How to make money inside an eddy of falling prices will be the central challenge facing Tesco as it dips a toe into the fast-moving, overcrowded and deflation-chilled Japanese market.
As Boots learned in a disastrous attempt to establish a business in Tokyo four years ago, it takes more than a familiar name on Britain's high streets to win over quality-obsessed and cost-conscious Japanese consumers. Living in the only country in the world to experience four years of deflation, shoppers have come to expect that tomorrow's prices will always be cheaper.
Their reluctance to spend pushed down retail sales for 23 months in a row up until this March, leading to a rash of new discount store openings and forcing several huge operators into bankruptcy.
Mycal, the country's fourth-biggest supermarket chain, collapsed with debts of £7.9bn. The previous year saw the failure of Sogo, one of Japan's leading department store operators. Foreign firms have scented opportunity on Japanese high streets, but their fortunes have been decidedly mixed.
The main successes have been companies pushing top-end brands, such as Hermes and Louis Vuitton, or those that have created distinctive new markets, such as McDonald's, Starbucks and multiplex cinema operators including Virgin.
Carrefour, the French hypermarket chain, has struggled to adapt to local tastes and fierce competition since opening its first store in 2000. Officials said that Japan was the most crowded market in the world with a supermarket every 500m in urban areas.
With sales lower than expected, it has put an aggressive expansion plan on hold. Other new arrivals, such as Metro, the German wholesaler, are finding that Japanese consumers have different expectations of
