Tesco is set to pull out of Japan admitting that it “cannot build a sufficiently scalable business”.

The supermarket revealed today that it plans to sell its entire business in Japan, eight years after launching in the country.

Japan is the smallest of Tesco’s international retail businesses. It operates 129 small stores in the Greater Tokyo area under the Tsurakame, Tesco and Tesco Express formats.

Nearly half of the stores are loss making and although Tesco said it had developed a strong own label range and a fresh kitchen to supply fish and other products to its stores, it had decided the business did not fit with its global strategy.

“We have reviewed our portfolio in Asia and the performance of our business in Japan,” said Tesco chief executive. Philip Clarke.

“We have decided to sell our operations there and focus on our larger businesses in the region, in line with our priority of driving growth and improving returns. I want to thank our colleagues in Japan for their continued dedication to the business.”

Tesco will be undertaking a formal sale process over the coming months and the business will continue to trade as usual in the meantime, he added.

“This move shows a willingness on the part of Tesco to re-evaluate those areas of the business that have not delivered on expectations to date.” said IGD research manager Gavin Rothwell.

“It should free up Tesco’s resources to focus more strongly on key growth opportunities across Asia.“

Last year Tesco’s Asian business grew by over 20% and delivered revenue of over £10bn. China and South Korea have been among the key growth markets.