Locals regain ground at home
Chinese retailers who braced themselves a decade or so ago for an influx of competitors, such as Carrefour and Walmart, have matched, and in some cases, even outclassed their giant international rivals.
Fujian-based retailer New Hua Du Supercentre announced last week it would acquire six stores run by E-Mart, South Korea's biggest supermarket chain, for 125 million yuan (HK$153 million). The stores are Jiangsu and Zhejiang provinces.
The deal - the first buyout by a mainland retailer of a foreign-invested supermarket in China - will see another Fujian company, Yonghui Superstores, buy E-Mart's only store in Beijing, pending shareholder approval.
'Ten years ago many people cried: 'the wolf is coming'; thinking international retailing giants would dominate the China market with their 'strong' capital and advanced management experience,' Pei Liang, secretary general of the China Chain Store and Franchise Association, said.
'But now we find that the wolf is not that scary.'
China opened its retail industry to foreign competitors in 1995, allowing them to form joint ventures with mainland companies. Restrictions were further eased in 2001, when the country joined the World Trade Organisation.
Under the WTO deal, China agreed to remove all limits on shareholding, shop numbers, and shop locations for foreign players by 2005. Almost all of the world's top retailers in the world have since opened for business in China.
By last August, hypermarket giant Walmart had 189 outlets in China; while its major rival Carrefour had more than 180. Other global players with a China presence include Taiwan-based RT-Mart, Tesco of Britain, Metro of Germany, the CP-Lotus hypermarket chain operated by Thailand's Chia Tai Group, Aeon of Japan, and French retailer Auchan.
Pei said foreign companies dominated the hypermarket sector in China, with more than half of the market. But local retailer led in terms of mid-sized supermarkets and convenient stores, which are particularly popular in second- and third-tier cities.
'[Local retailers] are fast learners. But more importantly, they have developed their advantages by opening stores in residential communities, being flexible to meet customers' demands, and tapping into multiple businesses,' he said.
Chong Xiaobing, assistant president of Beijing-based Wu-Mart, one of the earliest supermarket operators in China, remembers the first lesson he learned from a visit to Carrefour's Beijing shop in the late 90's.
'Carrefour was the first supermarket in Beijing to use direct mail advertising to promote its products. Before that we hadn't thought of such an efficient way to tell customers what we are selling,' Chong said.
Since then, site visits to rivals' shops have become part of the job for Wu-Mart's managers. They examine everything in the outlets, from price tags and poster design to product displays and promotions, to learn from them.
But Chinese supermarkets have also introduced their own business innovations that have since been adopted by overseas rivals. One was to use a shuttle bus to pick customers up from their neighborhoods and ferry them to supermarkets. The service was first initiated by Merry Mart of Beijing and has since become a regular offering by supermarkets to boost their traffic.
Chinese retailers have also been more flexible compared to foreign retailers running large shops in downtown centres.
The locals venture deep into residential blocks and rent cheaper and smaller places for shops.
They also lease part of their shops to small tenants, such as tailors, small caterers, lottery stations, and chemists, to provide a spread of products and services.
In recent years, a number of home-grown leaders have emerged, capturing a bigger slice of market share than foreign brands in regional centres. They include Wu-Mart in Beijing, China Resources' Vanguard in Shenzhen, Suguo in Nanjing, Yonghui in Fujian province, and Jiajiayue in Shandong.
'But so far no local company has become a national leader,' said Pei, who expects foreign retailers to speed up their expansion across the nation in the next few years, intensifying competition in the industry.
'There are still huge gaps in many invisible aspects [between local and foreign players], from how to establish an efficient and cost-effective sourcing system, to what temperature is the best to store beers displayed in refrigerators.
'There's really a long way to catch up for local supermarkets.'
The year Walmart entered China by opening a superstore in Shenzhen
- it operates in 101 cities across the country