Tesco venture takes fresh crack at China market

Tesco, Britain's largest grocery and general merchandise chain, has signed a memorandum of understanding to establish a joint venture with China Resources Enterprise in a bid to revive its fortunes in the world's most populous country.

CRE, China's second-biggest operator of hypermarkets including the Vanguard chain, would take an 80 per cent stake in the joint venture, and Tesco the remainder under the deal signed on Thursday, said a CRE statement submitted to the Hong Kong stock exchange yesterday.

"The possible establishment of a joint venture … will serve as the exclusive platform for the parties to engage in the operations of hypermarkets, supermarkets, convenience stores, cash and carry business and liquor stores in the [mainland], Hong Kong and Macau," it said.

A person familiar with the deal said the new retail alliance covered a broad range of business synergies in the areas of central procurement, private label products, as well as advanced logistics and information technology management. Statements issued by both companies on the partnership did not elaborate on the areas of co-operation.

The British group, which is the third-biggest retailer in the world by revenue and has been operating on the mainland since 2004, has been struggling in the fiercely competitive market.

It now operates about 130 stores on the mainland, after closing five since August last year because of lacklustre performance.

Two investment bankers said Tesco was hoping the joint venture would upgrade its product mix and help it differentiate from foreign rivals, which either operate high-end specialised retail models or, at the other extreme, run low-cost hypermarkets.