Budapest 8th July – EBM Newsdesk Analysis- By Nick Staunton
Tesco is working with bankers on a sale of its Czech, Hungarian and Slovak operations, the Financial Times reported on 8 July 2026 — 561 stores, more than 22,000 staff, and the last significant remnant of a three-decade internationalisation project that began in Hungary in 1995. Tesco says it never comments on rumour or speculation; Bloomberg has matched the story. The detail every wire has missed is that the division is not failing: strip out last year’s mall disposals and Central European profit grew 8.1% at constant rates. The problem is not the trajectory — it is the ceiling.
Central Europe earned an adjusted operating margin of 2.5% last year against 4.7% in the UK and Ireland. That gap is not an execution failure, and Ken Murphy’s team has not been outcompeted by Lidl. It is the arithmetic consequence of operating a foreign-owned grocery chain in a jurisdiction where the government has made a normal margin illegal. Tesco is not retreating from Europe. It is exiting a country — and taking two others with it, because the supply chain cannot be unpicked.
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SubscribeThe number that forces the sale
Tesco’s preliminary results show Central Europe delivering £115m of adjusted operating profit against group profit of £3,152m — roughly 3.6% of the total. Like-for-like sales grew 2.2%, fresh food 4.1%, online 17.5%. Customer satisfaction rose.
None of that changes the margin. At 2.5%, down another ten basis points, Central Europe drags group profitability every year it stays inside the perimeter. Murphy has spent five years and £4.3bn of buybacks persuading the market that Tesco is a compounding UK cash machine. A capped-margin asset in a hostile jurisdiction is the one line in the segmental table that undermines that story.
What Budapest actually did
In March 2025 Hungary capped supermarket markups on thirty basic food items at 10% above wholesale cost. The measure exempts retailers below a revenue threshold — which in practice spares Hungarian-owned franchise chains and binds SPAR, Lidl, Auchan, Penny and Tesco. It sits on top of a retail turnover tax constructed on the same principle. Viktor Orbán accused foreign grocers of “plundering Hungarians”.
The European Commission has since given Budapest two months to scrap the caps, arguing they are so restrictive that foreign-owned chains are forced to sell at a loss, and that revenue thresholds dressed as neutral rules breach the EU’s non-discrimination principle. SPAR has already won a related case at the EU’s top court.
Brussels is right and Brussels is late. An infringement procedure runs on a timescale of years. A margin cap destroys the investment case in a single reporting period, and a Hungarian election is due this year. By the time the remedy arrives, the asset has been sold.
This is not new. It is doctrine.
EBM described the mechanism in 2020, when a Hungarian secretary of state explained that Budapest cut corporate tax to 9% for everyone while levying targeted surtaxes on sectors “dominated by monopolies and oligopolies”. The state has since taken commanding positions in banking and telecoms, with assets subsequently passing to owners close to the government. Retail was always next. Foreign grocers were too visible, too politically useful and too dependent on Hungarian consumers to leave voluntarily.
They are leaving now.
Why Czechia and Slovakia go too
Why sell profitable Czech and Slovak businesses to escape a Hungarian problem? Central Europe is a single reportable segment with shared buying, shared distribution and a Clubcard estate built over fifteen years. Carve Hungary out and a fixed cost base built for three countries serves two, at a scale that no longer justifies a regional head office. Tesco has already flagged competitive intensity in Slovakia driving an impairment.
A buyer wants the whole platform. Tesco wants a clean exit. Nobody wants Hungary on its own.
Who buys it
Private capital has an unprecedented appetite for Europe’s unloved listed assets — the same dynamic putting easyJet into American hands this week. Oliver Wyman expects more than 1,500 European sponsor-backed assets worth some $760bn to reach the market this year, and deals this size now assemble as coalitions of sponsors, sovereign funds and family offices.
But a financial buyer inherits the margin cap. So does a Western European trade buyer. The bidder for whom the cap is not a problem is one that is politically exempt from it, or expects to be. That is a narrow field, and it is the question EBM readers should ask when the shortlist leaks.
Brussels is rewriting merger policy to build European champions. It has not yet worked out what to do about a member state that legislates a foreign owner out of a market and then supervises the sale.
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