Tesco’s Chinese takeaway

Fresh from losing out to the French supermarket chain, Casino, in the acquisitive pursuit of 42 of Carrefour’s Thailand-based supermarkets, Tesco has reaffirmed its position in seeing Asia as key to its strategy for future growth.

Tesco has never shied away from looking at opportunities to acquire in the markets it wants to expand in. However, China’s regulatory issues and the nuances of embarking on M&A within the country mean that at this point in time Tesco prefers to approach the market in a different way.

The FT this morning reports on Tesco’s plan to increase the number of hypermarkets it has open in China from 82 to over 200 in the next five years. Interestingly its method of doing this is to build over 50 shopping malls and develop within another 30, rather than looking to acquire an established Chinese retail player.

What I find most interesting about this strategy is that China’s current population is 1.4 billion compared to 62 million in the UK. Yet we already have in the UK some 200 Tesco Extra stores – hypermarkets on a scale and size that Tesco is proposing to open within five years in China. Obviously the big discrepancy here is spending power. In 2009 the UK is ranked 6th by the IMF In terms of GDP PPP and China is ranked 19th – so a significant difference.

That said China’s economy is growing by around 10% per year, so the unusually cautious approach to growth in China by Tesco may well be revised as time moves forward. And even a mere 200-plus hypermarkets in China is significant organic rather than acquisitive growth. Imagine the club points!!

Filed under: China, Tesco, Thailand, Carrefour