By Maria Wilczek
British retailer Tesco, which opened its first stores in Poland as early as 1995, is now downsizing operations and may soon even leave the Polish market, its largest in central Europe.
Tesco came to Poland at a time when the country was transitioning to a free-market economy. The retail giant made a bet that Poles, who at the time shopped in small stores, would soon turn their trolleys to its sprawling megastores.
In 1997 Tesco moved its Polish headquarters from Bielsko-Biała to Kraków, and a year later opened its first big-box outlet in Wrocław. Over the next two decades, the company expanded to a peak of 450 stores across Poland, which became its second-largest foreign market by store numbers. In 2013 it still had ambitions to reach 500 shops in coming years.
Yet since then retail in Poland has evolved, with Tesco trailing behind. Poles have moved away from shopping at out-of-town megastores and small shops, and towards smaller chains and discount stores. As a consequence, Tesco has been downsizing stores (it is now down to 322) and cutting costs by firing staff (down by half).
But it seems to be too little, too late, with media reports suggesting that the chain is looking to exit completely what was once one of its most promising markets.
Losing everyday value
Trouble began in 2015, when the company replaced the head of Tesco Poland and moved its operations centre from Poland to the Czech Republic. The company centralised its sales for Poland, Slovakia, the Czech Republic and Hungary – a strategy which it later backed away from.
At the time, Tesco also made a bet on online shopping and home deliveries. But it has now withdrawn its delivery service from a number of cities, in part because online sales have not yet taken off in Poland. They are worth just 0.5% of the grocery retail market value, according to Gazeta Prawna. That compares to over 7% in the UK.
In 2017, Tesco ran into trouble placating protesting workers unhappy with the chain’s salaries, which are low even by Polish retail standards. Despite a further 6% pay rise introduced in March 2020, workers have responded with disgruntlement. “In Biedronka we make 3,100 [zloty] entry-level salary, while Tesco pays 2,750 zloty after 30 years of work,” one told Gazeta Wyborcza.
Some consumers also expressed anger over news that multinationals were selling second-rate versions of branded products in Eastern Europe. One widely shared example was Tesco Value fish fingers, which contained 64% cod meat in the UK but only 50% “minced white fish meat” in Poland, reported Wprost. Worse still, the lower-quality Polish product was sold at a higher price than its superior British equivalent.
Most importantly, perhaps, Tesco’s bottom line has been hard hit by the Sunday trading ban, which was introduced in 2018 and expanded until reaching its full extent this year. In 2017 the chain had already made a loss of 343 million zloty, but this deepened to 445 million zlotys in 2018, reported Gazeta Wyborcza.
The firm pointed to the Sunday trading law as a major factor in the growing losses, with Dave Lewis, Tesco’s CEO, noting that “we have lost a number of trading days again in…what is [already] quite a challenging market”.
To make up for lost trading time, the retailer began fiercely cutting costs. Tesco slimmed down its stores by a total of over 100,000 square meters. The chain also pledged to further simplify its product range and customer services – for example, the meat, fish and delicatessen departments were to be no longer manned.
Tesco reduced its number of employees, halving numbers from 30,000 to 15,000 in 2015-2019. The drastic measures brought about further planned protests this year, as the company seeks collective redundancies of 380 workers between February and April, reported Radio ZET.
As a result of the chain’s financial woes in Poland, its second largest overseas market after Thailand by store numbers, many of its older buildings began falling into disrepair. In 2019, the company’s Polish operations again recorded a loss of over 200 million zloty, reported Wprost.
The new face of Polish retail
The Polish retail market is now mainly captured by local supermarkets and discount stores. Such players have struck the right balance between sprawling megastores, which are expensive to stock and far from urban centres, as well as smaller independent stores, which had trouble keeping up with fierce competition on price and product range.
According to a study by SW Research for Tesco, over 60% of Polish customers usually shops in discount stores, supermarkets and small local shops, while 61% of Poles shops every day or every two days. Moreover, 88% of Poles say they have go-to products, while only 12% of Poles decide at the shelves, suggesting that a product range has become unnecessary.
Commenting on the results, the company wrote that “the changes at Tesco are a consequence of these trends,” referring to its shift towards smaller stores and simpler product ranges.
Meanwhile Tesco’s French competitor, Carrefour, has invested heavily in renovating its supermarkets and developing smaller local franchises (Carrefour Express), of which it now has around 640. It has also opened a healthy food store (Carrefour BIO) and its first self-service store in December, to sidestep the Sunday trading law. The bet seems to have paid off, with the company increasing Polish sales by 3.6% in 2019, its highest growth in Europe.
Poland’s largest discount chain, the no-frills Biedronka, modernised 252 of its old stores last year, investing 388 million euro. Its sales grew by 5.8% last year, reported Business Insider. A home-grown competitor, Dino, last year opened 243 new shops and invested 629 million zlotys in its operations, a 33% more than in the previous year, reported Gazeta Wyborcza.
Discounters have also been more nimble in adjusting to the Sunday trading ban, through promotions, extended opening hours on Fridays and Saturdays, and often doubling-up as postal services, which allows them to exploit a loophole and evade the trading ban.
Tesco still has over 300 stores of various sizes in Poland, but many are in the process of being sold off. Last week, Echo Investment, a developer, announced that it would be buying Tesco’s big-box stores in Poznań, Łódź and Kraków. On 2 February, Kaufland, a German hypermarket chain, took over three of its megastores, along with all the staff, reported Business Insider.
Yet in the retailer’s final stretch, things may get tougher still. The Polish government is looking to introduce a “sales tax”, which for now has been suspended till July 2020, pending a decision on its legality by the European Court of Justice. In early March, the EU’s highest court ruled that a similar special tax levied on the turnover of telecom operators and retailers was compatible with EU law.
And in a further pinch to Tesco’s bottomline, the Polish economy is weakening. This week Polish growth forecasts for 2020 were further downgraded from 2.8% to 1.8% by mBank, due to fears over the effects of the coronavirus on the global economy.
Tesco would prefer to exit Poland completely, reported Gazeta Wyborcza last week, but its network is too large to sell off to a single rival or investor. So, for now, it looks set to struggle on while gradually withdrawing from what was once one of its most promising markets.
Main image credit: Patryk Ogorzalek/Agencja Gazeta
Maria Wilczek is deputy editor of Notes from Poland. She also contributes regularly to The Economist and Al Jazeera, and has also written for The Times, Politico Europe, The Spectator and Gazeta Wyborcza.