BIGFOREIGNFOOTPRINTS

By Tu Lei

A Wal-mart shopping mall in Beijing.Photo: CFP

The contest between large Chinese retailers and their overseas competitors escalated Monday after South Korea's biggest department store chain, Lotte Shopping, agreed to buy 72.3 percent of Hong Kong-based Times Ltd, for HK$4.87 billion ($628 million), beating out Beijing-based Wumart Stores.

With the acquisition of 53 hypermarkets and 12 supermarkets, Lotte gained a strong foothold across the most affluent provinces in eastern China including Jiangsu, Zhejiang, Anhui and Shandong and the municipality of Shanghai.

It's a growing trend with no end in sight, though domestic chains are beginning to fight back.

In 2008, Japan-based Aeon acquired 35 percent of the shares of Jusco's five department stores in Shenzhen for 94.5 million yuan ($13.84 million). After the acquisition, the five department stores were fully owned by the Japanese company. Carrefour SA, Europe's biggest retailer, agreed to increase its stake in the Guangzhou-based Jiaguang supermarket to 80 percent from 55 percent as well.

Figures from the China General Chamber of Commerce show that, in 2008, foreign-invested stores accounted for 30 percent of the top 10 retailers' sales revenue, rising from the 4.6 percent in 2001.

Reasons behind

Although Yao Jian, spokesman of the Ministry of Commerce, said the increased foreign investment brings improvements to the domestic retail trade in terms of technology and supply chains, problems are still ahead.

Domestic retailers lag behind in purchasing ability, logistics, quality, shopping environment, management experience and services, said Du Yanhong, an analyst from Shenzhen Zhongzhe Investment Consulting.

A report from Commercial Times said that the logistics cost in China is as high as 21 percent, higher than the 10 percent average in the United States.

And to save costs, foreign giants such as Wal-mart and Carrefour are adopting centralized purchasing and distribution systems.

At the recently held 2009 Western China International Economy & Trade Fair, Wal-mart said it plans to set up a logistics center in Chengdu, Sichuan Province, to cover western and central China, and Carrefour said it will meet with local suppliers directly instead of using third-party logistics partners.

In October 2008, at a press conference held by Wal-mart, CEO Ed Chan said the chain also plans to cooperate with the Ministry of Commerce to contract with 1 million farmers to produce eco-friendly, low priced crops and raw materials for its China stores.

"The foreign retailers have efficient management systems, and ensure their supermarkets provide standardized services to their customers, which puts them ahead of many Chinese retailers," Xiao Mingchao, deputy general manager of Sinomonitor International, told the Global Times.

Moreover, Xiao added the foreign giants have a better understanding of consumers.

"Chinese consumers are price-sensitive and foreign retail prices and seletion give consumers the impression that they are gaining tangible benefits, which also attracts consumers who aren't necessarily wealthy," said Xiao.

Way out

In 1981, the Guangzhou Friendship Department Store opened the first supermarket in China. With its larger selection and 270-square-meter shopping floor, it began an immediate hit.

In 1994, the first Wumart mega-store opened in Beijing and one year later, the sales revenue unexpectedly reached 100 million yuan ($14.65 million). Also in 1994, another supermarket chain, Jingkelong was established in Beijing. In 1995, it had its first chain store and currently has 243 stores. In 2008, the sales income was 9.864 billion yuan ($1.44 billion), with a profit of 276 million yuan ($40.43 million). In 2007, the turnover was 5.64 billion yuan ($82.61 million).

Seeing massive opportunities, Carrefour entered China in 1995, followed by Wal-mart one year later, and the competition between the two giants and local retailers like Wumart, one of China's leading chains that has over 500 stores, has been intense ever since.

Wal-mart now operates 146 outlets and employs over 70,000 workers, according to its website.

As of July this year, Carrefour had 138 outlets, and has said it plans to open 20 stores a year for an indefinite period of time. In 2008, with a sales income of 33.8 billion yuan ($4.9 billion), it was listed in the second spot after Lianhua Supermarket Holdings Co among the Top 100 retailers.

Chen Jianming, CEO of www.yipu. com.cn, said Chinese retailers need to do more than just copy foreign methods and some are indeed testing new ways to improve and expand their operations.

Wumart combines its chain stores with local fresh vegetable markets. Chaoshifa, another Beijing-based supermarket with 65 chain stores, has its morning market, and the prices there is equal or lower than farmer markets. Jingkelong invested 60 million yuan ($8.78 million) and set up its own distribution center for fresh goods, and it has built up vegetables, fruits and meat purchasing bases in 16 provinces.

Pei Liang, secretary-general of China Chain Store & Franchise Association, told the Global Times that the local retailers should go further into smaller communities and rural markets to gain more grassroots advantages.

"Local retailers will discover their competitive edge there because the foreign giants are good at hypermarkets," said Pei. "The fourth and third-tier cities will have more chances for local retailers to compete with foreign giants," echoed Xiao from Sinomonitor.
 

Explore the World, Understand China!
Please log on www.gloaltimes.cn