Tesco quits Japan

01 September 2011

TOKYO: Tesco, the supermarket group, is planning to sell its Japanese stores, reflecting the challenge many overseas companies have faced in cracking this unique market.

After establishing itself in Japan through purchasing the 78 stores run by C Two-Network in 2003, Tesco then acquired 27 outlets owned by Fre'c in 2004, and now boasts 129 branches in all.

Half of Tesco's branches - mainly based in Greater Tokyo and branded under the Tesco, Tesco Express and Tsurakame banners - are profitable, but its limited size meant gaining scale was too difficult.

"Having made considerable efforts in Japan, we have concluded that we cannot build a sufficiently scalable business," Philip Clarke, Tesco's CEO said in a statement.

"What we thought we'd be able to do is take our Express format and our small supermarket format and grow it in the Tokyo area."

Convenience stores are especially popular in Japan, where chains like 7-Eleven, FamilyMart and Lawson lead the way, while supermarkets such as Aeon Ito-Yokado and Seiyu also offer stiff competition.

"It has proven very difficult to shift consumers from the stores that they use," said Clarke. "We've got great opportunities in Asia in businesses where we are market-leading."

Given Tesco's travails in Japan when measured against its success in nations like South Korea and Thailand, Kate Kalvert, an analyst at Seymour Pierce, backed this move.

She said: "Tesco has never made an acceptable return from the business. Japan will remain a notoriously difficult country to make money out of."

John David Roeg and Jan Meijer, analysts at ING, suggested Tesco's actions in Japan "might mean" the company could consider offloading Fresh & Easy, Tesco's US arm, if it continues to struggle.

Tesco's Clarke took another view: "Any comparison with Fresh & Easy would be inappropriate. We are going to get ourselves to profit, we are going to drive the growth and then we are going to get the return on capital that the shareholders want."

Carrefour, the French hypermarket giant, previously withdrew from Japan by swapping its local stores for Tesco's Taiwanese operations, while Wal-Mart Japan has also found it challenging to make meaningful headway.

Data sourced from Financial Times, Wall Street Journal, Bloomberg, Guardian; additional content by Warc staff