Tesco sets eyes toward China as profits decline in Europe
By Roland Jackson, AFPLONDON--Britain's biggest retailer Tesco agreed a major deal on Wednesday to create a retail giant in China, as it seeks to offset “challenging” trading conditions in Europe which hit profits hard.
October 3, 2013, 12:11 am TWN
Tesco will create a joint venture with China Resources Enterprise (CRE), it revealed in a statement, alongside news that first-half net earnings slumped by a third on flat revenues, restructuring costs, tough overseas markets and lower profit from property sales.
London-listed Tesco — the world's third-biggest supermarket group after U.S. retailer Wal-Mart and number two Carrefour of France — added that the Chinese move was part of its international strategy to tap further into fast-growing economies.
“Tesco and CRE today announce that they have entered into definitive agreements to combine their Chinese retail operations to form the leading multi-format retailer in China,” a statement said.
The companies had revealed in August that they were in exclusive talks over a deal.
Hong Kong-listed CRE will have a stake of 80 percent and Tesco will have 20 percent, but this can rise to 25 percent after five years.
“We are delighted to work with CRE to create the leading Chinese retail business,” said Tesco chief executive Philip Clarke in the statement.
“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.
“This is very good news for customers and shareholders and a further demonstration of our commitment to build sustainable, profitable businesses, establish multichannel leadership in all of our markets and pursue disciplined international growth.”
The new venture will combine Tesco's 134 Chinese branches, as well as the firm's Chinese shopping mall business with the China Resources Vanguard business of 2,986 outlets.
CRE chief executive Hong Jie said that “the joint venture brings together the individual strengths and advantages of Tesco and CRE.”
The deal would link local knowledge of customer behavior with the best practice of an international group.
The agreement would benefit both groups and would propel the internationalization of China's retail industry.