Tesco launches brand in Japan

Tesco is set to roll out 35 new stores in Japan, including outlets under its Tesco Express banner, in a push into one of the most challenging retail markets.

The UK retailer entered the Japanese market three years ago through the acquisition of C Two-Network, which operates the Tsurukame chain of discount supermarkets.

It plans to open its first own-brand store this month in a residential suburb of Tokyo. A further 24 Tesco Express stores and 10 under the Tsurukame banner are planned to open by February next year, bringing the total in Japan to 139.

Tesco’s expansion in Japan comes during a time of growing consolidation in the sector, fierce competition and price pressures.

Last month Aeon, Japan’s leading retailer by sales, agreed to a capital and business alliance with Daiei, a struggling supermarket group, in a deal that will create a retail group with combined sales of Y6,000bn ($50.7bn).

Wal-Mart, the world’s largest retailer, has failed so far to make a success of Seiyu, its Japanese operations. Seiyu reported its fifth consecutive loss last year.

Japan delivered the poorest returns on investment of Tesco’s overseas markets in the financial year to February. Cash return on investment was about 7 per cent, against returns of 15 per cent or higher in Thailand and South Korea. Japan was delivering returns of about 10 per cent in 2005-06.

Tesco said on Wednesday its new stores would be “neighbourhood grocery stores”, which would stock only the kind of groceries that are bought every day.

“Supermarkets carry a lot of unnecessary goods that people don’t need on a daily basis,” said a representative of C Two-Network.

The UK group believes there is demand for grocery stores the size of convenience stores, in convenient areas, particularly in front of train stations.

C Two-Network, which began as a wholesaler, had expertise in Japan’s difficult wholesale sector, the representative said.

But Taketo Yamate, retail analyst at UBS Securities in Tokyo, said large Japanese retail groups already operated small grocery stores and these had not been particularly profitable.

Lawson, one of Japan’s leading convenience store operators, has 100 grocery stores. Shop 99 has been in the business for 10 years and has 1,000.

“Compared to Lawson, which has 8,000 convenience stores [in addition to 100 small grocery stores] and Shop 99, a small group [such as C Two Network] is weak,” Mr Yamate said.

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