Since Tesco opened its first Asian store in Thailand in 1998, the region has grown to become a key component of an international operation that now accounts for two-thirds of its total selling space, a third of sales and over a fifth of profits. But, as analysts touring the group's fast growing operations in the region this week heard, the retailing giant has no plans to stop there.
China, unsurprisingly, is a key opportunity. Its grocery market is said to be worth £600bn today, dwarfing Tesco's £1bn sales in the country. But management said this week that it has the potential to quadruple this within half a decade - underlying sales are currently rising at 8.3 per cent, and the group plans double the number of hypermarkets it operates there to 200, including 50 anchoring the Lifespace shopping malls it plans to rollout by 2015, up from 6 today.
That would take the business in China to the current size of its South Korean operation, Homeplus, which is the second largest operator in the country with 9.2 per cent share of the grocery market, but which Tesco believes could ultimately exceed the UK's market dominance. Underlying sales growth there is currently running at 6.7 per cent, an acceleration on the first half, and Tesco is planning to add around 50 per cent to space by 2013/14, an expansion which should add materially to the £287m profit it's making in the country. That financial strength - as well as the regional expertise it's gleaning from the Korean operation - is underpinning its ability to target the bigger Chinese prize. "[It's] a market that gives Tesco a certain degree of license to explore other markets", says analyst Clive Black at broker Shore Capital.
However, not all analysts shared Mr Black’s enthusiasm. "That the opportunity is exciting is not in question", says Tom Gadsby at broker Matrix. "But how Tesco will pay for it and whether it can make a profit and provide positive cashflow is less clear". Tesco said this week that it plans sale and leaseback deals of mature stores from its £7.8bn property portfolio in the region, a move which Mr Gadsby said is necessary to fund growth.
