The supersizing of China's
shoppers By Olivia Chung
HONG KONG - Foreign-owned mega-marts such
as US-based Wal-Mart, France's Carrefour, the
United Kingdom's Tesco, and RT-Mart of Taiwan are
successfully exporting a new shopping culture to
China, with their market share now accounting for
about 60% in major Chinese cities.
TNS
Worldpanel (China) said the leading superstores in
China now are foreign-invested players and their
share of the country's 15 largest cities accounted
for 60.6% in the first half of 2007, up
from
57.5% in the first half of 2006.
Jason Yu,
regional account-development director for TNS
Worldpanel (China), said the foreign-based
jumbo-marts are expanding more aggressively than
their Chinese counterparts, and there is plenty of
room particularly in China's second-tier
(medium-sized) and third-tier (small) cities for
more.
Yu said he expects the foreign
operators will maintain their dominance for at
least the next two or three years.
According to TNS Worldpanel, which
measures household consumption in 20 of China's
provinces and municipalities, the superstores
increased their share by value in the grocery
sector in the country's 15 largest cities from
28.5% in 2005 to 29.8% in 2006. The share in these
large municipalities and provincial capital cities
- known as first-tier cities - has continued to
increase this year, reaching 30.1% in the first
half of 2007.
Yu predicts that the stores
will reach a 35% share by the end of the decade -
compared with the 19.7% seen in 2001.
The
mega-marts' success is also cutting into the
Chinese supermarket (groceries and produce only)
sector, which has seen its market share by value
drop from 28.4% in 2001 to 19.1% in the first half
of 2007.
TNS data also show that the
number of visits consumers make each year to
supermarkets has declined since 2005 or even
earlier, while the number for the superstores has
risen over the same period.
Yu said
China's fast-growing middle class has happily
adapted the one-stop-shopping philosophy created
by the likes of Wal-Mart and Carrefour.
"The superstores are taking hold in China
thanks to the lure of low prices, convenient
one-stop shopping, accessible locations and the
integration of other retail facilities such as
restaurants, cinemas and coffee houses that can
turn a shopping trip into a day out for China's
shoppers," he said.
According to a recent
estimate by the Industrial and Commercial Bank of
China, based on total private savings of 17
trillion yuan (US$2.26 trillion), a middle class
of 200 million people is emerging in China.
Middle-class households are those with annual
income between 60,000 and 500,000 yuan.
"On average, China's middle-class
consumers visit superstores every 10 days, making
for a frequent-shopping pattern that mega-mart
owners can bank on for a predictable revenue
stream," Yu said. TNS attributed their popularity
to "everyday" low-price strategies, one-stop
shopping, and convenient locations, for which some
of the stores offer free shuttle-bus service.
It's no wonder, then, that Carrefour, the
largest retailer in Europe, recently opened its
101st store in mainland China, while Wal-Mart
struck a $1 billion deal in February to take over
Chinese rival Bounteous Co, which operates 101
superstores in 34 Chinese cities under the
Trust-Mart brand, by 2010.
"We won't
reveal our expansion plan," said Aurelie Launay of
Carrefour. "All I can say is that Carrefour will
open between 20 and 25 new hypermarkets this
year," as it did in 2006.
Yu said that as
of mid-2007, the mega-marts had made their biggest
impact in Shanghai, where they accounted for more
than 45% market share of the grocery sector in
terms of value.
"They have had a stronger
presence in Shanghai, due probably to the
development of modern trade as a whole, shopper
affluence, and an open attitude toward the
one-stop shopping format. The rapid urbanization
of Shanghai in recent years also gives room for
superstore expansion into new residential
community," he said.
TNS said the stores
are dominating Shanghai (37.9% share in mid-June),
Shenzhen (37.2%), Guangzhou (35.5%) and Chengdu
(33.8%).
Among the foreign-based companies
leading the growth in China's mega-mart industry
are Wal-Mart/Trust-Mart, Carrefour, Tesco and
RT-Mart, with their market shares in the first
half of 2007 reaching 4.7%, 4.4%, 2.7%, and 2.2%
respectively in total grocery spending on the
mainland, as measured by TNS.
"The fact
that even the market leader does not command a
share above 5% reflects the current fragmented
nature of the grocery trade, with supermarket,
convenience stores, department stores, traditional
grocery stores, specialty stores, wholesale
market, etc all competing for consumers. Regional
differences in retailing also add to the
complexity of the competitive environment," said
Yu. "At the same time, it points to a significant
market opportunity arising from future market
consolidation, which we believe will be
inevitable."
He said expansion into
second- and third-tier cities is highly likely.
"A few international hypermarket operators
are already looking into expanding into second-
and third-tier cities, and numerous retailers are
beginning to offer higher margin departments such
as textiles, fresh food, and their own labels," he
said. "The mega-mart channel is a nascent
industry, whose turning point is still to come as
the lack of competition. So in second-tier cities
it's an opportunity for further development."
However, Yu predicted that the country's
grocery sector will not be dominated by foreign
giants in the next 20 or even 30 years because of
intense competition and regional differences
within the vast country.
"Except Shanghai,
Beijing and other major cities in China, Wal-Mart
and Carrefour have one or two stores in many
cities, so it's very hard for them to become
national players," he said.
The challenges
the foreign stores face in China include how to
differentiate themselves (aside from prices) to
build store loyalty, how to adapt to the Chinese
culture and shopping habits, and how to grow the
more profitable non-food businesses such as
textile, appliances, books and compact discs.
Olivia Chung is a senior Asia
Times Online reporter.
(Copyright 2007
Asia Times Online Ltd. All rights reserved. Please
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