Tesco admits defeat in its nine-year battle to gain foothold in Japan market

The supermarket giant last year said it would sell its smallest international operation, which has 117 Tsurakame and Tesco stores in the greater Tokyo area, because the business was not “sufficiently scalable”.

It has struck a deal with Japan’s biggest retailer Aeon to sell half the business for a nominal sum and inject £40m of restructuring costs into a joint venture prior to its exit.

Tesco, which is battling falling sales in the UK, said it will have no further exposure to the Japanese business after the £40m injection.

Clive Black, an analyst at Shore Capital, welcomed the removal of a distraction for Tesco, although he said having to pay to exit the market was a disappointment.

He added: “Given ongoing trading losses of about £30m after approaching a decade in the market, Tesco appears to our minds to have taken the correct approach with a funded withdrawal.”

Tesco moved into Japan nine years ago with the acquisition of C2 Network, which at the time owned 78 convenience stores and was valued at £173m, but struggled to grow the business to the size needed to make it profitable.

The grocer has some 1,400 stores in Asia and is understood to be planning to focus on its larger businesses such as in China, Korea, Malaysia and Thailand.

Tesco chief executive Philip Clarke said: “We are very pleased to announce this deal with Aeon and are confident that this will deliver the best outcome for our staff, for our customers in Japan and for our shareholders.”

The deal will help Aeon, which trails Japan general retailer Seven & I Holdings in terms of market value, expand its reach in its home market as it tries to drive growth.

Prior to the Tesco purchase, Aeon had spent more than $775m over the last five years, according to Thomson Reuters data, including taking stakes in Japanese supermarket chains Maruetsu and Marunaka.

Last week Tesco posted a drop in underlying first-quarter British sales as its recovery plan struggles to gain traction.