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Healthier products set to become a significant category for the retailer.

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Tesco has announced its full year results with LFL sales in Asia showing improvement in Q4.

Significant improvement in the second half

Although full year LFL sales in Asia fell by 6.2%, it declined by 3% in Q4, showing signs of recovery. Sales in the first half was impacted by the retailer’s decision to exit unprofitable bulk selling. Thai government’s issuance of welfare card, which could only be used in traditional stores also impacted sales by 1.2% over the full year, but this had eased in Q4. Profitability was recorded at £286m, down 4.3% in Asia. There was a marked improvement in H2, as the retailer successfully completed renegotiations with suppliers and progressed quickly on its store restructure and office operations plans.

Store repurposing and network optimisation

Tesco repurposed a total of 26 stores, the majority of which were in Thailand where it had formed new partnerships with Mr. DIY home improvement, Echo Game & Karaoke play centre and Cosmo Beauty. 70 of the 72 new stores opened were in Thailand, primarily in the convenience format. There were also 56 stores closed to optimise its convenience network.

Strong performance for overall group

Sales at the group level was up by 11.5% at actual rates to £56.9bn, boosted by its new partnership with Booker wholesale in the UK. In UK & ROI, LFL sales grew 2.9%, including Tesco UK gaining 1.7% and Booker increasing by 11.1%. Central Europe saw LFL fall by 2.3%, due to a shopping ban on Sunday in Poland and lower general merchandise sales.

Confident of completing journey in 2019/2020

Tesco CEO, Dave Lewis said, "After four years we have met or are about to meet the vast majority of our turnaround goals. I'm very confident that we will complete the journey in 2019/20. I’m delighted with the broad-based improvement across the business. We have restored our competitiveness for customers - including through the introduction of 'Exclusively at Tesco' - and rebuilt a sustainable base of profitability.”

 

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Tesco Lotus has launched 45 Thai food products under the Tesco brand.

Tesco Authentic Thai range

The food products include both savoury and sweet items with top quality ingredients from Thailand. These include sweet tamarind from Phetchabun, purple sweet potatoes from Ubon Ratchathani, durian from Chanthaburi, mangoes from Prachuap Khiri Khan and coconut sugar from Samut Songkhram. The ingredients are used in traditional recipes to deliver an authentic taste and at affordable prices.

Commitment to support Thai SME

Tesco Group collaborated with the Ministry of Commerce to develop a range of authentic Thai products that is internationally accepted in terms of safety and quality. The initiative will support Thai SME to expand their reach through Tesco’s distribution network both locally and overseas.

Sompong Rungnirattisai, Tesco Lotus CEO, said, “By working closely with Thai operators, we ensure that they achieve internationally accepted safety and quality standards required by the Tesco Group. We also share know-how in terms of packaging design, branding and marketing. Through this, we help to enhance SME capabilities and give them a competitive edge to succeed not only in Thailand but also in international markets, in line with the Ministry of Commerce’s Local to Global initiative."

 

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Although Tesco delivered encouraging sales for Q3 in the UK, Asian results continue to be challenged.

LFL sales fell by 8% in Asia

Tesco reports stronger underlying performance in Asia, but sales in Thailand continue to be impacted by changes in pricing, promotions and couponing. Tesco management is restructuring its Thai business to stop bulk-selling. Government-issued welfare cards scheme also have an impact on sales, despite minor changes since it was first issued.

Profit recovery with new commercial approach

The retailer plans to accelerate its changes to its operating model in Thailand. It has been renegotiating its promotional offers, helping to reduce costs and delivering profit recovery.

Tesco CEO, Dave Lewis, commented, “In Asia, negotiations with suppliers are concluding satisfactorily and we can see this in our simpler, clearer, more impactful offer for customers.”

UK results are encouraging

Strong seasonal proposition has delivered positive LFL Christmas results with 2% sales increase in the UK. It is outperforming the market in both volume and value terms, and in all the key categories including food, clothing and general merchandise.

 

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Tesco has released its interim results for 2018/19, with sales in Asia reaching £2,365m, down 5.0% at constant exchange rates.

Thailand dragging on overall Asia performance

As predicted by the Tesco management, performance in Asia improved throughout the period as the business annualised its decision to stop bulk-selling. Asia LFL sales declined 9.0% in Q1 and although remaining negative, improved to -4.8% in Q2. However, it continues to see sales impacted by nearly 2% in Thailand, due to the goverments scheme of welfare cards that cannot be redeemed in modern retail chains. Profitability was down 29.1% to £100m due to the impact of sales, higher price investment and renegotiated promotional investment from suppliers into everyday low prices in Thailand, something that is expected to continue in H2. 

Repurposing stores remains a top priority

Tesco continued to open and repurpose space in Asia in H1, opening 42,000 sq ft of net space. This included 314,000 sq ft of new space, with 39 net new stores, mainly related to new convenience store openings in Thailand. The business also closed 105,000 sq ft of space and repurposed 167,000 sq ft. Tesco repurposed nine stores in the half, the majority of which were again in Thailand, where it has formed new partnerships with third party businesses, such Mr.DIY, Echo Game & Karaoke and Cosmo Beauty.

Group sales show improvements in home market

Across the broader Tesco Group, the results were more positive with sales up 12.8% to £28.3bn, boosted by the retailers new partnership wth wholesale chain Booker in the UK.. Performance in its core, UK and ROI business, was impressive with total sales up 17.7% and LFL sales up 3.8%. While European sales declined 3.5% and 1.5% on a total and LFL basis respectively, impacted by store closures and Sunday opening hour restrictions in Poland.

Improving quality and value in all markets

Tesco CEO, Dave Lewis, commented, "We have made a good start to the year. We completed our merger with Booker in March and are delighted with performance so far. We announced a strategic alliance with Carrefour in July which goes live this month. We are firmly on track to deliver our medium-term ambitions and are continuing to improve the quality and value of our offer for customers in all of our markets."

 

 

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