Germany’s Metro Group keen on adding self-built stores in China despite surging land costs

PUBLISHED : Tuesday, 06 December, 2016, 4:31pm
UPDATED : Tuesday, 06 December, 2016, 4:31pm

As one of the first global retailers to enter China in the 1990s when the country partially opened its retail market, Germany-based Metro Group has taken a different path to develop its self-built stores and has owned a large number of properties since then.

Geoffrey Guo, expansion director and head of project development of China at Metro Jinjiang Cash & Carry, a joint venture set up with Shanghai-based Jinjiang Group, said at the time there was no way to find properties that can meet their requirements, as they need floor heights of 13 metres and floors capable of handling loads of 2.5 tonnes.

Although the company has lowered its requirements in recent years when renting stores partly because of the pace of growth of land prices in China, Guo, a Singaporean with rich experience in real estate who has lived in Shanghai since 2003, said the company will definitely not go completely asset-light and maintain its advantage in having its own stores.

He said Metro will continue to look for reasonably priced land and will fight to open more self-built stores as the company believes that by owning its own stores it can provide customers with the best service.

How does Metro buy land in China?

We have bid on land through the open market since 2005, usually by ourselves.

The government has certain land parcels that are strictly for supermarket use. However, these days, it is getting much harder to buy land in first-tier cities. The prices are too high.

For example in Shanghai, an acre can cost tens of millions (in yuan). We even cannot afford land in some second-tier cities such as Hangzhou.

Now we are eyeing cities such as Zhengzhou, Xian and Hefei for expansion, and will not give up building our own stores as we believe the customer experience in self-built store is unmatched.

If you do rent a shop, landlords will never give you the best location on the first floor and trying to park your car will be a tortuous experience and cost customers a lot of time.

Meanwhile, our self-built stores are designed to make things very comfortable – customers can just park the car at the gate and immediately go shopping.

I’ve heard that many customers love driving here.

How long does it take to launch a store after the land is bought?

For us it is very fast, we can complete a store in six to eight months, but the biggest issue is the government side. It takes a long time to get government approval to start construction, and the time can’t be measured.

Has your business been hit by e-commerce?

A lot of supermarkets have closed, but we haven’t closed any stores. There has been some impact on our business, mostly in the non-food sector.

Our food service is still showing healthy growth, as we are the only HACCP-certified retailer in China, a foot safety verification system in Europe.

Foot safety is a very serious problem in China as there are many different types of vendors but government control is inadequate. So supermarkets have the responsibility to check the safety of their products, and we have the capability.

Metro Group has already entered 56 cities in China. What is your next step?

Our biggest market in Asia is China and then India. We will continue to deepen our presence in existing Chinese cities, especially first- and second-tier cities.

Meanwhile, we will enter new cities in western China, because our sales in that region’s cities are relatively better. In southern coastal cities, the price of a home is high and a large part of personal consumption is occupied by housing mortgages.

In western China, the average home prices in most cities are still under 10,000 yuan (HK$11,260) per square metre, so they don’t have so much mortgage pressure and are more willing to shop.

Compared to our competitors, our growth pace is slower, but we ensure our stores are profitable, and can cover our investment.

How would Metro position itself in China?

Our focus is always to serve our business clients and we will continue to strengthen this area. Meanwhile, we will take end-consumers into account.

The purpose of property development is to support our core wholesale and retail businesses, and we will keep both self-built and rented stores. Building and holding commercial property is not easy but we have accumulated 20 years of experience which is hard to replicate.