Express format key for Tesco

Mao Jinhua, a shop assistant at Wuyuan, a Shanghai convenience store, has been in the middle of a battle for customers ever since a Tesco Express shop set up across the street last August.

Before Tesco Express, a convenience chain store branch of British retail giant Tesco, came to town, Wuyuan and two other nearby discount shops, Kedi and Alldays, each enjoyed a steady flow of business on Middle Yanji Road. Now they're scrambling to keep old patrons and lure new ones.

People always seem to be slipping into Tesco for a snack or drink, even late at night, while the other three stores are quiet, according to Mao.

Tesco has been growing steadily in China since it first entered the country in 2004. CFP

Tesco's business at home may be suffering, as recession cuts consumer spending but the company's Express chain in China, still just in its trial stages, may be a glimmer of light.

Tesco is the world's third largest retailer but posted only tepid 2 percent increase in like-for-like sales in its home country during the 13 weeks ending Nov 22, compared to a 29.4 percent hikes in Asia over the same period.

During the seven-week Christmas and holiday retail season ending Jan 10, the company reported Tesco's like-for-like sales in the UK were up 2.5 percent, probably the worst Christmas trading figures since the last recession in the 1990s, according to media reports citing the company's finance director Andrew Higginson.

But Tesco has been growing steadily in China since it first entered the country in 2004. Its sales were up some 15 percent, to 3.2 billion pounds in the first half of 2008, according to the company's interim report.

"Tesco made solid progress last year, despite its late entry to the Chinese market," said Tian Huilan, an analyst with First Capital Securities.

The company is doing well in China but trails French retailer Carrefour and US retailer Wal-Mart, which both set up shops in China in the mid-1990s.

According to figures from research firm Euromonitor International, Tesco ranked 10th in the Chinese retail store market, with 2.6 percent market share in 2008, far behind market leader Carrefour, which had 8 percent.

Tesco may pin its hopes of carving out a larger share of the pie in China on its Express format.

The company has 880 Express stores in the UK and recently added five in Shanghai, on a trial basis.

The Middle Yanji Road outlet seems to have no problem attracting shoppers, said Mao, the Wuyuan shop assistant.

"We're obviously getting less customers than before, even though our store is as big as the Tesco Express and we sell more products," he said.

Even the 24-hour Kedi and Alldays are only busier than Tesco Express after it closes at 11 pm, he added.

"We cannot compete with Tesco in price or environment. But fortunately we run 24-hours," said a Kedi assistant, who has worked for the store since it started operation about 10 years ago.

"My husband and I live in the apartment just across the street and are grateful to see such a modern store in this area," said a patron at Tesco Express's Cangzhou Road outlet.

"Prices here are lower too," she added.

The price for Kirin Straight Tea, for instance, is 3 yuan for a 500ml bottle. But the price in the nearby Kedi outlet is 4 yuan. A 400 ml Head & Shoulders shampoo goes for 38.5 yuan at Tesco, while at Wuyuan it's 40.8 yuan.

Tesco Express has met with mixed results in other Asian countries - the chain came to Japan in 2006 but only managed to open seven stores in a year. But in South Korea the chain is successful and the company will double the number of outlets there soon to 130.

The verdict is still out on how Tesco Express will do in China, according to analysts.

"In Shanghai, the battle for good location, which is crucial for the success of a convenience store, is red hot," said Qiu Yujun, an analyst with market research firm Planet Retail.

(China Daily 03/16/2009 page9)