Tesco expands in Korea

Although notoriously resistant to foreign retailers, South Korea is the company’s second most profitable market, where it operates a discount store chain, Homeplus, under a joint venture with Samsung.

The recent purchase of rival hypermart Homeover from E-Land, a one-time fashion retailer, for 2.3 trillion Won (US$2.2 billion), will see annual turnover increase to almost $8 billion.

Homeover, with 36 discount stores nationwide, had previously been sold to E-Land by French hypermarket chain Carrefour in 2006 when the French firm experienced a drop in profits in Korea.

The addition takes Samsung Tesco’s total number of Korean stores to 102.

Though today a middle-class supermarket brand in the United Kingdom, Tesco’s positioning in Korea will remain as a discount chain which will target the lower-end Korean consumer. This strategy mirrors its origins in the British market and contrasts with its more upscale Hymall chain in China.

But a source pointed out that compared to fellow budget retailers Wal-Mart and Carrefour, both of which have struggled to gain a footing in Korea, Tesco’s partnership with a widely known domestic brand significantly increases its chances of success.

The source further noted that alignment with Samsung, with over 100,000 direct employees in Korea and numerous supplier companies and employees with group orientation, enhances Tesco’s credibility.

In addition, the source observed that operating in conjunction with Samsung would help minimise the risk of focusing too heavily on either a Korean or an international audience.

“Local knowledge counts for a lot in the retail business,” the source said.

Chris Thomas, BBDO’s Asia chairman and chief executive, who has worked extensively on Tesco in the United Kingdom, added that the supermarket’s ability to “adapt its proposition” would help it provide the level of service necessary to attract and retain Korean consumers.

This had been a shortcoming for Carrefour, the source explained.

“Koreans were receptive to Carrefour but at the same time critical of its lack of flexibility in some respects,” said the source, explaining that its display style had been incompatible with the expectations of many shoppers.

The source also cautioned that although value for money had achieved traction as a concept in Korea, the rising price of fuel - already high in Korea - presented a potential challenge for Tesco as a large-scale outlet necessitating a car journey.

Tesco’s presence in Asia also extends to Taiwan, Thailand and Japan.