Tesco gains a foothold in China with £140m joint venture deal

Tesco took its first steps in to China yesterday, establishing a joint-venture with a regional hypermarket chain for £140m.

The deal to acquire 50 per cent of Ting Hsin, which owns the Hymall chain, gives Tesco a foothold in the rapidly growing Chinese economy and is the result of a three-year search for a partner in the country.

"China is one of the largest economies in the world with tremendous growth forecasts and a market we have researched extensively," Sir Terry Leahy, the chief executive of Tesco, said yesterday. "It is a tremendous opportunity to acquire a 50 per cent stake in an established a and profitable local business with strong local management."

Hymall operates 25 hypermarkets serving 2 million people a week, and Ting Hsin already has plans for a further 10 in the coming year. It has sales of £330m and made a profit after tax of £5.5m last year. Sales are forecast to grow by more than a third in 2004, to £450m. Each store is about 89,000 square feet. Most are within shopping centres in the north and east of China, with its biggest base in Shanghai.

"This looks like a sensible move by Tesco, gaining a foot in the door of one of the fastest growing markets in the world," Rhys Williams, an analyst at Seymour Pierce, said. "By going in with a local operator, Tesco has de-risked its entry into a new market, allowing the group to enjoy any potential upside from the venture as well as gain valuable information about the Chinese consumer."

Ting Hsin, also a large food and beverage manufacturer, will bring its local expertise to the joint venture, while Tesco will advise on supply chain improvements and store operations. The stores will keep their Hymall branding.

The deal is also a landmark in Tesco's rapid international expansion. With the Hymall stores on board, Tesco is now bigger in terms of retail space internationally than it is in the UK. In the past five years it has driven a major expansion plan in continental Europe and South-east Asia. Some £1.9bn has been spent on setting up and buying operations in South Korea, Thailand, Malaysia, Taiwan and most recently, Japan. It has at present 179 stores in Asia, employing 34,000 people and bringing in sales of £2.8bn.

"Our approach has been to identify strengths in the local market and then work with local experts," Lucy Neville-Rolfe, the company secretary, said yesterday. "In Japan, for example, we went for the small, convenience store market, which attracts better quality shoppers than hypermarkets."