Tesco targets Asia

23 November 2010

SEOUL: Tesco, the retail giant, is focusing on emerging Asia and China as it seeks to drive "long, sustained" future growth.

The company established Homeplus in Korea just over a decade ago, now operating 118 hypermarkets and 245 smaller Express outlets, and boasting 5.7m members of the Clubcard loyalty programme.

Alongside a bakery chain, Tesco offers 19 products from personal finance to telecoms in Korea, where e-commerce sales should surge 50% a year to 2013/14.

Some 74.9% of Korean shoppers agreed Homeplus' social activities - like awarding Clubcard points for cycling customers - have boosted its brand value.

A similar number praised its range, service and in-store environment.

"Korea has become a second growth engine for Tesco," Philip Clarke, Tesco's Asia, Europe and IT director, said in a presentation.

Tesco's Malaysian arm saw returns rise 23.7% in the last six months to £370m ($593m; €432m), serving 1m people a week, and has expanded into apparel and debit/credit cards, the latter via a partnership with RHB.

Its 704 stores in Thailand, incorporating 514 Express branches, generated £1.4bn in the previous two quarters, aided by 5.9m Clubcard users and improving private-label sales.

Japan, where Tesco runs 142 sites, has recently witnessed a variety of new initiatives, like the launch of "fresh kitchens" preparing fish at 56 shops, and which are receiving "good feedback from customers on quality."

It also carries more than 400 own-label lines, delivering 9.7% of purchases as Japanese consumers increasingly trade down.

In India, Tesco jointly owns ten Star Bazaar hypermarkets - with store brands contributing 5.5% of acquisitions - and plans to introduce its first cash and carry in May 2011.

To drive regional growth going forward, Tesco will strengthen the education provided to managers, covering everything from marketing to media training.

Further initiatives include reducing carbon emissions, for example by constructing a low-carbon distribution centre in China.

"China is on the verge of becoming both profitable and a meaningful part of our long-term growth," added Clarke.
"We're now deploying all of the experience, skills and resources we've accumulated - and which Korea represents so well - faster into China."

Today, Tesco draws 4.3m Chinese customers per week, with Clubcard penetration set to reach 6.4m this year, when own-label sales could hit 148m units, measured against 84m in 2009.

One major goal is opening 50 directly-owned Lifespace malls "anchored by a Tesco hypermarket" by 2014/15, building on the four already active, and mainly focusing on second and third tier cities.

Such a strategy may mean the company can attract other popular brands to lease space, like restaurants Pizza Hut and KFC, sportswear giant Adidas, entertainment group Disney and cosmetics specialist Shiseido.

During the same period, Tesco hopes to more than double its number of Chinese hypermarkets, topping 200, triple footfall to 12m people a week and quadruple annual sales to £4bn.

Insights gleaned from Clubcard data will play a leading role in helping the firm "respond first to changing customer needs and lifestyles as incomes rise".

Overall, Tesco forecast national retail grocery revenues would surpass £600bn in China this year, and should better £940bn in 2014.

"China offers an unrivalled opportunity in a large, rapidly growing market," said Ken Towle, ceo, Tesco China.

"The prize is enormous but the challenge is complex - China is a vast continent, with cities the size of small countries."

Data sourced from Tesco; additional content by Warc staff