Tesco buys stake in retail venture for HK$4.33b

Top British retailer Tesco will pay HK$4.33 billion to gain 20 per cent of a venture with China Resources Enterprise that will run supermarkets and other stores on the mainland and in Hong Kong.

The venture, announced in August, will combine Tesco's 134 outlets and shopping centre business on the mainland with the almost 3,000 stores owned by the state-backed conglomerate on both sides of the border. The two firms planned to run supermarkets, convenience stores and liquor shops in greater China, China Resources, which will hold 80 per cent of the venture, said in a statement yesterday.

The deal would allow Tesco to expand in China's US$574 billion hypermarket industry while ending almost a decade of independent operations as sales decline amid competition from rivals such as Sun Art Retail. China Resources, which runs the country's second-largest hypermarket business, would gain from Tesco's expertise in areas including private labels, e-commerce and international sourcing, the companies said.

"Through this deal, we have a strong platform in one of the world's most exciting markets and it will move us more quickly to profitability in China," Tesco chief executive Philip Clarke said in a separate statement.

Tesco would have two out of a maximum of 10 seats on the board of the venture, whose annual sales are estimated at £10 billion (HK$125.7 billion), the England-based company said. Completion of the deal is expected in the first half of next year, subject to regulatory and shareholder approval.

Retailers including Tesco are facing slowing economic growth amid competition on the mainland.