Today, it’s difficult to imagine the impact the opening of Tesco’s first hypermarket store had on Hungary. But Martin Coulam, one of the pioneering team set up to manage Tesco’s drive into Central Europe, was hands-on in the Pólus Center in District XV when it happened. He remembers it well.
“Pólus was the first big shopping center in all [of] Central Europe. Busloads were coming from Slovenia, Croatia, Serbia for months, just coming to see it. It was such a novelty. People were queuing every morning just to get in. It was an amazing feeling,” he tells the Budapest Business Journal in an interview.
Coulam, having since worked in Slovakia, the Czech Republic, Poland, Turkey and Asia, is now back as operations director for Tesco Hungary. Sitting in the staff room at the Fogarasi út store (Tesco’s second Hungarian outlet when it opened in 1997), he outlines the business model pursued at the time.
“When this store opened, the internet was still in its infancy; there was no online, there were no discounters [….] Spar was an emerging company, whereas it is now the second biggest retailer in Hungary. You had none of the ‘category killer’ retailers, no Media Markt, no Euronics, you had none of the big clothing brands, H&M and all these, they just weren’t here at the time,” he says.
Because of this, the early Tesco stores were “French-style hypermarkets” selling everything from TVs, car tires and fridges to live fish, encompassing a vast array of products.
“This store then would have stocked maybe 60,000 different items, whereas today it probably stocks 20,000,” says Coulam.
Inevitably, the market soon changed: perhaps a dozen or so foreign-owned competitors, including Cora, Auchan, Kaisers and Julius Meinl, along with a handful of domestic rivals, were all vying for a slice of the general retail pie, while specialists in fields such as household appliances and auto parts moved in to supply their niche markets far better than an all-rounder like Tesco.
“If you think back, 27 years ago, nobody bought a TV on the internet because it didn’t exist. Now, most TVs are sold online,” Coulam notes.
In the last decade, the expansion of discount retailers, including Aldi, Lidl and Penny, all focusing on high volumes and with a strictly limited range of goods, has further sharpened competition.
Tesco has not stood idly by among all this. Apart from expanding in brick-and-mortar stores, it was in the vanguard of offering online shopping in Hungary, launching its home delivery service in 2013.
It also tinkered with store layouts as competitors ate into specific markets. However, with the vast changes in offerings and demand, “We didn’t always reflect the space in the stores to the market change over the years,” Coulam admits.
“So we took a decision, probably four years go, that we would really tackle the space and modernize the store to the space that we needed to operate effectively and to refresh the brand at the same time.”
While the renewal would encompass all outlets, the change is most apparent at the larger stores, such as that at Fogarasi út, where significant areas in the original “big box” store have been taken over by specialist retailers such as Rossmann, Euronics and Fressnapf.
“What this has allowed us to do is stay out of markets that we don’t want to be in, but also to bring those markets to the customers, within the store, so it’s more reasons to come to Tesco,” Coulam argues.
“If you shop here, you can go to the Post Office, if you want a TV, you can buy a TV. You can buy your make-up in Rossmann, [.…] your specialist pet food in Fressnapf, and, in a minute, Diego will open, so you’ll be able to buy carpets and your wooden floor for home,” Coulam enthuses. “You can even charge your [electric] car in the car park.”
In effect, he says, “Hypermarkets have come full circle. They’ve become exciting again since we’re bringing back their power, which is to do everything you want in one location. But whereas, 27 years ago, it was us doing it all, today it’s not all us.”
This is not to say that the renewal program means outsourcing all but groceries to specialists. Coulam is keen to stress the importance of the in-house segments, including books, the F&F clothing range and home furnishings.
“We’ve got a great home department, kitchenware, tableware, bed linen and the like. That’s definitely worth staying in, and it’s a real growing market for us,” he says.
The renewal also reflects the modern emphasis on diet, with vegan and health foods, such as gluten- and lactose-free, given more prominence, a vital move given that 50% of Hungarians have dietary restrictions. Segments like beverages have also changed and expanded to keep abreast of modern trends.
“We didn’t have energy drinks 27 years ago; that’s now massive. Alcohol has become bigger, more sophisticated. If you think about spirits, in 1996, this would mean vodka, rum, pálinka and whisky,” he recalls. “Now you’ve got a million different types of gin, tequila and much more sophisticated drinks.”
Even the “modern” online service has been renewed; Tesco now works with Foodora and Wolt in nearly 100 stores to deliver in 30 minutes or less.
“This on-demand model is growing exponentially,” Coulam observes, “the generations coming want delivery within the hour.”
Since beginning a program in 2022, Tesco has renewed 45 of its hypermarkets, renovated all 50 of its supermarkets and “about 30” of its Express stores. However, such a large-scale project comes at a cost, especially for the biggest stores.
“There are two things which limit the speed you do this; one is the capex and the other is the disruption. We work hard to manage the disruption, how we do the change, and how we communicate this to customers during and afterwards,” says Tesco’s Coulam.
He puts the average capex for renewal at HUF 200 million, although this can jump significantly if the entire refrigeration system needs replacing. This pushed that investment towards HUF 250 million.
Tesco closely monitors work and its effect on footfall to limit the loss to 1-3% of normal turnover. Once renewal is complete, recovery can take 6-12 months before growth sets in. But it can also be immediate.
“Some stores go positive from the day it starts. If you take a store that hasn’t seen a lot of investment for many years, because this is a massive step, customers instantly respond. For others, it’s less of a change, and the response is slower,” Coulam says. After the recovery, additional growth has been “anything between 0-10%, depending on the impact in the location and how the whole site develops,” he says.
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