Tesco reportedly mulls sale of CEE businesses

Tesco reportedly mulls sale of CEE businesses
By Levente Szilagyi in Budapest October 3, 2017

UK retail giant Tesco PLC is considering selling its Central European subsidiaries if unions stick with their demands for further wage hikes, Hungarian newspaper Magyar Idok reported on October 2, citing an unnamed Tesco manager in London.

The hypermarket chain began a cost-cutting drive that affected both its UK operations and Central European businesses following an accounting scandal in 2014 that involved the alleged overstating of profits. It closed 13 stores in Hungary after reviewing its portfolio. The UK grocer and general merchandise retailer then announced in 2015 that it was placing its businesses in Hungary, Poland, Slovakia and the Czech Republic under the aegis of Tesco Europa to rationalise operations and save costs.

Tesco might now put its regional subsidiaries up for sale in bulk or individually in March 2018, if wage demands are not dropped, Magyar Idok suggested. Tesco's management reluctantly agreed a double-digit rise in the minimum wage applied to Hungary from this year as it is hard-pressed in keeping costs at bay, but it has been unwilling to concede to further demands from the unions. But given the low unemployment rates across the Visegrad 4 countries of Central Europe and the competition among companies for available workers, pressure for pay hikes is unlikely to go away.

Hungarian unions held the first ever nationwide strike in the retail sector at Tesco stores in the second week of September, after their demands for a 25% wage hike and a 15% staff increase remained unmet. Tesco recently announced that it is to raise wages for the lowest-paid staff from a monthly HUF176,000 (€566) to HUF179,000, retroactively applied to September 1, but the unions are demanding a clear roadmap for general wage increases and, more importantly, the easing of workloads.

The four subsidiaries in the Central European region account for some 11% of Tesco PLC’s total revenues and, with a gross margin of 2%, Tesco should consider selling even at a low return, according to seekingalpha.com.

Wage talks between Tesco management and the labour unions continued on October 3 in Hungary, but both sides agreed not to disclose details. They scheduled another round of talks for October 13.

Tesco has a total of 206 stores in Hungary, with 112 of them hypermarkets. With 23,000 staff, it is the largest employer in the retail sector. 

In the Czech Republic, Tesco owns more than 200 stores, 19 petrol stations, and seven shopping centres, employing nearly 14,000. It bought the Zabka chain, together with the Koruna chain, from Slovak investment group Penta for $52mn in 2010.

As part of the deal, Tesco Czech bought a total of 128 stores. The 47 Koruna stores were converted into Tesco Express outlets, while the Zabka chain continued to run under the same brand.