Tesco's experience in China is an exception to the quote, attributed to Woody Allen, that "80 percent of success is showing up." On Oct. 3, the British supermarket chain Tesco confirmed it will join with the state-owned behemoth China Resources Enterprise (CRE) to merge their supermarkets in China. By combining Tesco's 131 outlets with CRE's 2,986 far smaller Vanguard stores across mainland China and Hong Kong, the venture would create China's biggest multiformat food retailer, with sales of roughly $15 billion. While this represents a victory for CRE, it's hard to see it as anything but a defeat for Tesco, which gets just 20 percent of the joint venture.
Measured in profits, Tesco is the world's second-largest retailer, after Wal-Mart, though unlike its competitor Tesco also specializes in food retail and community supermarkets. Tesco has been trying to crack the Middle Kingdom's grocery market for a decade now -- this looks like the end of the story, "a humiliating retreat for the British retail giant," said an op-ed in the usually optimistic state-run newspaper China Daily. "[R]ather than representing part of any coherent strategy, [the sale] appears to be an attempt to limit losses." It's an ignominious end for a company whose involvement with China stretches back almost a century.
The House of Tesco was built on British demand for a once-exotic Chinese product: tea. Jack Cohen, a trader in London's East End, founded the company just after World War I. In 1924, buying a chest of Chinese tea from the supplier T.E. Stockwell, Cohen decided that the first three letters would do just fine (the next two letters come from his last name). Since the Cohen days, Tesco's strategy has been to buy in bulk in order to sell at a discount -- or in British parlance, to "pile 'em high and sell 'em cheap." From that small beginning, Tesco grew to be Britain's largest supermarket chain, with stores in 12 countries across North America, Europe, and Asia, visited 75 million times a week. By the early years of the 21st century, Tesco had roughly 3,000 stores in Britain -- so ubiquitous that British commentators who feared its market dominance called it the Tescopoly.
With the company a king of the grocery world, a nation of just over 60 million customers could not contain Tesco. After the fall of the Berlin Wall in 1989, Tesco moved into Eastern Europe, building over 1,000 stores across the Czech Republic, Hungary, Poland, and Slovakia. As Southeast Asia boomed in the early 1990s, Tesco opened approximately 1,500 stores in Malaysia and Thailand. In the early years of the 21st century, Tesco looked to China, where an emerging consumer market craved Western products and novelties, like barcoding, shopping carts, and loyalty cards. The market seemed ripe: GDP was growing at double-digit rates, urbanization was accelerating, and for the first time in communist China's history, a segment of white-collar workers started finding themselves cash rich and time poor.
China's nascent middle class had begun flocking to glittering new produce emporiums, perusing shelves of tantalizing goods and sampling new kinds of cheese, yogurt, and pastries. They marveled at the never-seen-before fantastical inventions: microwavable spaghetti Bolognese and Triple Double Neapolitan Oreos; freezer cabinets stuffed with yakitori chicken dumplings and Häagen-Dazs green tea hibiscus ice cream; aisles neatly bursting with boxed cabernet sauvignon and resealable packs of Swiss Alpine muesli. These shared space with the displays of everyday essentials such as cooking oil and instant noodles, piled high and selling cheap.
Tesco opted for the traditional British strategy, as old as the Empire itself, of "divide and conquer": penetrating with stealth and using foreign forces to launch their opening salvos in this new battlefront. In 2004, Tesco purchased a 50 percent stake in Hymall, a Taiwanese supermarket chain; the company upped it to 90 percent in 2006. By testing the waters through Hymall, Tesco could preserve its core brand image. If the business was less than expected, then Tesco could retreat, with no direct loss of brand prestige, and try again.