In the third and final part of just-food’s briefing on the globalisation of food retail, Glynn Davis focuses on two retailers at the forefront of international expansion – Tesco and Wal-Mart Stores.


The first stop on UK Prime Minister David Cameron’s trade trip China in November was at a Tesco Happy Valley store in Beijing. Its place at the top of Cameron’s itinerary not only shows how important retail is to UK plc but probably also how vital China is to Tesco.

China is just one part of Tesco’s growing international operations, regarded by the UK’s largest retailer as vital to its future. This was perhaps evidenced by the title of a presentation new Tesco CEO Philip Clarke gave in November (when he was still the head of the UK retailer’s international operations), to City analysts on a trip to South Korea and China – ‘International – an increasingly important engine for growth’.

The view of Andrew Seth, former chairman of Lever Brothers UK and author of Supermarket Wars, is that Tesco is arguably no longer a UK company. “It’s just the funding vehicle for its overseas expansion. The future for Tesco is not about maintaining its 30% share in UK food. It’s about new markets.”

The facts at present are: Tesco derives 31% of sales and 22% of group profits from outside the UK compared with 10% and 5% respectively ten years ago; more than half of its profit growth in the first half of the 2010/11 financial year came from Asia and Europe; and 65% of selling space is overseas.

Among the countries in which it now trades are Poland, Turkey, Malaysia, South Korea, Thailand, Hungary and Japan. What has helped make Tesco one of the main global players is its much-vaunted creation of a model that it has been able to roll out around the globe. Dubbed ‘Tesco in a Box’, it consists of a fully exportable basic skill set that was developed by Clarke in his former role as international director.

This back-end infrastructure was combined with a willingness to take onboard local preferences, cultures and methods of working rather than imposing a rigid ethos from Tesco’s headquarters in Cheshunt.

The company has also successfully aligned this with its multi-format proposition where it can choose a store type from the smallest convenience outlet to the biggest hypermarket – depending on the demands of each local market and the property’s location.

Bryan Roberts, director of retail insights at Kantar Retail, says this has been a powerful driver of its globalisation and he predicts there is more to come. “This has always been Tesco’s strength and it has used this successfully across Asia and Central Europe, and now it is developing its non-food offer and higher margin convenience. And then it can look at bolting on e-commerce in each country.”


Such is the scale of Wal-Mart that the only way to achieve the rates of growth its investors demand is to enter new, large, developing markets as only they offer the US retail giant the opportunity to expand sufficiently quickly.

This is why international growth is the key to its future growth, according to Wal-Mart CEO Mike Duke.

Capital expenditure for the overseas business is being increased 13% over 2011 whereas for the home market it will remain flat. The plan is to add up to 24 million square feet next year.

Doug McMillon, president and CEO of Wal-Mart’s international arm, has stated that the target for a good chunk of this money will be emerging markets. “Our capital investment for next year will drive new store growth with particular emphasis on China, Brazil and Mexico. We will continue to evaluate acquisitions to enter priority markets and to build scale in existing markets.”

Such thinking undoubtedly underpinned Wal-Mart’s bid for a majority stake in South Africa-based Massmart in November, which, if successful, will help the US retailer take overseas revenues beyond the current 25% of total group sales.

Current big contributors to its overseas revenues are Canada, Latin America, Europe (in the form of the UK’s Asda), and Mexico, with the latter “unbelievably successful”, according to Roberts. Wal-Mart’s Mexican business, Roberts says, is now informing the rest of the retailer’s international business and, in the last year, Wal-Mart’s Central American division has been absorbed into the Mexican arm.

Despite the success of Wal-Mart in expanding overseas it has still faced great challenges. Wal-Mart abandonned Germany in 2006 and it continues to grapple with its operations in Japan. It also faces a tough integration project in Brazil where it effectively runs three separate businesses (acquired through acquisitions) that will need to be combined at some point.

Roberts suggests Wal-Mart’s overseas strategy is of the “carrot and stick” type because the company still makes higher returns on its capital from simply opening up more Supercenters in the US market but, in order to expand at the required aggressive rate and secure the longer-term future of the group, he says Wal-Mart is “wedded” to international growth.