Tesco's South Korean crown jewel flawed by new regulations

Sun Apr 14, 2013 5:18pm EDT
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By Joyce Lee

SEOUL (Reuters) - Tesco Plc (TSCO.L: Quote) finally managed to open a near-3,000 sq meter super store in South Korea, its largest market outside Britain, after a seven-month delay by agreeing not to stock 15 items including radishes, mangoes and some cuts of local beef.

Big-box retailers in South Korea such as Tesco and Costco Wholesale Corp (COST.O: Quote) are reluctantly bowing to government demands aimed at protecting local merchants -- including plans to fine the super stores if they set up without the consent of nearby local merchants.

There are signs that Seoul's new restrictions could scare off investors.

"In my view, there is no longer much merit in investing in the South Korean market. Investment from (Tesco) headquarters will decrease," said Lee Seung-han, chairman of the Homeplus Group, Tesco's subsidiary in Korea.

Not long after signing free trade agreements with the European Union and the United States which reduced the shelf price of products from fruit to wine, the South Korean government last year started tightening controls on hypermarket operators.

New rules forbid big-box retailers from operating two Sundays a month, while a further measure banning them from opening an outlet near a marketplace with rows of mom-and-pop vendors will come into effect this month.

Homeplus' Lee Seung-han said Tesco was not considering leaving, but acknowledged that regulation and market saturation have dimmed the prospect of new investment after entering the South Korean market in 1999.

Tesco, the world's third-largest retailer, reports full-year results on Wednesday, and analysts expect revenues from its Korea operations will fall due to the government's restrictions.   Continued...

Shopping trolleys are seen in front of a Tesco store in Kensington, west London in this April 19, 2011 file photo. REUTERS/Toby Melville/Files (BRITAIN - Tags: BUSINESS)