Tesco China drags down partner

Tesco China has been blamed for dragging China Resources Enterprise into the red.

CRE, which operates the Vanguard hypermarket chain in China, has reported its first annual loss in more than 20 years and blames the start-up costs for its venture with embattled Tesco for the red ink.

CRE has effectively taken control of Tesco China when the latter effectively admitted defeat in Asia’s largest grocery market, unable to penetrate the domination of local brands and store networks.

Now CRE has warned that it may take three to five years to turn the ailing Tesco business around.

“Looking ahead, the group’s top priority in 2015 is to improve operational efficiency and reduce losses,” chairman Chen Lang said a statement.

He warned profitability would remain volatile, with increased competition from eCommerce businesses and the Chinese government’s crackdown on gift-giving and graft affecting sales.

CRE reported a net loss of HK$161 million (US$20.75 million) in 2014 – a massive turnaround from the HK$1.91 billion ($246.3 million) profit of 2013.

Revenue from the 3000 supermarkets and hypermarkets CRE runs, rose 15.3 per cent to

HK$168.86 billion ($21.8 billion).

The Chinese retailer will be hoping its eCommerce venture, to be launched later this year, will help restore profitability, along with a change in focus of its store development program to smaller new stores, speciality stores and convenience stores rather than hypermarkets.