In a surprise development, Tesco has announced that it has put its businesses in Thailand and Malaysia into a strategic review, a move that could that result in their sale to another retailer or to private equity.
Early stage of evaluation
Tesco said in a statement that “following inbound interest, it has commenced a review of the strategic options for its businesses in Thailand and Malaysia, including an evaluation of a possible sale of these businesses”. The retailer did not share any further details of the potential deal. “No decisions concerning the future of Tesco Thailand or Malaysia have been taken and there can be no assurance that any transaction will be concluded,” it added.
Substantial business in both countries
Tesco first launched in Thailand in 1998 and over the last two decades has built its operations up steadily to become the second largest retailer in the country after CP Group, the licensee for 7-Eleven Group. With almost two thousand stores in and sales of £4bn, Thailand is Tesco's most important market outside of the UK, with operations spanning large stores, convenience stores and online. The Malaysia business is smaller, but with sales of over £800m Tesco is still the number two player in the country.
Margins higher than in UK
Tesco's operating margin is now higher in Asia than in any of the other regions in which it operates. In H1 2019/20, margins reached 6.7%, far ahead of the UK and Ireland on 4.2%, or Central Europe's 2.2%. Key here been a shift in strategy in Thailand, with major changes to Tesco’s sales mix and promotional strategy and the ending of bulk selling. Tesco has also accelerated a material restructure of store and office operations and simplified the operating model of its large stores, while in Malaysia it continued to pursue its strategy of repurposing existing stores to make them stronger retail destinations with strong value messaging to drive volumes.
Ambitious expansion planned for Thailand
News of the review follows plans shared by Tesco in June to dramatically increase its presence in Thailand. Following trials to reduce operating costs and shift the product mix more towards food, Tesco said it now saw potential for a further 750 Express stores in Thailand over the next three years, a far more rapid rate of expansion than any other part of Tesco. The confidence about its future in prospects in Asia appeared to draw a line under its previous withdrawals from the region including the sale of its operations in Japan (2012), and in South Korea at the height of its financial difficulties in 2015.
New CEO in 2020
Tesco's decision comes as Dave Lewis prepares to step down as Group CEO after next year's full year results in April. He will be succeeded by Ken Murphy, the former COO and President of Global Brands at Walgreens Boots Alliance. At Tesco's recent results, Lewis said his approach would be 'business as usual' for the rest of his term, building on Tesco's recent progress and addressing challenging market conditions.
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