Tesco is not going to give up on China. It can’t. In 2011, the Chinese grocery sector became the number one market in the world in terms of sales, overtaking the US.

However, having failed to crack China since opening its first store in 2004, the retailer has decided to take a lighter touch by entering into talks with China Resources Enterprise (CRE) over merging their stores in a deal that would see it cede 80% of the new chain.

It is a sensible move. In hindsight, it was a bit naïve in thinking that Clubcard, which has helped Tesco be so successful at home, would do the job in China.

Only now is Tesco realising the complexity of the Chinese market and just how demanding and different the Chinese consumer is. Joining up with a local partner in CRE will help it understand China better.

“Only now is Tesco realising the complexity of the Chinese market”

Our research found that 63% of Chinese shoppers have four or more store cards. But they don’t call them loyalty cards, they see them more as discount cards and it doesn’t mean they will shop at your store every week. Clearly that will make it much more difficult to understand shoppers’ behaviour and find out their tastes and habits.

The Chinese shopper is not just variety-seeking, but price-conscious. They also want quality and are very fussy. E-commerce is growing in China, but food shopping is different. Shoppers are still very keen on fresh meat and vegetables and like to see and touch it - hence the fish swimming in tanks in supermarkets.

We have food scares in the West, but in China they are a daily occurrence and because shoppers have grown to distrust the official media channels, they believe the gossip.

The Chinese are also very health-conscious. Traditional wisdom teaches them everything matters to their health and food is not just to satisfy hunger, but a way of living longer. They love fresh organic food. They want it cheap, but not at the cost of freshness and quality.

Tesco can use this as it has not been associated with food scandals in China and it can also leverage the UK’s strong reputation for food safety. Carrefour made a big deal out of being French when it entered China. France is associated with good taste and cooking, and Carrefour has benefited from that connection. Tesco can do the same with food safety.

Chinese shoppers also love variety they don’t have the same meals every week. They are always seeking new tastes and Tesco needs to cater for that. There is a cultural difference here that Tesco managers have struggled to appreciate.

It should also change its geographical strategy. It should go to second or third-tier cities in China, like Kunming and Chengdu rather than large cities like Shanghai, where the competition is too fierce for latecomers. Walmart and Carrefour are the big players and have been in China for much longer. After Walmart entered China in 1996, it was eight years before it moved to Shanghai, whereas Tesco went straight into several big cities.

Tesco bit off more than it could chew initially. With CRE, it may finally be able to crack China.

Qing Wang is professor of marketing and innovation at Warwick Business School at The University of Warwick

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