Govt OKs CRE's merger with Tesco

The continued macro-economic slowdown, the government's austerity campaign and rapid growth in e-commerce sales all contributed to the decrease in net profit, the company said in the report.

Tesco brand reportedly to be dropped

How the cookie crumbled for Tesco

But its main rivals experienced a similar slump. Wal-Mart Stores Inc, the world's largest retailer by sales, generated a net profit of $3.58 billion in the first quarter ending on April 30, posting a year-on-year decline of 5 percent. French Carrefour SA saw its revenue drop by 3.7 percent to $27.4 billion in the first three months, compared with the previous year.

"The combined market share of CRVanguard and Tesco in the first quarter will be 8.9 percent, slightly higher than Sun-Art Group's 8.8 percent, indicating a very marginal lead in market position over its nearest competitor," said Jason Yu, general manager of Kantar Worldpanel China, a global researcher of buying habits.

"It is crucial for CRVanguard to consolidate the Tesco operation in the east region where Tesco is stronger but suffered share losses over the past year," said Yu, adding that "the continued expansion of RT-Mart and Wal-Mart will always pose new challenges to its temporary leadership."

Li Ruxiong, chief financial officer of CRE, told a news conference in March that the group had been opening as many as 250 stores a year, but this year will be one of consolidation as it has to absorb the 135 Tesco outlets. Thus, the Chinese retail conglomerate will open stores only in mature markets this year, with the estimated number ranging from 50 to 100.

Last year, CRVanguard gained 92.4 billion yuan ($15 billion) in sales in its proprietary stores, with the number of stores reaching 3,835.