Chinese hypermarket chain puts Tesco in its trolley

Tesco is in talks to merge its Chinese arm with a much bigger rival. Shareholders are impressed...

by Emma Haslett
Last Updated: 19 Aug 2013
We may think of Tesco as a giant corporation, but in China it’s practically a small independent retailer compared with its biggest rival, Vanguard, which has almost 3,000 stores.

Now China Resource Enterprise, which runs Vanguard, has approached Tesco about merging its Chinese arm, combining its mega-chain with Tesco’s comparatively paltry 131 stores.

By the sounds of it, it’s an offer Tesco can’t refuse: under the terms of the deal the British retailer would be given a 20% stake in the new business which, bearing in mind that its stores would make up barely 5% of the new chain, isn’t bad.

It’s a sign Tesco chief exec Philip Clarke is continuing to shift his focus away from the supermarket’s previous strategy of rapid expansion abroad. To be fair, Clarke is still nursing his wounds from the  £1bn-odd write-down Tesco was forced to take when it pulled the plug on its US business, Fresh & Easy, in April. And its conquest of the Asian market isn’t exactly going brilliantly: in June, it reported sales in the region had dropped by 3.8%.

So - despite the juicy terms - is this an admission of failure? One Hong Kong-based banker reckons as much.

‘Tesco has been struggling in China and has been losing money,’ he told Reuters.

‘Similar to [French supermarket chain] Carrefour, they had issues in their home market which they had to resolve. This may look win-win, but in reality Tesco is saying "I can’t figure out China".’

Shares in the supermarket were up 1% this morning, suggesting shareholders are keen. It’s no secret many want Clarke to put more of his time into sorting out Tesco’s problems at home. The supermarket issued its first profit warning in 20 years in January last year and has since been trundling along the bottom, with its most recent results showing sales dropped 2.2% in the three months to the end of May. So a deal with CRE would be seen as a big win for Clarke, who hasn’t had many since he took the reins in 2011.

Now, how do you say ‘Every Little Helps’ in Mandarin...?

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