Tesco builds presence in Japan with acquisition of debt-laden Fre'c chain

Tesco signalled its confidence in Japan's beleaguered retail sector yesterday when it agreed to expand its presence there by acquiring an indebted Japanese supermarket chain.

Tesco signalled its confidence in Japan's beleaguered retail sector yesterday when it agreed to expand its presence there by acquiring an indebted Japanese supermarket chain.

Britain's biggest supermarket group, which surprised the industry last year when it bought Japan's C Two Network discount chain, has struck an agreement with a state-backed corporate rescue body to buy 27 stores trading as Fre'c.

The deal, which is being co-ordinated by the Industrial Revitalisation Corporation of Japan, hinges on Fre'c's banks agreeing to write-off the bulk of its ¥10.1bn debt. C2 will then take on the remaining ¥3bn of Fre'c's debt.

Tesco, which trades in 10 countries, has shunned the Japanese expansion route favoured by rival international retailers such as Wal-Mart and Carrefour. While they have opted to buy hypermarkets, Tesco has limited its search to convenience stores and small supermarkets in an attempt to prosper from the Japanese shopping habits - little and often.

Its C2 stores, which are based in and around Tokyo and trade under one of three different banners, are renowned for selling discount groceries. Since buying the chain for £139m last July, Tesco has adopted a hands-off approach to running the 77 stores, which are all profitable. Riki Shimokoshi, who runs the Tsukurukame store at Hoshigaoka in western Tokyo, said there had been "no changes" since the Tesco takeover. "This is a profitable company so... the takeover is benefiting Tesco," he said, adding: "Nobody knows the Tesco brand in Japan."

A Tesco spokesman said there were "no plans" to either rebrand the Japanese stores under its red, blue and white banner, or to stock any Tesco own-label products in them. He said the group would continue its cautious approach to expanding in Japan until it better understood the market.

Fre'c reported a net loss of ¥36m in the year to March on sales of ¥26bn.