• Tue
  • Sep 2, 2014
  • Updated: 3:23pm

Hualian woes highlight tough market

PUBLISHED : Thursday, 18 May, 2006, 12:00am
UPDATED : Thursday, 18 May, 2006, 12:00am
 

Supermarket chain's losses come as competition heats up in crowded sector


In a sign of the intense competition in China's retail sector, one of the biggest supermarket chains yesterday announced that it had closed stores in Beijing to stem rising losses while South Korea's biggest discount store operator opened a large new outlet in Shanghai.


Wang Dongliang, a spokesman for Hualian Supermarket, said that it was reducing its operations in Beijing because of pressure from domestic and foreign rivals, adding: 'This sector is over-competitive.'


Industry sources said that Hualian had cut its Beijing outlets from 40 at the end of last year to the current 18, given up its plan to open 100 stores in the capital and would in future concentrate on its home market of Shanghai and the Yangtze River Delta.


On April 29, the company announced a net first-quarter loss of 1.74 million yuan, down 130 per cent from a year earlier, following a 2005 loss of 41.06 million, of which the Beijing operations accounted for 17.08 million.


Competition in the mainland's retail market has intensified since December 2004 when the government lifted restrictions on foreign players as part of its commitments to the World Trade Organisation, allowing them to invest anywhere and without a local partner.


This led to a rush of foreign companies, of which South Korea's Emart is the latest, opening its third department store in Shanghai last week with a total investment so far of 260 million yuan. It plans to open 15 stores in the city and 50 across China by 2010.


'Yes, there are very many hypermarkets in China but the level of competition is low, mainly on price,' said an Emart official.


'Over the next five years, the competition will turn from hardware to software with style of management becoming most important. The winners will be those that adapt to the local environment and have a unique management style.'


According to the China Chain Store Management Association, foreign-invested companies' sales last year were 143.9 billion yuan or 20 per cent of the total 707.6 billion yuan of the 100 biggest chain stores in the country.


The foreigner players have ambitious expansion plans. Carrefour, the biggest, plans to open about 20 hypermarkets this year in addition to the 70 it had at the end of last year while Wal-Mart aims to add 18 to 20 outlets this year to the existing 56.


All this has made Shanghai the most saturated market.


It has 124 hypermarkets, each with a floor area of more than 5,000 square metres, of which 36 are within one kilometre of another hypermarket and the number is due to double over the next five years.


The density of convenience stores and supermarkets in major cities led consultant A.T. Kearney to drop China one place to fifth in the world's most attractive markets for mass merchant and food retailers in the 2006 Global Retail Development Index, published in April.


India ranks first, followed by Russia, Vietnam and the Ukraine, which took over from China in fourth place.


'The Indian retail market is gradually but surely opening up while China's market becomes increasingly saturated, fuelled by the growth of international retailers,' the report said.


'Major players include Wal-Mart and Carrefour, which are well-entrenched, and Tesco, which entered the market in mid-2004 with a US$250 million joint venture investment. Tesco owns about 50 stores in China and plans to open 15 per year in the future.'


In March, Carrefour demonstrated the importance of the mainland market by putting its China operations directly under head office in Paris rather than the Asian region.


Paul French, chief China representative of Access Asia, said that Shanghai was saturated and excessively competitive.


'It has disposable income levels that are not as high as generally perceived and has too many white elephant mall developments. Copy cat products, IPR infringement and piracy are all rife in China and the only time that the central government acts seriously is when China's own IPRs are threatened,' he said.


'The other big problem is illegal substitution, where genuine products are replaced with fakes along the supply chain. Last year 120 people died in Shanghai due to the use of fake paint which gave off toxic fumes when the heating was turned on in winter. Beer is another product that suffers from dangerous substitution. If you see waiters with cuts on their faces, it may well be due to exploding bottle tops from counterfeit beer,' he said.


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