The U.K. retailer will make a push to open stores on the franchise model.
SEOUL, South Korea – Tesco has successfully opened nearly 20 franchise convenience stores in South Korea in a test to see how the U.K. retailer and franchisees work together, The Telegraphreports. South Korea is the supermarket chain’s biggest market outside the United Kingdom.
The change to franchise openings is viewed as an important strategy shift for the chain. “We have got an obligation to the communities that we serve. Some of those communities feel threatened because they feel that the arrival of modern, organized retail means that other small retailers close. This is a great way of helping them find another opportunity. We are [still] experimenting with it. But we will be doing it in other places I’m sure,” said Philip Clarke, head of international at Tesco. Clarke will become CEO of Tesco in 2011.
Clarke wouldn’t name any other countries Tesco was looking into or whether the franchise model would be used in the United Kingdom. “I’m struggling to think of places where it wouldn’t work, rather than places where it would. There are always people with the entrepreneurial spirit who want to work hard and make money for themselves,” he said.
South Korean franchisees put up 20 percent of the capital needed to build the new convenience stores, while Tesco pays the rest of the costs. The retailer did not detail how the profit split would be with franchisees but has said the franchisees are guaranteed a minimum income.