Germany’s Metro pulls plug on China convenience store business after less than two years

The company cites ‘drastic changes’ in the business environment, including surging rents, while analysts note stiff competition from other chains

PUBLISHED : Friday, 08 December, 2017, 6:27pm
UPDATED : Friday, 08 December, 2017, 6:40pm

German retail and wholesale giant Metro AG, has closed all its convenience stores in China less than two years after setting them up, citing what it said were “drastic changes” in the business environment, including skyrocketing rents in major cities.

Its four MyMart stores in Shanghai, which sold fresh and cooked food, as well as snacks and goods under Metro’s own Aka brand and which were located near mid to high-end commercial districts in Shanghai, closed at the end of September, according to a company statement.

“Due to drastic changes in the market, like the quick increase in property prices in many cities in China, the management of Metro China has decided to suspend its efforts in the convenience business,” the statement said.

“But this will not affect Metro China’s commitment to long-term development in China. We will keep expanding our sales network in China and continue to focus on four pillars – O2O stores, food service delivery, welfare and gifting and other e-commerce channels, where we can provide added value to Chinese customers, “ it said.

Metro announced its move into the convenience store business in April 2016, with the first two Shanghai stores opening a month later. Metro China’s CEO, Jeroen de Groot, said at the time that convenience stores would become a key pillar to support the company’s development, and that they would work in tandem with the rest of business to provide a further platform for consumers.

Unmanned stores in China still working on a seamless shopper experience

However it came up against a market full of mature foreign and domestic players, while unmanned stores that are very similar to traditional convenience stores are also springing up, making for a tough operating environment, analysts said.

“One of the reasons could be that [the Metro stores] were very similar to Japanese convenience store chains like 7-Eleven,” said Luo Xianfei, a retail analyst at Northeast Securities. “My Mart stores’ fresh food supply chain might not be as competitive as other players,” he said.

China’s convenience store business experienced a period of rapid development in the first half of 2017, with e-commerce giants like Alibaba and JD and traditional retailers including France’s Carrefour and China’s Yonghui Superstores all accelerating their presence in the sector.

“The very fierce competition in this sector has led to declines in the number of operators and transaction volumes,” said Niu Bokun, analyst with Hua Chuang Securities.

Nevertheless, the convenience store market still has potential for operators who are able to devote the necessary resources, others said.

“Whilst challenging, we don’t believe it’s impossible for new convenience brands to enter the Chinese market. There are multiple cities with room to grow and larger brands are also growing as well,” said Jack Chuang, partner at OC&C Strategy Consultants.

“However, to be successful, it will require significant commitment in terms of financials and internal organisation.”

Metro entered the China market in 1996, and now operates more than 80 big supermarkets in more than 50 cities.