Tesco ready to wrestle in China
By Jiang Jingjing (China Business Weekly)
Updated: 2004-03-15 17:05

Tesco Plc, the biggest retailer in the United Kingdom, is likely to acquire a 50 per cent stake in Hymall, a Chinese mainland subsidiary of the Taiwan-based Ting Hsin International Group, in a bid to expand rapidly into China.

The world's sixth-largest grocery store operator offered US$200 million to buy half the stake of Hymall, which has 25 hypermarket outlets in Shanghai and other major cities on the Chinese mainland, according to a report in the UK-based Financial Times earlier this month.

Tesco plans to open another 15 hypermarkets in China this year, bringing its total to 40. The store number will be 150 by 2008. Both Tesco and Hymall refused to comment on the possible deal.

Tesco spokesman Steve Gracey said the company has been actively looking for partners in China over the past two years.

"There is no secret that Tesco wants to enter China, the world's fastest-booming economy,'' Gracey said.

But he declined to name the partners or reveal details of the agreements involved.

When told global retail giants, such as Carrefour and Wal-Mart having been in China for more than 10 years and building up their own territories, Gracey expressed his company's confidence for the future.

"It is not yet late for us to enter China,'' he said.

Tesco opened 78 outlets in Japan only within two-and-a-half years, he added.

"China should not be too difficult for us,'' Gracey told China Business Weekly.

Carrefour, which entered China in 1992 and has 42 stores in the country, is welcoming the newcomer.

"Carrefour is pleased to have new players in the retail sector, as everyone can improve through competition,'' said Carrefour's public relations manager Xia Ying, who added that she didn't think Tesco's entry would have much impact for Carrefour.

"We are successful in terms of localization,'' Xia said.

She cited the chain's newly opened store in Urumqi, capital of Xinjiang Uygur Autonomous Region as an example. Due to the religious reason, the Urumqi store does not sell fresh pork, but is focusing on beef and lamb.

"Tesco has a lot to learn before it really grasps the economic situation, consumption habits, culture and religion in China,'' Xia said.

China Chainstore and Franchise Association Secretary-General Pei Liang agrees with Xia.

Tesco lacks experiences in global operation, especially operating in developing countries, he said.

"The battle in China could be tough for Tesco,'' Pei said.

He pointed out the method of mergers and acquisitions is an effective way for foreign giants as they first enter China.

Merging Hymall's existing 25 stores will largely reduce the distance between Tesco and other foreign retailers in China. In addition, Hymall can offer valuable experiences to Tesco, which the company desperately needs.

Insiders say Tesco would never give up its ambition to open stores on its own.

"The current co-operation method is only a key for Tesco to enter China. It will definitely open stores under its own name, just as what Carrefour and Wal-Mart have done in China,'' said Wang Yao, director of China General Chamber of Commerce's information department.

Tesco should not expect to earn money immediately, as all retailers have to overcome an adaptation period, Wang said.

Carrefour has just started making profits in all its stores, while Wal-Mart is still witnessing losses in some outlets, according to Wang.

But Tesco, one of the world's most profitable retailers, has advanced management methods, which will guarantee the company to make money in the earliest amount of time possible.

Wang predicted more foreign retailers will enter China this year, as the country, in accordance with its commitments to the World Trade Organization, will lift regional limitations on foreign chain retail operators by year's end.

All restrictions on foreign retailers will be removed by 2007. At that time, China's chain retail market will be fully liberalized.

Existing retailers are also speeding up their expansion within the country.

Thailand-based Lotus Supermarket has put aside 10 billion yuan (US$1.2 billion) in the next three years to open another 100 stores around China, where sales are expected to reach 36.5 billion yuan (US$4.39 billion) by 2006.

Carrefour SA said it hopes to increase the number of its hypermarkets to 70 in China by year's end.

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