Tesco Plc is looking at the Romanian market

Tesco Plc, the largest U.K. supermarket chain, will spend about 60-80 million dollars for the Romanian distribution sector of general merchandise, mainly in the cities located in the north-western area of the country.

David Reid, Tesco deputy chairman for Central and Eastern Europe and Asia, told Ziarul Financiar that investments in Romania were part of a Tesco programme worth 1.4 billion pounds (2 billion dollars).

“By the end of next year, we are planning to build or acquire 70 new supermarkets in Eastern Europe and Asia that will be selling food and general merchandise,” Reid says.

The British group investments in Romania will head at first for the cities near the Hungarian border, as supplies will come from this country.

“Romania does not meet all our expansion criteria for now. The population’s purchase power is much lower than in Central European countries, so we will proceed with caution for the beginning,” Reid maintains. “Many people said that we were late moving into Eastern Europe,” Tesco deputy chairman said.

“But the fact is that we are moving into a market leading position. One of the things we have benefited from is focus. If we get scale quicker, we get to market leadership quicker,” the Tesco official explains.

Last week, Reid told the British media that, if Tesco stays in the U.K. as market leader, “growth will be limited.” “Our stores overseas are up and running but this is just the beginning. We will be expanding even more aggressively over the next year,” he added.

Tesco Plc has spent 1.5 billion pounds outside the U.K. since 1998 to reduce its dependence on its home markets, where it has cut prices by 500 million pounds over two years in order to maintain market leadership.

Price pressure has mounted in the U.K. since Wal-Mart Stores Inc. entered the market in 1999 with the 6.7 billion-pound purchase of Asda Group, the third-biggest food retailer in Britain.

However, Tesco remains the market leader in Great Britain, with 639 supermarkets in England, Scotland, the Wales and Northern Ireland. The British group has another 182 stores in France, Hungary, Poland, the Czech Republic, Ireland and Slovakia.

Tesco sells a wide range of foodstuffs, household appliances, cosmetics and electronic products.

British sales have slowed over the past three years to 7.4 percent last year from 12.4 percent in 1998, while international sales grew almost 40 percent the last two years.

While Tesco has 140 stores outside Western Europe, it’s still catching up with rivals such as France’s Carrefour SA, with 745 stores outside the region and the Netherlands’ Royal Ahold NV, with about 2,600.

“Tesco’s move into the developing markets obviously brings the prospect of faster growth but also heightened risk,” Andrew Fowler, an analyst at Morgan Stanley Dean Witter, said.