Hungary is proving to be a “much more challenging” market for retailer Tesco at present, the group’s chief executive, Ken Murphy, has said, although the retailer is prepared to ride out the current market difficulties.
Murphy was commenting during a media call to coincide with the group’s half-year results, which indicated a like-for-like sales increase of 7.8% and an operating-profit rise of 13.5%, at group level.
In Central Europe, however, Tesco has found the going tougher, with like-for-like sales up by 0.9% and adjusted operating profit down by 41.8%, driven by what it noted was a ‘significant decline’ in Hungary.
“Hungary is much more challenging, for a couple of reasons,” Murphy explained. “First of all, last year, the Hungarian government introduced quite a few stimulus packages into the system, which inflated spending.
“Then, conversely, there are a few extra taxes and regulatory restrictions that they’ve imposed this year that are impacting the whole grocery retail sector quite badly in Hungary – so it’s a challenging market, for sure.”
According to Murphy, Tesco’s value proposition in Hungary is based around price parity with the discounters, with the retailer pricing “very aggressively”, compared to other markets.
High inflation rates in Hungary have also impacted Tesco’s operations there, although rates have seen some alleviation in recent months – falling to 16.4% in August.
As to whether Tesco would consider downsizing or reconfiguring its Hungarian operations due to the challenges that it faces, Murphy added that the retailer is prepared to stay the course.
“We tend to look at the Central European business in the round, across all three countries, rather than any one, and I think that a number of the measures being taken in Hungary may well be transitory or temporary in nature,” he said.
“So, to show some patience, I think, would be our plan for now.”