Incoming Tesco boss Ken Murphy must have been hoping for a relaxed Christmas this year before taking on his new role next spring.

Age-old seasonal dilemmas over which wine to drink at Christmas dinner, what football match to watch on Boxing Day, or whether or not to tell your aunt that you didn’t want another Lynx Africa gift set have suddenly been usurped by a much bigger conundrum – should Tesco sell its Asian business?

CEO-designate Murphy will surely have a say in answering that question, alongside outgoing chief executive Dave Lewis, as Tesco reviews the future of its Thai and Malaysian operations following a shock approach from a mystery suitor.

Tesco Lotus Thailand

Tesco’s businesses in Thailand and Malaysia are together valued at around £7bn

The sums involved in any potential transaction would be huge – Tesco’s Thai business is valued at around $7bn (£5.3bn), while its Malaysian division could fetch $2bn (£1.5bn).

Murphy could well be licking his lips at the prospect of starting his tenure with a £7bn cash injection.

Equally, he has the chance to put a flag in the ground as boss by keeping hold of the Tesco Lotus business as part of a longer-term growth strategy for the group.

In growth mode

Asia, Tesco’s largest market outside the UK, should be central to such a plan. As of August 24 – Tesco’s half-year mark – the grocer’s Thai and Malaysian businesses operated a combined 2,041 stores, employed 60,000 people and delivered a healthy 6.7% profit margin. There is clear potential to increase all those metrics.

Just two months ago, Lewis underscored that fact, revealing plans to open 750 convenience stores in Thailand within just three years. Fifty of those will be operational by the end of its current financial year next February.

Operating profits from Tesco’s Asian division totalled £286m in 2018/19 – a figure dwarfed, admittedly, by earnings of £1.5bn in the UK and Ireland – but the grocer can drive that figure higher by tapping into Thailand’s expanding grocery market and its young, affluent population.

“The importance of Tesco’s Asian prospects is only underlined by the state of play in a fiercely competitive UK market”

After years on the back foot in the wake of its accounting scandal, growth mode is what Tesco insists it is now in, and this is an opportunity to prove it.

It no longer needs to sell non-core divisions to shore up its balance sheet. After offloading Homeplus in South Korea for £4bn and flogging a swathe of smaller business interests such as Harris + Hoole, Giraffe and Dobbies Garden Centres, Tesco and Lewis have successfully refocused their energies and stabilised the P&L.

The era of the frenetic fire sale is over. Instead, Tesco says it is now targeting “sustainable, profitable growth” – and the first bullet point listed under that aim in its interim results was its ambitious expansion plan for Thailand.

Domestic concerns

The importance of those Asian prospects is only underlined by the state of play in a fiercely competitive UK market. The discounters’ aggressive store opening pipeline will further erode the big four’s market share over the next decade, making revenue and profit gains incredibly hard for Tesco to come by.

The wider political, economic and consumer backdrop in the grocer’s domestic market is creating further unwelcome headwinds that show few signs of easing, despite the fact we are just days away from the general election.

Retailers hope this week’s vote will bring the certainty they are desperate for and provide a boost to fragile consumer confidence. But, even with the Conservatives extending their lead in the polls, there are no guarantees that Thursday’s ballot will deliver a majority government or the improvement in the shopper mindset that UK retailers are hanging their hopes on.

“Plenty of retailers do not have the luxury of a thriving and profitable international business”

Mike Coupe, the boss of Tesco’s rival Sainsbury’s, is among those to suggest a definitive result in the election would provide much-needed clarity around the key issue of Brexit and spark a retail rebound.

But even if a majority government were to be in place come Friday, this election merely represents the end of the beginning as far as Brexit is concerned.

Should Boris Johnson gain the majority he craves to push through his “oven-ready” withdrawal agreement, years of trade talks will surely follow. The uncertainty for retailers over tariffs and border checks will not dissipate overnight.

And if Jeremy Corbyn’s Labour makes a late surge to power, the promise of a second Brexit referendum will prolong the current uncertainty for British business and consumers.

Mind-boggling

Any UK retailer will tell you that doing business with such clouds hanging over them is as difficult as it has ever been. Strategic investment plans are largely on hold, consumers don’t have the confidence to splash out on discretionary items and the costs of doing business, particularly from physical stores, are rising.

Plenty of retailers do not have the luxury of a thriving and profitable international business to shield them from such pressures and offer alternative avenues for future growth. Tesco does – and, unless it receives a mind-boggling bid that is simply too good to refuse, it would be crazy to give that up.

Jefferies analyst James Grzinic believes, nonetheless, that Tesco’s review of its Asian operations will “very likely” result in a sale.

But if the price isn’t right, Tesco would be better placed doubling down in Asia than cashing out.