Tesco's expansion slows in South Korea

Seoul Bahk Jae-wan, South Korea's finance minister, played to the cameras as he flitted between the colourful stalls of Sooyu market in Seoul last month. Having bought some rashers of pork belly, he logged onto his Facebook page and appealed to his fellow Koreans: "Why not visit a traditional market?" "Reviving markets for 360,000 merchants at small and medium-sized enterprises is a top policy priority," said the shirt-sleeved minister, who posed among the pumpkins and cabbages. Ahead of next year's elections, the government is rushing to bolster small traders in the face of competition from supermarket chains such as Britain's Tesco, which has its biggest market outside the UK in Korea, and its domestic rivals E-Mart and Lotte. In November, parliament passed a bill that supermarkets could not open within 500 metres of family-run stores and traditional markets without consent from local authorities and small business associations. Last month, lawmakers widened the cordon to 1km. Article continues below Super-supermarkets While Korea is known abroad for export-based powerhouses such as Samsung and Hyundai, the political battleground centres on largely domestic SMEs that are far weaker but account for 90 per cent of jobs. Politicians' anger focuses on smaller-sized stores — known as super-supermarkets (SSMs) — that target busy urban areas. Tesco runs 255 of these under the Homeplus Express brand in Korea, vying for supremacy with Lotte which runs 290 SSMs. Tesco's attempt to open one in the port of Incheon fired street protests from local retailers in 2009 and prompted parliamentarians to pass last year's bill. Since the bill, market leader Lotte has opened only ten SSMs, after opening 164 over 2009 and 2010. Tesco has opened 20 so far this year, after opening 120 over the two previous years. "We used to open five or six SSMs a month. Now we barely open one," said Park Gwang-hun, spokesman for Lotte. Despite the political moves, Nam Ok-jin, retail analyst at Samsung Securities, said the supermarkets would have to keep pushing for more SSMs. "For the big supermarkets to increase their market share, they must open more SSMs as it's their fresh produce people want," he said. Expansion plans Tesco, which also runs 123 hypermarkets in South Korea, said it would continue to expand SSMs by negotiating with communities about what products its shops would sell and agreeing opening hours. A spokesman said he was confident Tesco would be able to meet its overall expansion plans of SSMs and hypermarkets despite the law. "We plan to open a similar amount of space this year as in the previous two years [850,000 square feet]," he said. Tesco said its robust overall growth in South Korea, where sales increased to 11,000 billion won (Dh37.4 billion) last year from 9,800 billion in 2009, slowed slightly in the first quarter of 2011 but blamed inflation rather than political restrictions. Prices of many food staples have soared 15 to 30 per cent over the past year. Tesco does not provide financial results for Korea. Trading profit across Asia rose 18 per cent in the year to February to £570 million ($928 million) on the back of sales of £11 billion.