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Tesco completes deal to form the 'world's biggest multichannel retailer'

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Tesco completes deal to form the 'world's biggest multichannel retailer'
Tesco completes deal to form the 'world's biggest multichannel retailer'
Tesco has completed a joint venture that gives it a 20% stake in what the supermarket says is set to be China’s biggest multichannel retailer.

Britain’s biggest supermarket brings its multichannel expertise to the partnership with China Resources Enterprise (CRE), first mooted last August. The Chinese company brings its knowledge of the local market, awareness of its brand in that market and its scale: while Tesco had 134 stores in 11 provinces, the joint venture has more than 3,000 branches in 30 provinces.

The deal was welcomed today by Philip Clarke , Tesco chief executive. He said: “The partnership creates a strong platform in one of the world’s largest markets. We can now combine our strengths to build a profitable multichannel business, offering our customers in China the best of modern retail.”

Hong Jie, chief executive of CRE, said: “We are very excited about the completion of this agreement; it also marks a major milestone for our business development. We believe this partnership is one that combined the strength of both parties and enables the JV to become the leading multi-format retailer in Greater China, through improved operations, better growth and enhanced profitability.”

Nonetheless the new deal makes Tesco a junior partner in a country where it had hoped to do great things. Its brand will no longer be the primary one on its storefronts. In a blog posted today, Tesco Asia CEO Trevor Watson says the Tesco China brand alone had more than 4m customers a week and employed almost 30,000 people.

Watson sees, however, the new venture as “a partnership in every sense,” and one where the Tesco brand will live on. “As well as offering leading CRE products and servicecs, the new partnership will offer Tesco own-label products and our popular F&F clothing brand across the store portfolio,” he said, “meaning our existing customers will still be able to enjoy their favourite Tesco products, while we’re able to introduce our range to millions of new customers across the country.”

China has the world's largest population and is expected to overtake the US as the largest economy in the next half-decade. Its grocery market, says Watson, is expected to grow by 50% in the next three years.

"With CRE’s strong family of brands, their innovative approach across different formats and unparalleled market knowledge, combined with our global retail expertise," said Watson, "we have the opportunity to grow together to bring our great products, service and value to over 1.3 billion people – that alone could make it one of the biggest retailers in the world, and one in which we can play an important part."

Our view: China is the market that most multichannel retailers will eventually consider as they look to potential future growth. If Tesco believes it needs a joint venture in order to do as well as it can in the market, this cooperative approach seems one that other UK retailers will also consider in due course.
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