China’s Monopolies and Mergers Commission has recently granted permission for a joint venture between CRE (China Resources Enterprise – China’s second placed grocery retailer by value) and the UK’s grocery retail giant Tesco.

The result was that CRE will merge Tesco’s 135 stores and 11 “Lifespace” shopping malls into its nearly 4,000-strong group of Vanguard supermarkets and convenience stores. CRE will own 80% of the joint venture with Tesco getting the other 20% and two out of 10 seats on the joint venture’s board. The deal gives Tesco a remaining toehold in China’s massive grocery retail sector, while CRE will gain a strong presence in Shanghai and Tesco’s existing online retail presence in China – something CRE lacked.

According to Mintel’s new Supermarket and Hypermarket Retailing China 2014 report, the value of supermarket and hypermarket retailing in China grew almost 90% between 2008 and 2013, at a CAGR of 13.6%. Most retailers find sales growth by opening new stores, upgrading or renovating existing stores, and closing ineffectual stores. Expansion is therefore critical to success, and more chains are already planning forays into lower tier cities in China’s interior provinces.

This competition for sales among leading chains in an increasingly fierce market will only become more intense. Mintel forecasts that total value retail sales through supermarkets and hypermarkets will grow at about 7.5% CAGR, compared to 9% CAGR for growth in new outlets, so value sales growth will be less than that of growth in numbers of stores. Sales per average store are therefore expected to decline.

CRE was second place by value in the supermarkets and hypermarkets sector, according to Mintel data, with an 8% market share, just below Sun Art Retail (in joint venture with France’s Auchan) with a 9.4% share in 2013. Tesco was well below the top-10.

For more on Mintel’s research into the Chinese retail market, see our new Supermarket and Hypermarket Retailing China 2014 report.

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