Britain's biggest supermarket chain, Tesco Plc, is reportedly dropping its brand in China when it officially enters into a joint venture with China Resources Enterprise Ltd, further consolidating the latter as the largest retailer in the country in terms of market share.
Media reports have said the merger would combine Tesco's outlets and shopping centers in China with 2,986 China Resources Enterprises stores, under the Vanguard brand name, according to Beijing Business Today.
"It is not possible to say at this stage, and we will not speculate. It is important to remember that we don't trade as Tesco everywhere. In our second-largest market, South Korea, we trade as Homesplus. In Thailand, Lotus. In Turkey, Kipa," Tesco China said in a statement to China Daily on Monday.
The UK retailer started operations in China in 2004 but failed to win a dominating position. China Resources Enterprise will control 80 per cent of the new chain, while Tesco will hold 20 per cent, according to their agreement, signed last October. Tesco will add the 134 stores and 19 shopping malls it currently operates across mainland China into the joint venture.
The new business is expected to make up 8.6 per cent of market share in China, topping the 8.3 per cent of Sun Art Group, according to research by Kantar Worldpanel China, a global researcher of buying habits.
Hong Jie, chief executive officer of CRE Vanguard, quoted by Beijing Business Today, said that by 2015, the company's revenue should reach 150 billion yuan (S$24.5 billion), a big leap from its revenue of 94.1 billion yuan in 2012. Mergers and acquisitions have contributed to the rapid growth of China Resources Enterprise's retail division.
The group's turnover in the retail sector during the first three quarters of 2013 increased 13.9 per cent. China Resources Enterprise's retail division mainly comprises supermarkets, CRCare stores, VIVO health and beauty stores and Pacific Coffee shops. At the end of September 2013, the group operated more than 4,500 stores in China.
China Resources Enterprise said the retail division is expected to adopt hypermarkets as its main retail format while expanding its multi-format store network in regions in which the group has already established a presence.
"It is still too early to say Tesco is exiting the market because they still have one foot here," said Jason Yu, general manager of Kantar Worldpanel. But it is true that foreign retailers are facing increasing challenges in the country where they have to be very adaptable to the changing market situation, he added.
The strong operational capabilities of local retailers exceed that of their foreign peers in both management and strategy.
But he said the new venture mixes the advantages of the two retailers. According to their research, in 2013, Tesco reached 7.8 per cent of Chinese families, while China Resources Enterprises gained access to 18.1 per cent of Chinese families.
The two combined reached 23.7 per cent of families. The figure indicates that overlapping areas of the retailers are few, with Tesco strong in China's eastern and northern markets, while China Resources Enterprises is developed more in the south and west.