Tesco announced the sale of 301 of its stores in Poland to Salling Group’s discount banner Netto. This includes the sales of two distribution centres, and it headquarters in Krakow, all valued at PLN900m (€181m). The transaction needs to be approved by the Polish Office of Competition and Consumer Protection, which will be finalised by Q4 2020.
Tesco Poland sale is not unexpected news
Tesco Central Europe reported a 12% decline in revenue in the full year results for 2019, dragged down by the lacklustre performance in Poland. The operation has been struggling to attain revenue growth and profitability as achieved by the other central European markets following the three-year restructuring plan. Its Polish market performance was further hindered by its inability to overcome the loss of trade from the Sunday trading ban that began in 2018. This sale will help the British retailer to drive growth in Its three remaining central European markets in the Czech Republic, Hungary and Slovakia.
Tesco was already selling off parts of the business to improve profitability
The retailer was striving to improve profitability across its global operation, but it was facing difficulty in Asia, and especially in its Central European operation. It began to overhaul the Polish business by exiting the hypermarket channel. This meant closure or sale of its large format stores in 2019 and 2020, selling around 22 stores to competitors such as Kaufland. To further improve its financial performance it also agreed the sale of Tesco Asia and exited from its China joint-venture with China Resources Holding. Selling its Polish business will leave Tesco as a smaller but more profitable business ahead of the arrival of its new Group CEO, Ken Murphy, on October 1st.
Acquisition central to Netto’s growth strategy
The retailer’s parent company, Salling Group, sold 163 Netto stores in Sweden in 2019 to help fund its growth in Denmark and Poland.
Doubling business in Poland, benefit of southern Poland in particular
Commenting on the acquisition, CEO of Salling Group, Per Bank said, ‘I am very pleased with the deal as we are consolidating Netto's presence in a growing market and delivering on our Group strategy. With the acquisition of Tesco Poland we are doubling our business in Poland and will become a significant retailer in one of Europe's largest markets...Salling Group is currently operating 386 Netto stores in Poland, and Tesco's strong presence, not least in southern Poland, makes the two businesses a great match’.
Source: IGD Research, Netto, Tesco, Google Maps
The above image, taken from each retailer’s store location maps highlights the geographical spread of Netto and Tesco’s stores by comparison in Poland. It is key to note that Netto’s acquisition would boost Netto’s presence in Krakow, Poland’s third biggest city, as well as Katowice, another key location.
Stores to be converted to Netto’s ‘discount store of the future’ 3.0 concept
Pending approval by competition authorities, Netto will spend over PLN1.0 bn (€224m) on converting the newly acquired stores to the Netto 3.0 concept over the next 12-18 months. Until then, stores will operate under the Tesco brand. Danish media has also reported that 100 of the 300 stores will be converted into slightly larger Netto stores or rented out.
IGD was invited to visit Netto’s ‘discount store of the future’ 3.0 concept in Copenhagen. Retail Analysis subscribers can access IGD’s exclusive store visit presentation here.
Key changes include advancing the Netto brand through design and look and feel, as well as a focus on fresh, convenience, lifestyle trends and a new strategy for SPOT (when it’s gone it’s gone) promotions.
Source: Janusz Stroka
Netto will improve market position against Lidl…
Pending approval, the acquisition will allow Netto to grow its network from around 400 stores in 2020, closing the gap on key competitor, Lidl.
…and Tesco’s exit will strengthen Kaufland’s market share
Following the ‘right-sizing’ of Tesco stores in 2019 and 2020, Kaufland was able to purchase at least seven of these units, and with more to come. The German retailer was selective with the choice of Tesco stores it bought, choosing locations where it was difficult and expensive to find suitable property. This is especially in areas where it can gain market share in the largest cities, and where there is limited competition within each store’s catchment area.
Tesco will announce its Q1 trading update on Friday 26 June – look out for full coverage on Retail Analysis.