Tesco Turkey Stores Face Uncertainty After Talks End Without Deal

Tesco is running into some roadblocks overseas. Talks have stalled out between the British retail chain and third parties over potential options to grow its Turkey-based subsidiary Tesco Kipa. No conclusion or deal was reached between Tesco and these potential third party partners, leaving the future of Tesco Kipa currently in limbo.

According to Reuters, Tesco and Tesco Kipa released a statement to the Istanbul Stock Exchange (BIST) explaining that talks with potential partners like Turkish retailer Migros had ended without reaching a satisfactory resolution. But while this has left the promise of Tesco Kipa expansion cold at the moment, Tesco is not pulling out of Turkey altogether, planning instead to stay focused on Western Turkey where the is already well established and profitable:

"Tesco Plc's talks with various companies regarding partnership options have come to an end without being able to reach an agreement," Kipa said in a statement sent to the Istanbul stock exchange.

"Tesco has confirmed today that it has ended talks with various parties in respect of potential options for its business in Turkey," the British company said in a separate statement. "We are committed to driving value from all our businesses and, for Kipa, we believe that this is best achieved by accelerating our plans to focus the business on its heartlands, minimise capital spend and improve profitability."

It should come as no surprise that for Tesco, improving profitability should necessarily mean pulling back from growth in more tenuous areas where it hasn’t already established a strong foothold. After all, just last year a large part of Tesco’s public narrative was dominated by its problems with (and finally its divestment of) its US subsidiary Fresh & Easy. After that billion-dollar headache, no Tesco executive is likely willing to put themselves through a similar struggle again this soon.

What’s more, Tesco sales have also slid on the homefront, down 2.4 percent over the most recent holiday season, while overseas sales also slipped 0.7 percent overall. Tesco is under a lot of pressure to get a handle on its revenue and make a return to growth, and the smartest tactic seems to be redoubling its growth efforts in tried and true markets rather than risk wasting capital on building infrastructure in areas that might not be as receptive to the Tesco model.

[SOURCES: http://uk.reuters.com/article/2014/05/27/uk-tesco-turkey-idUKKBN0E70D320140527; http://www.bbc.com/news/business-25664398]