Nathalie Thomas: The sun sets on Japan but Tesco has problems closer to home

SO, TESCO is finally bidding sayonara to its Japanese business after eight troubled years in which it fought with the country’s famously fickle consumers and its persistent, profit-sapping deflation. Visitors to the so-called country of the rising sun will know that the rules of engagement in the Japanese retail market are quite unlike anywhere in the world. For one, Japan has more restaurants per capita than any other nation and, therefore, few households do a big weekly food shop. For most office workers – particularly in Tokyo where Tesco’s 129 stores were located – it’s easier to stop off at one of the thousands of noodle bars and other cheap eateries on their way home, rather than make a pilgrimage to the local supermarket.

Food shopping tends to be a more ad hoc affair and traditional grocery retailers also have to compete with general merchandise operators, plus convenience stores such as 7-Eleven.

Tesco has given Japan a good crack since it bought the C2 Network in 2003 and new boss Philip Clarke is pulling the plug after pouring in an estimated £260 million of investment and making several attempts at restructuring the loss-making unit. The supermarket giant isn’t the first and won’t be the last European super-brand to decide that the Japanese market is just one expansionary step too far. Boots and French hypermarket chain Carrefour are among those to have waved goodbye to the land of geishas, samurai and Hello Kitty in the past ten years.

For many, Clarke’s decision was less about Japan than it was about his international strategy as a whole and the move has shifted the spotlight on to Fresh & Easy, Tesco’s loss-making US business, which has long been a bone of contention.

Although Clarke insisted there was no comparison with the American division, analysts took yesterday’s announcement as a sign that Sir Terry Leahy’s successor was not afraid of making bold decisions about the vast international operation, even if the headlines provide short-term discomfort.

For now, Fresh & Easy has Clarke’s favour and he has vowed to turn it around by 2013. Most in the City are giving him the benefit of the doubt – as Clive Black of Shore Capital said: “We firmly believe that significant progress in performance [at Fresh & Easy] is now taking place.”

In fact, for some City scribblers the greater concern currently is the UK business, which Killik & Co yesterday branded “a drag” on the overall group. The most recent sales data for the whole of the UK grocery market made awkward reading for Tesco shareholders earlier this month as it raised questions over whether the juggernaut, which once appeared unstoppable, was beginning to slow down.

According to Kantar Worldpanel, Tesco recorded the second-lowest sales growth of the seven major supermarket chains in the 12 weeks to 7 August, with figures up just 2.6 per cent. This compared to a staggering 24.4 per cent jump for Aldi, 13.8 per cent for Lidl and 8.3 per cent for Waitrose. Even its more traditional competitors, Morrisons and Sainsbury’s, managed to rack up sales growth of 4.6 per cent and 3.6 per cent respectively leaving Tesco fishing at the bottom of the league table ahead of Asda.

Analysts at Killik & Co don’t believe the performance was just a blip and they have warned the market “remains sceptical” that Tesco can reinvigorate its UK business “given the continued near-term economic headwinds”. Clarke may have to shift his attention from plugging leaks abroad and start watching for cracks back home.

No need to hit panic button yet, but Bank must remain on guard

THE guessing game over whether Bank of England Governor Sir Mervyn King will break a bottle on the good ship QE2 continues.

According to a poll published yesterday, the City’s economists now believe there is a 35 per cent chance of the Bank extending is £200 billion quantitative easing programme, up from odds of 30 per cent recorded in a similar survey in July. Interest rates are not expected to be lifted from their historic low of 0.5 per cent until October 2012 at the earliest.

For the moment, the Square Mile is happy to play the waiting game because poor as recent economic data has been, it’s not sufficiently depressing for policymakers to start reaching for the panic button. But King and his colleagues in the monetary policy committee (MPC) would do well to remember what too much procrastination did for the economy – and the Bank’s reputation – last time.

And it wasn’t long ago that the MPC was having to defend itself against angry accusations that it did too little too late to protect Britain from the most recent recession.

Two years ago, former MPC member David Blanchflower accused the bank of being “hobbled by group-think” and failing to spot the warning signs.

We can only hope that the Bank has a guard positioned permanently on the watchtower this time around.