At least, that was the idea. But by waiting on the sidelines in the early 2000s, Tesco missed the golden age for supermarket expansion in China. Chinese shoppers were coming to prefer the vast new food palaces, while the government encouraged the chains to expand so they could create jobs and pay taxes. The explosion of car ownership -- more than doubling from 2002 and 2006 in China to 28 vehicles per 1,000 people -- meant that Chinese consumers could more easily visit 10,000-square-foot emporiums sprouting up on the outskirts of cities. Chain retail began dominating, forcing the consolidation of Chinese mom-and-pops and small regional brands. In the late 1990s, Shanghai alone granted nearly 200 permits for supermarkets and hypermarkets, when the city's own five-year plan had called for an optimistic maximum of 120. By mid-decade, the potential customer base got spread thinner, and supermarket operators' margins suffered. According to a report by McKinsey, a consultancy, annual revenue growth for supermarkets in China between 1997 and 2003 averaged around 70 percent -- from 2004 onward, it dropped to roughly 20 percent.
By the time Tesco decided to send in the boys from London in 2007, competition was far more intense. The French hypermarket chain Carrefour, slightly smaller than Tesco globally in terms of profits but slightly larger in terms of revenue, had planted its flag in nearly all of China's 22 provinces, with over 100 outlets; by 2007, Wal-Mart had more than 70 stores across China.
At this stage Tesco began, as breathless China coverage invariably says about foreign brands, to expand "very aggressively." In 2007, when it unveiled its Chinese name -- Le Gou, or Happy Shopper -- it had 32 stores. That grew to 56 stores in 2008 and to over 130 stores today.
They introduced the Tesco Clubcard, a popular loyalty card that, unlike the ones provided by Chinese retailers, actually let customers accrue points convertible to cash discounts on every purchase. They localized their product offerings -- kimchi instant noodles, seaweed crackers, ginseng sodas -- and introduced their own brands of frozen and organic foods, successful in other markets. They tried e-tailing, in-store bakeries, even their own clothing brand. But profits have been hard to come by. Tesco China's first-quarter 2013 same-store sales declined 4.9 percent, even worse than its fourth-quarter 2012 drop of 2 percent. In November 2012 Tesco began closing stores; by May it had shut five. In August Tesco confirmed it was in talks with CRE and looking for a way out.
What does this mean for Tesco? It's not all grim globally: In Thailand, Turkey, and Malaysia, Tesco has largely been succeeding. And Eastern Europeans appear to have decided they love Tesco almost as much as the Brits do: In Hungary Tesco is now the country's third-largest employer, while Poland Tesco's 446 stores serve more than 5 million customers per week.
Perhaps they'll write China off as a small blip on the long road to building an empire. Of late, it's been a rocky one: Tesco pulled out of operations in France in 2010, closed its business in Japan in 2011, and in September 2013, sold the U.S. chain Fresh & Easy -- at a loss of nearly $1.9 billion.
But Tesco is not fully withdrawing from China. Although CRE's brand name will be on the storefronts, Tesco's label, via its food products, will at least still be on Chinese shelves. In the end, the problem wasn't the Chinese -- they loved shopping in Tesco. When every supermarket chain in the world has the same idea, 1.4 billion people just isn't enough.