That gamble failed, largely because Tesco did not have the expertise to compete as a property developer in the difficult mainland property market, retail analysts say. Tesco was forced into a joint venture with one of the mainland's leading retailers, China Resources Enterprise.
But turning round Tesco's mainland business has not proved easy for CRE either, and the company last week sold its loss-making non-beer (including grocery) businesses to its parent, China Resources Holdings.
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The sector's woes are not limited to foreign brands either. A new report by OC&C strategy consultants finds that "nearly all the major players among China's big-box grocers … have experienced near-consistent negative growth since 2010." Growth during that period has come almost entirely from new store openings, OC&C said.
Competition from online grocers is one of the biggest threats to brick and mortar sales at chains such as Walmart, Carrefour and Auchan's SunArt Retail, retail analysts say. Consumer tastes in China change more rapidly than in many established markets, and in the past year or two, online grocery sales have exploded.
OC&C says online sales rose nearly 50 per cent in 2014, year on year, compared with a paltry 6.7 per cent for hypermarkets and supermarket sales (including new store openings). Many consumers are shifting their buying to convenience stores too, retail analyst say, prompting grocers including Walmart and Carrefour to try new, smaller formats for their stores in big cities.
"In China, older people don't have a lot of entertainment so shopping (even in grocery stores) is entertainment for them, but our younger generation has grown up with a computer at their side and so they prefer to entertain themselves by travelling, not shopping in physical stores," says Huang Aizhu, head of Tmall's food business. The business, part of the Alibaba group, is growing annually in the "triple digits", she says.
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"The combination of online and offline is the way of the future," she adds. Sales of fresh foods like fruit, vegetables and seafood — traditionally the preserve of brick and mortar stores or traditional wet markets — are growing faster online than other grocery items, Ms Huang says.
Walmart already has one of the strongest e-commerce presences in China, through its 51 per cent stake in Yihaodian, the popular online grocer.