British supermarket Tesco on Thursday said it had completed a deal with state-run China Resources Enterprise (CRE) to create the Asian country’s largest food retailer.
Tesco, which has failed to impress Chinese customers with its solo stores, will now merge its roughly 130 supermarkets in the country with the 3,000 Vanguard supermarkets owned by CRE.
CRE chief executive Hong Jie said the deal was a “major milestone for our business development” and the joint venture would lead to “improved operations, better growth and enhanced profitability.” His counterpart at Tesco, Philip Green, described the venture as a “historic agreement” and said it created “a strong platform in one of the world’s largest markets.” CRE will own 80 per cent of the new business, and Tesco, which is investing 345 million pounds ($577 million) in it, will hold 20 per cent.
The British supermarket will also have two seats on a board with a maximum of 10 members.
The companies hope to benefit from Tesco’s expert knowledge of retail best practices, including customer analytics and supply chain management, and CRE’s infrastructure and knowledge of the local market. They are expecting sales of around 10 billion pounds.
Britain’s biggest retailer has faced significant problems in establishing itself in some of the world’s largest markets.
Last year it was forced to sell its Fresh & Easy chain in the United States after a 1-billion-pound writedown. It also made an expensive exit from Japan two years ago, after spending a decade trying to crack the market.
But Tesco has remained keen to establish a firmer foothold in China, with its 1.4-billion-strong population, describing it as a “strategically important growth market” on its website.
In March, it also announced it would invest 85 million pounds in a 50-50 joint venture in India with Tata-owned Trent Hypermarket Ltd, which runs the Star Bazaar hypermarket chain.