British supermarket chain Tesco Plc would the the latest foreign retail chain that had set its sight on China. On Wednesday, Tesco announced that it had formed a joint venture with Chinese supermarket giant China Resources Enterprise. Tesco would also be paying HKD4.3 billion or USD554 million as part of its venture agreement.
Analysts thought that Tesco's optimism in China was unwavering despite incurring massive losses of GBP2.38.5 million or USD386 million as per financial year ending February. On the same day, the British retail chain reported a 34% decrease in its profit to GBP820 million or USD1.33 billion.
Aside from Tesco, other companies who had expanded operations in China were France's Auchan Group, Carrefour of France and Walmart. All grocery chains had struggled to gain market share momentum in China.
According to analysts, foreign supermarkets were facing competition in fast-growing local counterparts. Moreover, the market itself is already saturated, with the biggest supermarket chain holding only less than 5% of the market share. Spending habits of the Chinese were also seen as a hurdle to companies who had the traditional big-box model. Market consulting firm McKinsey & Company also saw the popularity of e-commerce among Chinese customers had hampered supermarket profits.
Tesco, with its new partnership, had said that it would be more careful with its next steps. "We have adopted a more cautious stance in China. We still see an excess amount of new space being opened in the market - ahead of customer demand - and we have moderated our pace of development accordingly," it said in its recent annual report in April.
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