Tesco’s sale of its Czech and Slovak businesses is the latest step in its long retreat from a once-sprawling global presence. Felix Armstrong traces this journey

Tesco’s hold on the British grocery market is unmatched. Holding a towering 27.8 per cent market share across more than 3,600 shops, the supermarket chain is a fixture on high streets and retail parks across the UK. 

But the UK was once just a small part of the grocer’s global geographic footprint, spanning Arizona to Malaysia.

The firm’s ambitions for expansion across the world had once been sky-high. In 2007, then-chief executive Sir Terry Leahy said there was nowhere the grocer wouldn’t go. “We are on the threshold of becoming one of the few successful international retailers. There’s plenty to do,” he had said. 

Under the stewardship of Ken Murphy, however, Tesco performed a handbrake turn. The group has gradually retreated from more than a dozen international markets, as its boss focuses his efforts on pushing down prices and improving quality at home.

The far-flung countries from which Tesco has packed up its belongings in recent years include Poland, Thailand, China, Turkey, Pakistan, the US, Hong Kong and South Korea.

And following the FTSE 100 group’s £1.5bn sale of its businesses in the Czech Republic and Slovakia, just one trace remains of Tesco’s globetrotting escapade: Hungary.   

Murphy told shareholders on Friday that it had been “a privilege to serve customers” in the Czech Republic and Slovakia, adding that he was “proud” of what Tesco had achieved in the two markets. 

But he said the sale of these two businesses will allow the grocery chain to double down on its “core UK and Irish businesses and [support] our continued investment in our food-first retail ecosystem and the capabilities that will drive future growth, while enabling a further return of capital to shareholders”. 

Tesco first acquired its store estate in these two countries as a by-product of its exit from Taiwan, when it swapped its footprint in the East Asian state with French retailer Carrefour’s shops in the Czech Republic and Slovakia.

Last year, Tesco’s operations in these two countries accounted for £2.9bn in revenue, across their combined 363 locations.

Orbán to blame?

The grocer had been expecting to offload its Hungarian arm as part of a wholesale exit from central Europe, but it said on Friday that it is continuing to “review all options for the future of [its] business in Hungary”.

It is unclear whether Tesco offered its Hungarian operations to Ahold Delhaize, the Dutch supermarket which picked up the rest of its European arm, or whether the grocer has opted to retain its last outpost on the continent.

Charles Allen, an analyst at Bloomberg Intelligence, said he thinks Tesco “would like” to sell its business in Hungary but is being blocked from doing so by the heavy tax burden which faces retailers in this market. 

Hungarian Prime Minister Victor Orbán has led a campaign against foreign-owned food sellers in recent years. In 2022, his government slapped a 4.5 per cent tax on revenues generated by these firms, along with a requirement to lower the prices of a number of staple foods.

In March last year, Orban capped grocery markups on 30 basic food items – including eggs, milk and meat – at 10 per cent above wholesale costs in a bid to clamp down on rampant inflation.

Supermarket chains including Austrian-owned Spar have hit out at the Hungarian government for its “devastating” tax hikes, appealing to the European Union to intervene.

The 4.5 per cent tax has “pushed many chains into loss,” Allen said. He suggested that Tesco has adopted a ‘wait-and-see’ approach in the hopes that measures to soften these pressures could make the Hungarian market “more investor friendly.”

Tesco told shareholders on Friday that its businesses in the Czech Republic and Slovakia account for the “majority” of the £119m underlying profit generated by its central European arm, suggesting that its stores in Hungary are feeling the pinch.

Selling off its Hungarian outpost would leave Tesco with only Ireland as its sole territory outside the UK, where it controls roughly a quarter of the market. But given Murphy’s Cork roots, that arm of the business is going nowhere fast.