Hails End of ‘Space Race’ as Profits Crash
Tesco pledged to open big in the US, but expansion in Europe has left the UK-based grocer struggling to maintain its market share.
Forbes reports that Tesco’s CEO Dave Lewis said that the company is “no longer in a space race” during an investor call on Thursday. He said it is hard to compete with Wal-Mart, Costco, Whole Foods Market, and others because they have a much larger scale.
Lewis explained that Tesco is instead focusing on turning its UK market share around so it can “compete more effectively in the home market.”
Tesco has struggled to compete with Wal-Mart, Costco, Whole Foods Market, and other big-box retailers because they have a much larger scale. Instead of competing globally, Tesco is focusing on turning around its UK market share.
“We will be significantly smaller in the US, but we need to stop thinking about it as a space race. We need to think of it more like the Tour de France, where you want to have good performances every time you go up a hill. That way, every year you are in the competition,” Lewis told analysts.
Tesco has been pulling out of its US Big Fresh format, which it opened in 1994 to compete with Long Island-based retailer Stew Leonard’s, whose customers are primarily in New York City’s tri-state area. Tesco currently has 18 stores in the state. “There is no need to rush decisions, but we don’t expect the business to be material in the next year or two. It does not rule out selling it completely if that were an opportunity for shareholders.”
Tesco opened its first store in New York City in 2010 under its Fresh & Easy banner but put the brakes on following the disappointing performance.
Tesco has struggled in the U.S. market for several years, but it announced in September 2015 that it was closing all of its Fresh & Easy stores in the U.S., leaving about 5,000 employees without a job, according to The Press-Enterprise newspaper in Riverside County, California.“We believe we should make decisions quickly, but we will make them in a considered way.”
Tesco is also pulling the plug on its Chinese operation with partner Ting Hsin. Earlier this year, Tesco said it would put its entire £250 million investment in the venture into a trust for creditors and associates of the collapsed Imperial Tiger restaurant chain. Tesco had 17 stores in China.
“We are getting out of our investment in South East Asia with Ting Hsin, and we will stop participating in the Chinese business. We do not believe there is any further benefit in Tesco having an investment in China,” Lewis said.
Tesco CEO Dave Lewis told investors that Tesco is “no longer in a space race” and is instead focusing on turning around its UK market share.
Tesco has pulled out of the US, Australia, Hungary, and Poland. In 2013, it exited Japan after being part of a joint venture that opened its first store in 2001. While Tesco currently operates 10 retail chains in the UK, it plans to reduce that number to seven.
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