Tesco ends nine-year solo career in China

Supermarket to sign joint venture agreement with local company as it refocuses on Britain

Simon Neville
Sunday 29 September 2013 11:33

Tesco is expected to reveal on Wednesday that it has signed off on the deal to end its troubled nine-year solo venture in China, as the supermarket's management continues to rein in spending.

Bosses have been in negotiations for two months with the country's biggest retailer, the state-owned China Resources Enterprise (CRE), to create a joint venture to share the costs of expansion. The deal will bring together Tesco's 131 Chinese stores with CRE's 2,986 sites and is likely to cost Tesco several million pounds; the exact amount should be detailed in this week's half-year figures.

A memorandum of understanding was agreed in August that will see Tesco take a 20 per cent stake in the new venture. Its chief executive, Philip Clarke, has already started to refocus on the UK business after several years of international growth under his predecessor, Sir Terry Leahy.

Some forays overseas were successful, including in Thailand and South Korea. However, others were disastrous and Mr Clarke has been forced to pull the plug on Tesco's US Fresh & Easy business, at a cost of £2bn, and has left Japan. The UK was neglected during the period of international expansion and rivals ate away at its market-leading position.

Analysts expect trading profit for the six months to the end of August to hit £1.6bn, with the UK up 0.9 per cent. Profits in Asia are expected to fall 6 per cent and in Europe by 20 per cent.

However, it is generally believed that the China deal will be good for the company. Analysts at HSBC said: "On the face of it, it appears to be a more capital-efficient approach from Tesco to crack this difficult market as it brings CRE's deep local expertise and nationwide infrastructure to the partnership."

The deal means the Tesco brand is likely to disappear from the Chinese high street, where it will operate under the Vanguard name instead following integration.

Mr Clarke knows the Chinese market well. In his previous role as head of international three years ago, he unveiled plans to open 80 vast shopping malls across the country, which would have made the portfolio bigger than in the UK.

Earlier this month Tesco sold 150 of its 200 Fresh & Easy stores to Yucaipa, the US investment group, paying £180m to have them taken off its hands. The remaining 50 shops will be shut down.

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