Tesco and PMO trade barbs over shop closures

January 14, 2015


On Monday Tesco Hungary officially announced that it would close 13 stores across Hungary beginning February 4.  The closures will allegedly result in the loss of some 564 jobs.

In a statement issued by Hungary’s largest retailer and employer, Tesco announced

“Recent changes to laws significantly increases the cost of operating retailing chains in Hungary.  Furthermore in the future only profitable stores will be permitted to operate.  These changes necessitated a review of store profitability.”

Tesco Hungary CEO Nigel Jones told index.hu “we have 222 shops in the country, of which 13 is a relatively small number.  Still, the step is significant.”

Jones’ words made clear that the company had to adjust to sixteen changes to law, including the drastic increase in the grocery chain oversight fee, the prohibition on Sunday and evening operating hours, and the stipulation that grocery stores operating in the red for two consecutive years be stripped of their operating permits.   The latter is valid from this year, and for this reason Tesco was compelled to evaluate those investments that were not profitable in 2014.

Jones told index.hu that they had discussed these matters with the government, and for this reason the cabinet should not have been surprised by the shop closures.

He reaffirmed Tesco’s commitment to Hungary and announced that after closing the 13 stores it would not be necessary for Tesco to lay off additional staff as a result of Sunday or evening closures.

Jones further announced that Tesco was planning on expanding its home-delivery operations to other cities in Hungary, but it was still trying to understand how the new laws prohibiting store operations on Sundays and at nights affected this.

Not one to take criticism lying down, the Office of the Prime Minister (PMO) announced that the changes to the law do not warrant Tesco’s decision to downsize its Hungarian operations.  According to a statement issued by the PMO, government efforts to “protect the market” are not responsible for the shop closures, but rather economic difficulties experienced by Tesco Hungary’s parent company as the result of an “aggressive expansion policy”.  The statement cites Tesco’s poor performance in the United Kingdom, the resignation of its UK management, the downgrading of its credit rating by Moody’s and the fall in stock value as contributing factors to its decision to terminate 560 employees and to close 13 shops.

While the government continues to regard Tesco as “an important strategic partner”, it considers it “unacceptable” for Tesco to seek to put the blame on the government and calls on the management of the company’s Hungarian operations to “exercise self-control” and “speak the truth”.

The government does not agree that Hungarian consumers should have to pay the price of serious mistakes made by the English and domestic management, and in the future will do everything it can to increase the legal security of consumers, the quality of service, and to decrease the exploitation of those working in retailing.

True to form, the statement goes on to accuse Tesco of taking billions of profits “made from the money of Hungarian people” out of the country for many years, and of allegedly causing huge damages to the budget by decreasing its pre-tax profits (sic).  (With regard to the latter, daily online vg.hu’s editors comment that they do not understand the relationship between the two and invites those of its readers who do to comment).

According to National Trade Association general secretary György Vámos, Hungarian retailers are expected to lay off between 15,000 and 20,000 workers in 2015 as a direct result of laws recently passed by the national government prohibiting Sunday and night-time operating hours, and increasing the so-called “grocery chain oversight fee” nearly tenfold in the case of Hungary’s largest hypermarket chains, all of which are foreign-owned.