Tesco in Turkey

            
 
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Case Details:

Case Code : BSTR407
Case Length : 15 Pages
Period : 2002-2011
Pub Date : 2012
Teaching Note :Not Available
Organization : Tesco Plc.
Industry : Retail
Countries : UK, Turkey

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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"One important thing that distinguishes Turkey is its young and growing population, which is open to innovation and challenges retailers to develop new products and services. Turkish customers care deeply about the food they consume. They want to know that it is fresh and a quality product that they can trust. The company has faith in the potential of Turkey's dynamic and growing market." 1

-Ellen Gladdens, Corporate Affairs Director, Tesco Kipa, in 2011.

Introduction

In December 2011, Tesco Kipa, the Turkish arm of the leading UK-based retailer, Tesco Plc. (Tesco) entered into an agreement with Turkey-based supermarket chain Ardas Gida Dagitim Sanayi & Ticaret AS (Ardas)2 , to acquire the 21 stores that Ardas operated across the country.3

This was Tesco's most major acquisition in Turkey4 after it entered the market in 2003 by acquiring the Kipa Kitle Pazarlama Ticaret ve Gida Sanayi AS (Kipa) chain. Post acquisition, the company was called Tesco Kipa. It grew rapidly and within five years, it was operating through 77 stores in different formats.5

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Though Tesco had been operating in the country for several years, it had not managed to become one of the top players in Turkish retail. For the financial year ending February 2011, the contribution of the Turkish operations stood at 700 million out of Tesco's total revenue of 60.9 billion. Tesco's US operations with revenue of 495 million, and Japanese venture with 476 million were behind Turkey as far as revenues were concerned.

After Tesco announced its exit from Japan in August 2011, citing failure to build a successful and scalable business as the reason, analysts predicted that Tesco would exit from the USA, Turkey, and China, where its performance was not up to the mark. But others were of the view that Tesco would continue operating there. According to analysts from Barclays Capital, "Although this sale is likely to cause investors to look toward potential exits of other loss making/underperforming markets (US, China, Turkey for example), we believe Tesco views these countries as much longer-term growth opportunities than Japan was ever likely to be, and therefore the decision to exit is significantly harder.6"

Tesco showed no signs of exiting the market. On the other hand, it announced that it intended to expand in Turkey and increase the number of stores to 150 by the end of 2012. Mike Arnott, Trading Director of Tesco Kipa, said, "We may consider acquiring some Turkish retail chains as we are open to all possibilities to grow in Turkey.7" Observers, however, remained skeptical about Tesco's future prospects in the market.

Background Note - Next Page>>


1] "Turkish Retail Market Maintains Dynamism, Customers Promote Innovation," www.goldpara.com, September 5, 2011.
2] Ardas located in Kashira city, Turkey, was a limited liability company. The supermarket stores dealt primarily with food retail.
3] Aydan Eksin, "Tesco Kipa to Acquire Leases of Turkish 21-Store Chain," www.bloomberg.com, December 23, 2011.
4] Turkey was the 17th largest economy in the world with a Gross Domestic Product GDP of US$737 billion in 2010. In 2010, the amount of food exports from Turkey to Tesco's supermarkets in Europe reached $3.5million and non-food exports reached approximately $150 million.
5] These included supermarkets, hypermarkets, and gas service stations.
6] "Tesco Quits Japan: What the Analysts Say," www.telegraph.co.uk, January 27, 2012.
7] "Global Supermarket Chain Tesco to Invest in Turkey," www.propertyturkeyforsale.com, September 16, 2011.


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