Tesco and CRE take first step to become China’s biggest retailer

By RJ Whitehead

- Last updated on GMT

Related tags Hypermarket Supermarket Retailing

Tesco and CRE take first step to become China’s biggest retailer
British supermarket chain Tesco and state-run China Resources Enterprise have quashed growing media speculation with the announcement of exclusive talks between the two majors to combine their Chinese retail operations and form what will become the biggest multi-format retailer in China.

The current leader in Chinese hypermarkets is Sun Art, which is a joint venture between the Taiwan conglomerate Ruentex Group and the French retailer Groupe Auchan.

In a statement, Tesco, Britain’s biggest supermarket chain, explained it hoped to harness CRE’s local understanding, as well as its retail infrastructure across China.

No confirmation yet

The proposed joint venture hopes to develop sales of some £10bn (US$15.45), with CRE having an 80% effective interest.

Both companies stressed that the transaction is subject to further due diligence and the agreement of final terms. “There is not yet any certainty that a deal will take place​,” Tesco said in the release.

However, if it does progress, CRE is likely to combine its CR Vanguard business, which currently operates 2,986 stores across China and Hong Kong, with Tesco China's 131 stores and shopping mall business.

Best move for Tesco

Industry analysts have applauded the news, with some suggesting it was only a matter of time before the British chain found a local partner to reduce the amount of capital it has been committing to its China operation.

"Tesco has been struggling in China and has been losing money. Similar to Carrefour, they had issues in their home market which they had to resolve​," one Hong Kong-based banker told the Reuters news agency.

"This may look win-win, but in reality, Tesco is saying 'I can't figure out China​'," he said.

Tesco first started operating in China in 2004, and has since grown with an emphasis on fast-growing cities in Shanghai, Tianjin and Liaoning provinces. While it has been a difficult process for the company for nearly a decade, the timing of this potential move looks to be good.

According to research group IGD, China is now the world’s biggest market for food and groceries with an annual value of over US$1tn, and is forecast to grow by 50% over the next three years.

The intended partnership follows a series of joint ventures between CRE and other multinational corporations and will come as part of Tesco's strategy of focusing on profitable routes to growth in fast-growing but less mature markets.

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