TESCO has grasped the nettle and is investing #200m in establishing a long-term venture in Thailand through the purchase of a controlling interest in the Lotus hypermarket group.

Britain's largest supermarketeer is taking advantage of the depressed level of the Thai baht and general lack of confidence in the South-east Asian country, which deputy chairman David Reid openly acknowledged.

He said the company had been fortunate that the opportunity had arisen as a result of the economic problems, as normally it would have been unlikely for stores of the quality of the Lotus units to become available.

The deal will result in Tesco having a 75% holding in the local holding company, with the CP group, which is selling Lotus retaining 17%, and the Dutch SHV Makro supermarket chain having most of the remaining 8%.

Initially, Tesco will have access to 13 hypermarkets across Thailand, with five in the Bangkok area.

They achieved sales last year equivalent to #202m, but ran up a #2m loss. Sales this year are expected to increase to #260m.

Tesco is planning for the longer term by having a relatively restricted opening programme that will result in another 12 new Lotus stores over the next four years, at a cost of about #100m. The Lotus loss last year was in part due to start-up costs on the eight that were opened in1997.

The short-term impact upon Tesco will be to reduce current year earnings by 1%, and possibly 2% next year.

However, the objective is to triple sales and raise margins to around 5%, which is seen as the long-term sustainable level in Britain for the big four supermarket groups.

Tesco, which has been assessing the potential of South-east Asia and the Far East for several years - having an office in Hong Kong - was the pioneer among British retailers in moving into Eastern Europe.

Although its foray across the channel into France was unsuccessful - with the Catteau supermarket subsidiary having been sold at the start if this year for #250m - its position in Hungary, the Czech Republic and Poland is being strengthened by an opening programme which this year will amount to 600,000 square feet of selling space, similar to its planned expansion in the UK.

However, chief executive Terry Leahy has warned that there will be a #13m loss - although analysts believe that in perhaps four years time, Tesco may be seeing the potential of achieving annual profits of around #100m in total in these countries.

The Tesco move follows hard on the heels of Boots into Thailand. Last week, the chemists chain chairman Lord Blyth said it would open 40 shops over the next two years - mostly in the Bangkok area and costing #9.2m.

Marks & Spencer also already has six Thai outlets, although these are franchised with a lower level of investment than wholly-owned shops.

The attraction of Thailand is that it has a population similar to that of the British Isles, at 60 million, and in contrast some two-thirds are below the age of 30. Economic growth is expected to go into reverse in 1998, with a 3% retreat compared with the 8% seen earlier this decade, before the economic troubles.

Sentiment is improving with foreign investment being attracted by the low level of the baht, but since the beginning of this year, the currency has recovered by almost 30% from its low point.

Tesco believes that while there may be short-term pain, over two or three years, consumer demand will recover to pre-crisis levels.

The shares reacted by easing 10.5p to 529.5p.

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