiastically, with significant uplifts in volumes.
Elsewhere – in Turkey – it previously announced that it would slow its expansion rate because of the severity of the recession in the country, but it said that sales have remained strong, and it has even increased its market share. As such, it will reinstate plans to accelerate expansion next year to coincide with an expected return to growth in the economy.
The US is more difficult as its fledgling Fresh & Easy launched just before the economic slump. Leahy said that while the format has been adapted in terms of store environment and new products, the only problem that the chain has is the fact that the US is in recession.
He did say however that customers were responding well to the first advertising campaign and he is pleased with the underlying performance of the business – particularly in its coastal California stores which he said are achieving good sales densities, approaching the range it is seeking.
Tesco has been clever in entering the markets it believes there is most potential, and while it was bound to suffer in a recession, it is proving it is playing the long gain. It will be interesting to see how it bounces back in the UK, but it will perhaps be more intriguing to watch its global growth.