CRV buys Tesco's mainland unit

China Resource Vanguard Co (CRV), a State-owned supermarket operator, Thursday announced that it has completed the acquisition of Tesco's Chinese mainland unit and put it in a new joint venture (JV), in order to forge the top retailing brand in the market.

With an investment of HK$22 billion ($2.84 billion), Hong Kong-listed China Resources Enterprise (CRE), CRV's parent company, now holds an 80 percent stake in the JV, while the remaining 20 percent is controlled by the UK retailer, a PR representative with CRV told the Global Times Thursday.

The combined entity includes Tesco's 135 stores and 20 shopping malls in the Chinese mainland as well as future stores as part of an expansion in the Chinese market, he said.

"All Tesco's stores and shopping malls on the mainland will be rebranded under the 'CR Vanguard' name, which will bring the total number of stores and shopping malls under CRV to 3,970," he noted.

This will contribute to the further expansion of the "CR Vanguard" brand, and the cooperation with Tesco will be a win-win deal, said Hong Jie, CEO of CEV, in a press release e-mailed to the Global Times.

Analysts, however, said that this partnership will unlikely benefit Tesco, which is actually withdrawing from the mainland market along with the disappearance of its self-owned brand.

"It's a pity that Tesco, one of the world's largest supermarket operators, decided to leave the market. But it is understandable, as the company has long been suffering from tepid performance as a result of a late entry and slow expansion into the fiercely competitive market," said Chen Yuefeng, deputy editor-in-chief of Beijing-based business magazine China Chain Store.

Tesco entered the Chinese mainland in 2004, operating 155 stores and shopping malls currently, while its foreign peers Carrefour and Wal-Mart tapped the market in 1995 and 1996 respectively.

As of 2013, Carrefour reportedly runs 236 hypermarkets on the mainland. Wal-Mart said in an e-mail to the Global Times on May 21 that it has over 400 stores in the market.

The sluggish brick-and-mortar retailing market, increasing labor costs, and booming e-commerce have worsened Tesco's situation and sped up its departure, Chen told the Global Times Thursday.

All retailers in China including CRV are being confronted with those difficulties, said Yan Qiang, a partner with Beijing-based Hejun Consulting.

He predicted that the sector will remain depressed for at least two years due to weak domestic consumption.

The Hong Kong-listed CRE said its retailing division including CRV gained a net profit of HK$471 million in the first quarter of 2014, down 10.3 percent year-on-year, according to its financial report posted on the bourse Monday.

Data from Shenzhen-based industry research firm China Competition Information Center shows that in the first quarter of this year the sales volume of 50 major retailers in China increased only 0.1 percent year-on-year, slowing down from 9.2 percent in a year earlier.

The acquisition is undoubtedly a good deal for CRV, which can enlarge its business portfolio and consolidate its leading position by scale in the Chinese retailing market, said Chen.

But Yan told the Global Times that rather than rapid expansion through acquisition, the company should put more focus on the development of its e-commerce business.

"CRV needs to build up and integrate its online business with the off-line operation as quickly as possible, otherwise it would be confronted with a huge threat from e-commerce. The new business model is the future trend of the sector," he said.

In addition, CRV has to improve its management to ensure a successful integration and sound development, he noted.

The PR representative said that no one from Tesco's Chinese mainland unit will be dismissed and its business model will remain the same.