Tesco Plc is teaching South Koreans English and ballet at its Homeplus stores as part of a campaign to become market leader there within three years.
The classes, costing about 40,000 won ($34.46) for three months, help the grocer improve its standing in the community and win customers, said Seung-Han Lee, chief executive officer of the South Korean unit, in an interview in Seoul. The 1 million pupils spend more than twice the average Homeplus customer at the stores, according to the Cheshunt, England-based retailer.
With a 5.5 percent share of the $92 billion South Korean grocery industry, Tesco trails leader Shinsegae Co.’s E-Mart in its biggest market outside the U.K., based on figures supplied by the British company. In a bid to overtake E-Mart’s 6 percent share, Lee is opening franchised convenience stores, boosting online sales and adding one Express store a week.
Tesco’s business in the country is “still a growth stage, not a mature stage,” Lee said in an interview in Seoul last week. “We will be No. 1.”
Industry researcher Planet Retail forecasts food spending in South Korea will grow 12 percent this year and predicts total retail sales for the country of $208 billion in 2010.
Britain’s biggest supermarket company owns about 94 percent of the Samsung Tesco unit, about a decade after it became the first foreign partner in a retail joint venture in South Korea.
The retailer will open eight Homeplus hypermarkets this year, all of which will offer 12-week art and music courses lasting around two hours a week. Around 70 percent of the classes are aimed at children whose mothers typically shop at Tesco.
“Korea is probably their most established and mature international market and the question is how much growth is there left,” said Chris Hogbin, an analyst at Bernstein Research in London. “It’s no longer just a land grab so the question is ‘how do you grow the business?’”
Both Carrefour SA and Wal-Mart Stores Inc. have left South Korea. Shinsegae bought Wal-Mart’s local network in 2006, while the Homever outlets acquired by Tesco from E. Land Group in 2008 were formerly owned by Carrefour. E-Mart opened South Korea’s first hypermarket in 1993.
Lee, known by colleagues as “The Ghost” because of his midnight store visits during the six-month integration of the 32 former Carrefour stores, says more takeovers are possible. The 958-million pound ($1.48 billion) Homever purchase was Tesco’s biggest-ever acquisition at the time.
“In the future, maybe we’d have another opportunity,” he said. Lee is considering “compact hypermarkets,” and stores similar to Tesco’s Metro and Superstore concepts in the U.K., given the lack of available real estate, he said.
Tesco, which targets Koreans with advertisements featuring figure Olympic figure skating gold medallist Kim Yu-Na, now has 117 hypermarkets and 226 Express stores in the country.
To allay concern among independent “mom and pop” stores that Tesco may be seeking to squeeze them out of the market, Lee said the retailer is offering them the opportunity to become franchisees. Tesco invests 80 percent of the capital, while the franchisee contributes 20 percent and is guaranteed an undisclosed profit. Eighteen franchise stores have opened in the last eight months, he said.
To expand online shopping, Homeplus is adding two-hour delivery slots and more than tripling its product selection to 100,000 items, Lee said. With 4,000 orders daily, Tesco expects online sales in South Korea to increase from about 1 percent of the total to as much as 5 percent by 2014.
Tesco is also bringing some of its U.K. strategies to South Korea. The Florence & Fred budget clothing line was introduced this year. Homeplus’s Family Card loyalty program, the equivalent of Tesco’s Clubcard in the U.K., has 13.3 million members and its users accounts for 84 percent of sales.
“Korea is an example of a country that could see a very steep profit curve after spending 15 years investing,” said Andrew Kasoulis, an analyst at Credit Suisse in London. “It is still a very relatively low-profit business.”