Tesco today made a bid for profitability in China by signing a joint venture to create the country’s largest food retailer, as the grocery behemoth tackles a tidal wave of problems at home and overseas.
The supermarket group has completed a deal to create a new business with state-run China Resources Enterprise in the country, after first proposing the tie-up last August.
Tesco’s 131 shops in China will be combined with CRE’s almost 3,000 stores and be called Vanguard.
Tesco has struggled to make money in China since launching in 2004, as it battled competition and struggled to build up scale.
Chief executive Philip Clarke, who is fighting fires across its business including in lacklustre economies in Europe, described the deal — which will see Tesco hold a 20% stake in Vanguard — as an “historic agreement”.
Shore Capital analyst Clive Black welcomed the move: “Tesco has the chance of having a profitable business: 20% of something is better than 100% of nothing.”
Tesco is expected to report next week its worst UK quarterly trading for more than 15 years, with broker JPMorgan Cazenove forecasting that sales at stores open longer than a year will have slipped 4%.
Clarke has pledged to invest £200 million into price, in response to the growing threat from discounters Aldi and Lidl, as well as traditional foes Morrisons and Asda.
