Foreign supermarkets lose luster in China

By Huang Ge Source:Global Times Published: 2019/7/22 16:03:58

Retailers adapt to digitalized operation to catch up with domestic consumption upgrades

A resident selects items from a supermarket in Yichang, Central China's Hubei Province on July 11. Photo: IC

Foreign supermarkets, which display shelves of consumer goods over tens of thousands of square meters, have been regarded as game changers in the retail business for the last 20 years. This may be set to change as they are losing ground while local competitors rise and online shopping thrives.

"It's no exaggeration to say that I haven't been to a bricks-and-mortar supermarket for over a year, despite Carrefour being only a 7-minute walk from my apartment," said a Beijing resident surnamed Peng who lives in Chaoyang district.

"I can get what I want - a bottle of yogurt, a pair of socks or even a toilet lid - from an online market, and they will be delivered to my home immediately," Peng told the Global Times over the weekend. 

Peng's way of shopping complies with most domestic consumers' choices in the fast-changing Chinese market, where an increasing number of foreign retailers are trying to catch up.

Carrefour is the latest example of foreign retail giants retreating from the Chinese market.

In June, Carrefour SA agreed to sell an 80 percent stake in its China business to local retailer for 4.8 billion yuan ($698 million), as the French company reconsiders its exploration of the Chinese market after years of decline.


Carrefour China's current woes differ from its ambition when it first entered the Chinese market 24 years ago. 

The first Carrefour supermarket was set up in 1995, near the China International Exhibition Center in Chaoyang district.

The newcomer brought a huge hit to nearby local retailers, such as Chaoyang Department Store and Yanfeng Market, as the latter decided to lower retail prices for more than 1,000 goods such as beverages, instant foods and cleaning products to lure consumers.

The Chinese retail industry then began to embrace the changes which came with the entry of foreign players.

But Carrefour could not smoothly enter the domestic market without support from the Chinese government. In 1992, the State Council, China's cabinet, approved the entrance of foreign firms into retail via joint ventures. Entry was allowed to expand to food and chain businesses in 1995.

After gaining a firm foothold in Beijing, Carrefour later expanded quickly in other first-tier and second-tier cities in China. 

This was not unique to Carrefour; other foreign retailers were also eager to explore the Chinese market.

Founded in the US in 1962, Walmart came to China in 1996. In the same year, Dutch company Makro opened its first outlet in Guangzhou, capital of South China's Guangdong Province.

When expanding in Guangzhou, Makro applied an advertisement fee to subsidize consumers' costs, and the average price of the products it sold was 20 percent to 30 percent lower than those in other markets, domestic news site reported.

Apart from the foreign companies' effective operation and purchase models, favorable tax polices provided by the Chinese government offered greater scope for price reduction for foreign supermarkets in the Chinese retail sector, analysts said.

They noted that with the business model, rich commodity offers and relatively lower prices from foreign markets brought changes to traditional Chinese retailers during the years. This fierce competition put much pressure on local supermarkets. 

For instance, more than 10 domestic markets neighboring foreign supermarkets were closed in each first-tier city including Beijing, Shanghai, Guangzhou and Shenzhen in 1997, the report said. Among 212 local, large-scale markets in China, 119 of them first reported declines in profits that year.

Thanks to China's opening-up of the retail industry to foreign capital at the end of 2004, foreign supermarkets experienced a period of rapid growth in China. 

Carrefour China operated a network of 210 hypermarkets and 24 convenience stores over the years. Walmart has developed more than 400 stores and clubs and 20 distribution centers in China.

Declining attraction

Despite rapid sales and growth for foreign supermarkets, a turning point soon emerged. 

From 2012 to 2017, Carrefour's sales dropped from 5.58 billion euros ($6.27 billion) to 4.62 billion euros in the Chinese mainland, with a yearly decline of nearly 17 percent during the period, according to data released by the company. 

German wholesaler Metro is reportedly looking to sell its China operations. South Korean firm Lotte Mart has sold 93 of its retail stores to Chinese supermarket chain Wumei Holdings Inc and Liqun Commercial Group in 2018.

After 23 years of operation, Walmart is also seemingly running out of momentum as media reports said the US company has closed stores in China during recent years.

Carrefour's market share reduced to 3 percent in 2018 from 8 percent in 2010 and Walmart dropped to 5 percent from 11 percent during the same period, the reported, citing industry data.

As China is undergoing consumption upgrades, domestic consumers' spending methods differ from tradition, and e-commerce business has become dominant in the Chinese retail industry, Zhang Yi, CEO with Shenzhen-based iiMedia Research, told the Global Times on Thursday.

Zhang said that with the rising popularity of smartphone-enabled payment and online shopping in China, the operation of most foreign supermarkets remains unchanged, leading to their lag in the market.

Walmart's closure of its stores in China is due to many of its leases having expired, a person close to the company and anonymous by necessity told the Global Times on Thursday, noting also that Walmart had opened 33 new stores and clubs in 2018 and invested 400 million yuan to upgrade over 50 other stores and clubs across China during the same period.

In a bid to adapt to the fast-changing and increasingly competitive Chinese retail market, Walmart aims to integrate physical stores with multiple digital channels and transform into an omni-channel digital enterprise, the company said in a statement sent to the Global Times on Friday.

Walmart has also become the first brick-and-mortar retailer in China to introduce a network of e-commerce depots. Now, more than 30 Walmart depots have been set up in Shenzhen, Shanghai, Beijing and Chengdu, Southwest China's Sichuan Province.

Go online

The rise of e-commerce businesses has led to a shift in consumer habits, as Chinese young people now depend on their mobile phones to place orders for items ranging from food to cinema tickets. 

China's e-commerce trade volume reached 31.63 trillion yuan in 2018, over 9 trillion yuan was made in online retail sales, and online payment exceeded 200 trillion yuan during the same year, according to a report released at the China International Big Data Industry Expo 2019 in May.

Experts said the trend of declining sales and profits at physical retailers will continue in the future amid the rapid growth of e-commerce. 

"Foreign markets need some transformation to adapt to the Chinese retail industry, and they are expected to join up with online vendors in the future to better integrate online and offline business, becoming a strong supply source for e-commerce business", Lu Zhenwang, founder of Shanghai Wanqing Commerce Consulting, told the Global Times on Thursday.

Suning said it will help transform Carrefour's stores in China into digitalized operations after the acquisition deal, according to a statement the firm sent to the Global Times on Friday.

For instance, Suning's online markets and fresh food units will cooperate with Carrefour China in the supply chain, logistics and storage in the future to improve shipping efficiency and lower purchase cost, the Chinese firm said.

"To improve their attractiveness to modern Chinese consumers, experience-focused products, which cannot be easily replaced by online purchases, should be promoted by these foreign supermarkets," Zhang noted.

For example, it is not that easy for mothers to buy baby milk powder online and experience at a physical store is important for them, according to Zhang.

Some local supermarkets like Wumei and Yonghui are enjoying popularity among Chinese consumers, which shows a trend that some medium-sized supermarkets, instead of large, stockroom-style supermarkets, will be able to grow in the domestic market, Lu said.


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