Why exiting Central Europe would fit Tesco’s strategy

Reports that Tesco is working with advisers on options for its Central and Eastern Europe (CEE) operations have reignited questions about the retailer's long-term commitment to the region.  

While Tesco has declined to comment, any decision to sell its businesses in Hungary, Czechia and Slovakia would represent another significant step in a decade-long effort to focus the business on its core strengths. 

A sale would mark the end of Tesco's 30-year presence in Central Europe, following its entry into Hungary in 1995. More importantly, it would complete Tesco's transformation from an international retailer into a business increasingly focused on food, retail media, loyalty, digital services, and its market-leading positions in the UK and Ireland.

Tesco's strategy has evolved 

While the reported sale has been linked to competitive pressures in Central Europe, Tesco's latest strategic ambitions may provide a stronger explanation. 

Alongside its full-year 2025/26 results, Tesco refreshed its strategy around five priorities: winning in food, meeting more everyday customer needs, becoming the most strategic partner for suppliers, deepening customer personalisation and delivering long-term business sustainability. 

The common theme is focus. Growth opportunities are increasingly centred on food, Clubcard, retail media, online grocery, Whoosh rapid delivery, and digital services rather than geographic expansion. 

This direction has been evident for some time. Following the accounting scandal in 2014, Tesco embarked on a long programme of simplification. It sold South Korea's Homeplus business in 2015, exited Thailand and Malaysia in 2020 and sold its Polish operations in 2021. More recently, Tesco completed the sale of its banking operations to Barclays in November 2024, while continuing to offer financial services through a long-term partnership model. 

The retailer has also become more selective within its core business. General merchandise has received less strategic emphasis as Tesco has increased its focus on food. Its decision to move to a commission-based partnership with The Entertainer for toy retailing is another example of a capital-light approach that allows Tesco to offer a wider proposition while focusing resources on its core grocery offer. 

Viewed through this lens, Central Europe increasingly appears to sit outside Tesco's future priorities.

A profitable business, but a relatively small contributor 

Tesco’s CEE business remains profitable. Last year it generated £4.5bn of revenue and £115 million of adjusted operating profit. 

However, context is important. 

Tesco Group generated adjusted operating profit of £3.15 billion during the year, meaning CEE contributed less than 4% of group earnings. While sizeable in revenue terms, its contribution to profit is modest given the scale of the operation, which spans more than 560 stores and employs over 22,000 people. 

Tesco's most recent annual results also highlighted increased competitive intensity in Slovakia and growing regulatory pressures across the region. The retailer recorded a £75 million write-down in the value of CEE stores, further underlining the challenges facing the business. 

The division is not underperforming to the extent that a sale has become unavoidable. Rather, the question is whether future investment in the region would generate better returns than investing further in Tesco's core UK and Ireland operations. 

The challenge of competing in modern Central Europe 

Central European grocery markets have changed significantly since Tesco first entered the region. 

Discounters now dominate the competitive landscape. Lidl holds leading positions across all three markets, while Aldi continues to gain share. Tesco has responded by strengthening its value proposition through Clubcard Prices, promotions and price investment, but matching the discounters on value remains difficult. 

Market positions have gradually weakened. Tesco is currently the fourth-largest retailer in Slovakia, fifth in Czechia and sixth in Hungary, having recently been overtaken by Aldi. 

At the same time, shopper behaviour has shifted towards buying smaller baskets in local stores. Tesco's estate remains heavily weighted towards larger hypermarket stores, many of which are less aligned with changing consumer preferences. 

Interestingly, rivals such as SPAR and Auchan in Hungary have focused on store experience and range differentiation, while Kaufland has successfully combined strong value credentials with investment in its compact hypermarket format. As a result, Tesco increasingly finds itself squeezed between discounters on price and competitors with stronger large-format propositions.

What happens next? 

The involvement of investment bankers suggests Tesco is assessing formal strategic options rather than preparing an immediate exit. 

Advisers are typically used to value assets, identify potential buyers, and determine the most attractive transaction structure. Options could include a sale of the three-country business, separate country disposals, or a transaction involving a private equity investor. 

A private equity buyer could prove the most straightforward route, facing fewer competition concerns than a major grocery retailer. 

Tesco's disposals of Thailand and Malaysia in 2020 and Poland in 2021 both took around nine months from announcement to completion, and those transactions already had identified buyers. Given the scale of Tesco's remaining Central European operations, any disposal process is likely to continue well into 2027. 

A Central Europe exit would represent more than the sale of a regional business. It would complete Tesco's retreat from international expansion and reinforce a strategy increasingly built around food, loyalty, digital services and winning in its home markets.

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