Wal-Mart puts quality before price in China
Mainland concern over food safety pushes supermarket to bolster the trust of customers
Wal-Mart Stores, famed for its low prices, has stumbled in the one major market where consumers say price is less of a driver in their buying decisions: China.
There, consumers say they want food that is safe and authentic, and, after 17 years, Wal-Mart is changing its approach, closing some big-box stores that never quite caught on with locals.
Instead, it is focusing on private-label products and imports, putting its stamp on quality and safety.
"We're closing some stores because we got enamoured with growth," said Raymond Bracy, the head of corporate affairs at Walmart China.
The world's largest retailer ranks third in China, behind Sun Art Retail and state-backed China Resources Enterprise, according to Euromonitor.
"If you went out and asked members or customers, 'What's your single biggest worry?' they'll tell you trust and authenticity," said Greg Foran, who took over as chief executive of Walmart China in 2012. "Once you've got their trust, the next question they ask themselves is, 'How much is it?'"
Foran told reporters in December that Wal-Mart aimed to have private labels make up 20 per cent of its China sales within the next decade, up from less than 1 per cent now. Private labels typically price at 10 to 40 per cent below local brands, but profit margins are higher.
Bracy said the retailer was rationalising its supply chain in China and building its own distribution centres to manage quality while also lowering costs.
"Our costs have come down so much on pork that people ask us, 'Gee, is it too low?' They wonder, 'Is it legitimate? Can we trust it?'" he said.
Mainland consumers sought out large foreign brands for reliability and quality, said James Roy, an associate principal at Shanghai-based China Market Research.
"Yet they're seeing mixed messages from Wal-Mart," Roy said, "because they have tried to sell the 'everyday low prices' concept, and Chinese consumers equate 'everyday low prices' with being cheap and not very safe."