Tesco pulls plug on Thailand bulk business as UK sales grow

19-Jun-2017 Intellasia | FT | 6:00 AM Print This Post

Supermarket group renews focus on British convenience grocery market

Tesco has shut down a “bulk selling” operation in Thailand after concluding it could not make a profit.

The decision to walk away from nearly 6 per cent of Asian revenue contributed to a 3 per cent decline in like-for-like sales at Tesco’s international business, taking the gloss off a sixth consecutive quarter of growth driven by price rises and volume growth in the UK.

Dave Lewis, chief executive, said the shuttered Thai unit served independent merchants rather than individual consumers, and sold “large volumes [of] mainly tobacco and alcohol”.

He added: “It’s not profitable and it adds complexity to the way we run the operation. We took a decision to exit that segment in order that we could focus on direct retail customers.”

The supermarket chain is trying to extend its lead in UK convenience retailing with the GBP 3.7bn takeover of food wholesaler Booker Group, announced in January.

Booker serves independent merchants rather than retail consumers and derives 30 per cent of its revenue from bulk tobacco sales. The acquisition has drawn criticism from two large shareholders and prompted the chain’s senior non-executive director to quit in protest. Richard Cousins, who left after just two years on the board, complained that Tesco “need[s] to make the business simpler, not more complex”.

In the UK, Tesco’s sales growth was helped by rising food price inflation. The supermarket increased the price of its customers’ average shopping basket by 1.4 per cent between February and May, according to figures supplied by Lewis.

However, that was below average grocery market inflation of 2.9 per cent measured by Kantar Worldpanel, which has contributed to grocery sales rising at their fastest rate in three and a half years.

Lewis attributed the lower price increases, which helped Tesco extend a streak of growth in the volume of fresh food sales into its third year, to an “agile way of working together [with suppliers] to control costs and maintain lower prices”.

He pointed to a “crop flush” initiative that the supermarket is running with potato farmers, which involves selling surplus produce at lower prices. When vegetables are too wonky for the grocery aisles, Tesco now diverts them to ready meals factories rather than throwing them out.

In the past, supermarkets have benefited from inflation by passing on cost increases to consumers and boosting their own profit margins. However, more intense competition after the rapid expansion of German discounters Aldi and Lidl has made companies wary of doing the same again.

Tesco, the UK’s largest supermarket chain, has been working to turn itself round and win back market share after a difficult period that culminated with one of the biggest losses in UK corporate history in 2015.

It also benefited from the resolution of tax issues relating to the 2015 sale of its Korean business. The company had set aside GBP 329m in provisions to pay further capital gains taxes, which the company said can now be released as no more tax will need to be paid.

Tesco shares were largely flat after the trading update on Friday morning at 179.75 pence.



Category: Thailand

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