Tesco Lotus CEO John Christie.
Tesco Lotus CEO John Christie.

Tesco exits ‘unprofitable’ bulk selling segment, focusing on direct retail clients

Corporate June 20, 2017 01:00


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TESCO has stopped 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 United Kingdom.

Tesco chief executive Dave Lewis told The Financial Times that the bulk sales 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.”

In a separate interview, Tesco Lotus CEO John Christie said the Thai retailer continued to see strong performance along with positive feedback from its core customer group, who are individual customers shopping for their families. 

“Our fresh-food department in particular has been growing as customers enjoy our high-quality products at affordable prices. In addition, we continue to focus on keeping prices low for products that matter most to customers, such as baby formula to help customers save on the cost of living,” he said.

Lewis attributed restrained 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 deemed not good enough for the grocery aisles, Tesco now diverts them to ready-meals factories rather than throwing them out.

Tesco is trying to extend its lead in UK convenience retailing with the 3.7-billion-pound (Bt160 billion) 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 needed “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, and has contributed to grocery sales rising at their fastest rate in three and a half years.

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 in Britain 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 around and win back market share after a difficult period that culminated with one of the biggest losses in British corporate history in 2015.