City Focus: Tesco plans full of Eastern promise

By TESSA THORNILEY
Updated: 17:05 EST, 11 January 2010

Elbowing through the police cordon set up to prevent shoppers stampeding into Tesco's newest China store, Ken Towle turns and says: 'You have to be extremely careful in China - a few jiao (pence) off the price of eggs can mean the difference between brisk trading and a riot.'

Towle is Tesco's China president and he has rapidly become one of the supermarket giant's most important operators since taking the helm four years ago.

He has been with company 23 years after joining from rival Sainsbury as bakery manager.

Price is right: More than 50,000 shoppers turned up for the opening of Tesco's brand new store

Weaving past a queue of hundreds waiting to buy bags of cut-price dried prawns, Towle says: 'We've got the pricing right here.'

More than 50,000 shoppers have turned up for the opening of Tesco's giant 30,000sq metre shopping centre on an icy-cold Saturday in the eastcity

seaside city of Qingdao. The development, a mall stuffed with Chinese brands, all built around a Tesco hypermarket in the centre, is the first of 23 that Tesco is building on the mainland and will form a blueprint for the company's future growth.

By building and owning its own multiplexes, Towle says the company 'won't have to be stuck in the basement of someone else's development'.

He adds: 'We get the pick of the sites in town and the pick of our position within those sites.'

The supermarket chain already proclaims China as its most important and fastest growing overseas market.

will invest £500m in China in 2010-11, more than in any other foreign market, and will step up the spending over the next five years as it plays catch-up with its larger and longer-established rivals, Walmart and Carrefour.

The grocer's ambitious foreign expansion plans are borne out of necessity.

As Britain's largest supermarket franchise, Tesco has almost hit saturation point at home - although boss Sir Terry Leahy would probably disagree with this analysis.

However, sales figures due out this morning are likely to reveal Tesco is the laggard of the big four food retailers with underlying Christmas sales set to advance as little as 2 per cent in the period.

Even at the upper end of expectations, a gain of 4 per cent is seen as a relatively modest return for a company that has pulled out all the marketing stops with launch of double Tesco points and a flurry of high profile price initiatives.

If wooing China's mass market is essential for Tesco's future growth, then the plan hinges on father-ofthree Towle's ability to get inside the heads of Chinese consumers.

As he strolls around the new store, it is clear he knows his pigs brains from his slider turtles, and he can wax lyrical about 'the near perfect price elasticity of (demand for) eggs in China'.

He also knows what sells. Staple items that are found in every Chinese shopping basket - rice and cooking oil - are pushed to the front of the main food hall.

The fresh food section, where mountains of lose peppers, lotus roots and turnips are piled high, is carefully laid out to resemble a Chinese wet market, to encourage shoppers to return regularly to the stores for daily essentials.

It is a format that has already proved successful in Thailand, where Tesco has rapidly expanded its chain of Lotus stores.

And when groups of local Chinese gather outside Tesco's hypermarkets for their early-morning exercises - a habit that lingers from Communism's glory days - the supermarket does not move them on.

Instead, music is played for them, they are given hot drinks and even Tesco padded jackets in the cold winter months.

They are invited to return and use the forecourts through their neighbourhood committees, who once administered the Communist Party's designs and who are still a potent influence in the lives of ordinary Chinese.

Paul French, a China-based retail analyst with consultants Access Asia, says: 'Ken Towle is one of the longest surviving heads of management at Tesco which has had pretty big turnover of senior executives.

'He knows his stuff. I don't believe Tesco will struggle to fill their new malls with tenants. There's a shortage of " workingclass" malls in China.'

Currently, most malls in China are crammed with luxury shops and have little appeal to normal people.

'They are full of things that only a rich government official's wife would want - they aren't mass market and there are too many of them,' said French.

By February Tesco will have 82 hypermarkets in China - three of them will be the new format shopern-ping centres - and seven smaller express stores.

But sales, thought to be nudging £1billion, still represent less than 2 per cent of the group total.

And, in retail value terms, according to Euromonitor, Tesco's hypermarket sales last year were less than a quarter of Walmart's and one third of the value of Carrefour's.

Tesco hopes the string of massive shopping centres, each one costing roughly the same as a simple store in the UK, will begin to close that gap and give it an edge over rivals.

For many shoppers familiar with the retailer's older and shabbier existing stores, including several in Shanghai, the new format is certainly a welcome improvement.

Equally, for new customers such as grey-haired Mrs Xu, Tesco is hitting the mark.

Although the new Qingdao site has only been open for a few hours, Mrs Xu, who is clutching two large bottles of cooking oil, admits she has been back twice.

'I've come back to buy more oil for friends and family,' she says.

'The price is good. If they keep the prices like this, they will do well.'