Tesco has struck an upbeat note about central and eastern Europe, where its sales are under pressure and where economic conditions remain challenging.
The retail giant yesterday (6 June) told a UK industry conference on the region that the long-term prospects there were “very good” despite the current tough trading environment.
“The reality is, it’s tough everywhere at the moment for everyone,” Ian Hutchins, Tesco’s international corporate affairs director, said at an event hosted by the UK’s Food and Drink Federation in tandem with government export agency UK Trade & Investment. “However, long-term, the outlook is looking very good.”
On Wednesday (5 June), Tesco, which has stores in the Czech Republic, Hungary, Poland and Slovakia, reported a fall in first-quarter like-for-like sales in three of the four markets, with only Hungary bucking the trend. CEO Philip Clarke admitted Tesco has slowed its expansion in the region amid the “uncertain” economic conditions. The retailer’s local operations, Clarke said, needed to “focus hard” on “making more” of their existing businesses.
The first-quarter results followed a fall in sales in all regional markets bar Slovakia for the year to 23 February. In April, Tesco also booked impairment charges on its operations in Poland and the Czech Republic to reflect the prospects for growth in those markets. In May, the OECD cut its forecast for economic growth in the Czech Republic, Poland and Slovakia.
Some in the City have expressed concern about the performance of parts of Tesco’s international business.
Investec analyst Dave McCarthy, who earlier this week advocated further “rationalisation” to Tesco’s international operations, said the retailer’s first-quarter results meant that “on a two-year view, LFLs are down in every country apart from Hungary”.
“There are double digit declines in Turkey (-18%) and Czech (-13%). If a store produced such consistently bad sales, it would almost inevitably be closed,” he said.
Nevertheless, Hutchins told the FDF event: “We think that, long term, fundamentally these are good growth markets for Tesco.”
The retailer is looking to continue expanding its fledgling convenience and online businesses in the region, Hutchins explained. “The retail market is becoming more and more sophisticated. Tesco.com is in all of the four markets and has exceeded all of our expectations so far. Slovakia and Hungary have already caught up with the EU average for Internet usage. Smartphones are as standard now for the under-35s in the region as it is in the UK,” he said. “Customers are also looking more and more to shop locally, closer to home. Our focus on developing the business is getting ahead of changing lifestyles. Just as in the UK, we are focusing on online and convenience and there’s a lot of room to go for [here] in these four markets.”
However, Hutchins acknowledged the region is “very price competitive” especially amid the economic slowdown, although he insisted Tesco believed the challenging trading conditions were only a “temporary slowing”. He added: “We are seeing a change from a focus on pure price five, ten years ago to what here in the UK we would call value for money – people are looking for added value, convenience and quality.”