British retailer Tesco scales down in Poland

Britain’s biggest supermarket chain Tesco has announced the closure of four hypermarkets and a distribution center in Poland. A ban on Sunday trading and growth of discounters has hit the retailer's bottom line.

Tesco said it would close four supermarkets in Poland as sales in the Eastern EU member continue to disappoint. 

The stores, two in the south (Nowy Sacz and Ruda Slaska) and two in the north (Starogard Gdanski and Olsztyn) and one of Tesco's three Polish distribution centers, in Poznan, will close this year. The warehouse in Komorniki near Poznan was set up only in 2016, delivering products to almost 120 Tesco outlets in western and northern Poland.

Tesco said last August it planned to shut 13 loss-making stores in the country, putting about 2,200 jobs at risk.

Poland is Tesco's second biggest overseas market after Thailand by store numbers.

But problems in recent years have forced the company to simplify management structures, reduce store administration and close unprofitable outlets.

For example, the meat, fish and delicatessen departments will no longer be filled with specialists and the manned staff canteens and restaurants will also close. 

Martin Behan, managing director of Tesco Poland, said the closures would support profitability. "The liquidation of unprofitable stores is a permanent element of business processes in a trading company," he said.

"These changes are part of our work to improve the performance of operations in Poland to levels achieved by Tesco in other Central European countries," Behan added.

In the last year, Tesco has closed 62 stores in Poland as part of reorganization plans aimed at saving 1.5 billion pounds (€1.75 billion, $2 billion) by 2020. 

Sunday trading ban

The move is due in part to Poland's ban on Sunday trading, which has obliged retail networks across Poland to compensate for the lost days of trading.

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"We've lost a number of trading days again in the quarter and that just requires us to keep constantly improving the efficiency and productivity of that business in what is quite a challenging market," Dave Lewis, group chief executive, said.

Matt Simister, CEO of Tesco Central Europe, said Tesco was focused on profitability to overcome the ban, including store closures and simplification of store operations.

The Polish government said in February it was reviewing the impact of the Sunday shopping ban, fueling speculation that it might relax the rules in this election year.

German discounter Lidl is one of several such firms whose model has undercut Tesco in Poland

Discount competition

Discounters have been the least-affected by the new trading law. Biedronka and Lidl, for example, have adjusted their strategies to accommodate the ban. They have used promotions, with discounts as high as 70%, and extended opening hours on Fridays and Saturdays.

Biedronka and Lidl have amongst the lowest prices in the Polish grocery market. This is due to discounters' no-frills operations, part of a business model to keep costs down. Biedronka and Lidl, for example, limit store staff numbers to keep costs down. This means much of the focus of their employees is on stock replenishment. Check-out lines in their stores tend to be longer and staff interaction with shoppers limited. Tesco has found it hard to compete on price.

Tesco and Lidl: apples and oranges?

Sales down

Tesco is one of Europe's biggest retailers, with group sales of 51 billion pounds in its last financial year. But it missed first-half year profit forecasts in 2018 after weak trading in Thailand and Poland. Underlying sales in the Central Europe division fell 2%, reflecting weak sales in Poland.

The shortfall was explained by a 29.1% decline in profit in Asia and a 3.3% reduction in Central Europe, which partly offset growth of 47.6% in the UK and Ireland.

Tesco has a leading 27.4% share of Britain's grocery market, although it could be overtaken by Sainsbury's proposed 7.3-billion-pound takeover of Walmart's Asda.

The tie-up between Tesco's two nearest rivals is driven partly by the rise of discounters Aldi and Lidl, which are gaining ground on Britain's big four grocers.

Lewis said his aim had been to shrink Tesco's international outlets, confirmed that Tesco was committed to both Thailand and Poland.

"In Thailand we're market leader, it's still the most profitable part of the group and there's still significant growth to be had," Lewis added.

Tesco has a workforce of about 460,000, of which 300,000 are active in Britain. Tesco is also present in countries such as India, the Czech Republic and Hungary. 

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Business | 02.07.2018

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