Tesco, China Resources agree JV

UK retailer Tesco will invest HK$2.33 billion ($300 million) in a joint venture with Hong Kong-based China Resources Enterprise by the first half of 2014, a move that will significantly boost Tesco's lackluster performance in China, analysts said Monday.

The joint venture will integrate Tesco's 134 outlets in China with 2,986 China Resources Vanguard supermarkets, according to a statement released by Tesco October 2.

Tesco, a multinational retailer with sales of more than 10 billion pounds ($16 billion). signed a memorandum of understanding with China Resources on August 9 to form a new company.

The UK retailer will own 20 percent of shares in the joint venture, and the Hong Kong-based firm will command 80 percent.

Hong Tao, a trade and economics professor with Beijing Technology and Business University, told the Global Times Monday that the alliance will significantly improve Tesco's performance in China.

China Resources boasts strong government and business connections on the mainland. The company is also strong at localization and is opening new outlets rapidly, Hong said.

"Tesco will benefit from the large number of stores China Resources owns and learn to localize more," Hong said.

Tesco shut down four outlets in China last year and two this year so far, including its first store in the country. The company is also reporting lackluster financial results worldwide, with its Europe profits in the six months to August 24 having slumped 67 percent to 55 million pounds.

Other supermarket operators such as US retail giant Wal-Mart Stores Inc, which closed three outlets in April, are also having a hard time in the Chinese mainland.

Hyper-markets, which Tesco and Wal-Mart are good at running, are being challenged by local retailers and online stores that offer consumers more tailored and affordable products, Hong said.

Scott Price, chief executive of Wal-Mart's Asia division, said that the company is looking for deals to build market share in Chinese cities where it is not one of the top players, the Wall Street Journal reported Saturday.

Liu Xiaofeng, a research fellow with China Minzu Securities, told the Global Times Monday that foreign retailers will need to adjust the product selection in their stores, as a response to the quick shifts happening in China's retail scene.

"Hyper-markets should reduce the space reserved for goods requiring customization, such as clothes and books, and increase the space for fresh food and daily necessities," he said, adding that the retailers should also open more outlets in third- and fourth-tier cities.

Wal-Mart opened four new outlets on September 26, including one in Aotou town, northwest of Huizhou, in South China's Guangdong Province, and one in Pu'er, located in Southwest China's Yunnan Province.

Hong said he expects foreign retailers to open more outlets in shopping malls and convenience stores, instead of hyper-markets, in the future.