Market snapshots


Before China's accession to the WTO, the retail sector was sheltered by extreme protection, which is now being relaxed and the sector has been put on the 'fast track' of opening up. In three years' time, China will have to open up the retail sale sector across the board and eliminate the restrictions on region, amount and equity proportions of foreign wholesalers. Within five years , the country will open the wholesale sector. There will be an increase in the number of foreign retailers strategically entering the retail sector over the next few years.

Since the mid-1990s, total retail sales and consumption of consumer goods have been growing at a faster speed than that of the GDP. In 2001 for example, the rate of increase in the total retail sales of consumer goods was 10.1 per cent year on year, three percentage points higher than the rate of the GDP.

Driven by the fast-growing economy and increasing consumer affluence, China's retail market is expected to have great growth potential and should reach a total of RMB5.7 trillion by 2010.

The retail trade is highly fragmented and dominated by 'Mom-and-Pop' stores. According to a survey, the top 100 retailers in China have a share of less than five per cent of the retail market.

Retail formats have experienced great changes: chain stores have emerged as a significant force, growing at an annual rate of 48 per cent over the last few years. Correspondingly, sales by retail chains now account for more than eight per cent of the total retail market. There is a trend for independent stores to evolve into chains. According to a survey conducted by the State Economic and Trade Commission and the National Statistical Bureau, there were 1,138 retail chains in China by the middle of 2001, with a total of 25,119 outlets. The total sales of these retail chains in the first half of 2001 was RMB102.41 billion.

The total retail sales of consumer goods as a percentage of GDP has been on the rise in recent years. By 2001, its share of GDP approached 40 per cent. Compared with developed countries such as the United States, whose total retail sales accounts for over 60 per cent of its GDP, China's retail market still has a considerable room for growth, and as a result, the rate of growth in the foreseeable future is expected to be higher than that of the GDP.

There has been a disparity in terms of the ratio of consumption between urban and rural residents. According to one estimate, over 60 per cent of retail sales come from urban areas. The rural market has yet to be developed.

The generally oversupply of consumer goods has led to intense competition among retailers and profit margins for retailers are low. According to a survey by the Chinese Chain and Franchise Association of retail chains with a total turnover exceeding RMB100 million, the average net profit is only 1.33 per cent while gross profit averages 12.4 per cent. The low profit margin is in effect one of the key driving forces for Chinese retail chains to develop towards expansion in scale to compete with foreign-invested retailers, who are competing on volume orders in addition to having other advantages.

The rate of contribution by the domestic market to the development of China's economy is increasing steadily. But the pattern of growth that had originally been investment- and production-driven “ has now begun to shift to consumption- and market-driven.

Key retail players

Although the total sales of the top 20 retail chains (see Table 6.14.1) as a percentage of total retail sales of consumer goods is relatively small at 2.6 per cent, the rate of growth was a phenomenal 43 per cent year on year, much higher than the 10.1 per cent increase in total retail sales of consumer goods. Equally impressive was the rate of increase in the expansion of retail outlets: 46.7 per cent over 2000.

Table 6.14.1: Top 20 retail chains, 2001

Rank

Company name

Turnover (thousand RMB)

Increase on2000 (%)

Increase on 2000 (%)

No. of outlets    

Rank in first half of 2001

1

Lianhua Supermarket Co Ltd

14,063,410

26.24

1225

28.95

1

2

Hualian Supermarket Co Ltd

8,504,150

51.70

818

19.94

3

3

Beijing Hualian Comprehensive Supermarket Co Ltd

8,000,000

60.00

42

68.00

5

4

Shanghai Nonggongshang Supermarket Co Ltd

7,474,650

38.35

315

115.75

2

5

Sanlian Commercial Corp

7,026,000

32.28

177

98.87

2

6

Beijing Guomei Electrical Appliances Co Ltd

6,150,470

119.78

74

124.24

9

7

Suguo Supermarket Co Ltd

5,282,000

31.39

663

59.38

6

8

Yum! Brands China Investment Co Ltd (previously Tricon China Investment Co Ltd)

5,205,110

24.04

635

38.34

7

9

Shanghai Jinjiang Metro Co Ltd

4,949,220

32.20

15

87.50

8

10

China Resources Vanguard Co Ltd

4,647,660

34.94

344

42.15 1

3

11

Suning Electrical Appliances Chain Group Co Ltd

3,991,070

23.35

91

250.00

 

12

Tianjin Home World Chain Commercial Group Co Ltd

3,266,680

47.76

28

40.00

11

13

Jiangsu Wenfengdashijie Chain Development Co Ltd

3,145,300

47.6

17

54.55

10

14

Jiangsu Five Star Appliances Co Ltd

2,546,000

74.38

66

26.92

12

15

Beijing Wumei Commercial Group Co Ltd

2,521,700

97.36

199

261.81

14

16

Beijing Jingkelong Commercial Mansion

1,893,310

33.94

57

5.56

15

17

Shenzhen Xinyijia Supermarket Co Ltd

1,890,000

148.36

16

128.57

 

18

Shanghai Yongle Appliances Co Ltd

1,860,000

48.44

21

61.54

 

19

Wuhan Zhongbai Group Co Ltd

1,784,010

41.55 84

1100.00

   

20

Shanghai Jieqiang Tobacco Sugar and Wine (Group) Chain Co Ltd

1,717,570

19.88

240

20.00

17

 

Total

95,918,310

42.99

5127

46.70

 

Source: State Economic and Trade Commission

Among the top 20 retail chains, four new chain store names made it into the top 20, while 16 remained in the top 20, albeit with different rankings. This ranking structure has led some analysts to believe that a group of retail chain enterprises with expanding scales , steady performance and some competitive advantages have started to emerge as a leading force of the retail market. However, there is a flaw in the ranking: some of the international retail chains operating in China such McDonald's and Carrefour, were not included because they registered under different company names in the process of joint venturing and could not be regarded as chain operators.

Geographically, seven of the top 20 are headquartered in Shanghai, four each in Beijing and Jiangsu Province, two in Guangdong Province and one each in Tianjin, Shandong Province and Hubei Province. None is located in western China. Such a pattern of geographical distribution is determined by the gap that exists in the economic development between eastern and western China and this pattern is not expected to change very much.

In terms of retail formats, 13 of the top 20 are supermarket chains specializing mainly in fast-moving consumer products, with the rest being food chains such as Yum! Brands' Kentucky Fried Chicken and electrical appliance speciality chains such as Beijing Guomei and Jiangsu Suning.

In parallel with the release of the above list, China Chain and Franchise Association also announced its ranking of China's top 100 retailers for the year 2001. The accredited retailers reflected a wider spectrum of the retail sector to include not only the fast expanding supermarket (69), food service (12) and electrical appliance (8) chains, but also department store (4), drug store (4) and other retail chains such as hotel (1) and speciality chains (2) (see Table 6.14.2).

Table 6.14.2: Leading retail chains (excluding supermarket chains), 2001

Ranking

Company name

2001 turnover (thousand RMB)

Increase over 2000 (%)

No. of outlets

Increase over 2000(%)

Department store chains

10

Beijing Wangfujing Group Co Ltd

4,887,300

9

8

36

Shenzhen Maoye Commercial Masion Co Ltd

1,238,650

20

4

33

41

Beijing SCITEC Commercial Development Co Ltd

1,014,020

42

11

120

42

Shenzhen Tianhong Shopping Centre Co Ltd

1,008,080

16

3 0

 

Drug store chains

61

Chongqing Heping Pharmacy Chain Co Ltd

567,070

23

518

73

90

Dalian Meluo Pharmacy Chain Co Ltd

320,760

na

105

na

96

 

295,000

217

203

233

97

Jianmin Pharmacy Chain of Guangzhou Pharmaceutical Corp

289,560

3

100

69

Hotel chains

57

Dalian Friendship Group

630,000

 

15

 

Specialty chains

19

Lengend (Beijing) Co Ltd (computer retailing )

2,092,940

107

565

117

87

Giant (China) Co Ltd (bicycle retailing)

343,540

75

1245

32

Source: China Chain and Franchise Association

Retail chains have been expanding quickly and are becoming a dominant force in the retail sector. According to the Association, the total sales of the top 100 retail chains in 2001 was RMB162 billion, an increase of 48 per cent over 2000. The share of the top 100 in China's total retail sales of consumer goods was 4.3 per cent in 2001, 1.4 percentage points higher than in 2000. The total number of retail outlets owned by the top 100 chains was 13,117, a rise of 56 per cent compared with 2000.

Over the last five years, the trend of retail outlet expansion and increase of sales turnover by the top 100 retail chains has been strong and persistent. In 1997, the average number of retail outlets of the top 100 retail chains was 24.4 and in 2001 the number jumped to 131.2 (see Figure 6.14.1).

click to expand
Figure 6.14.1: Average number of retail outlets of the top 100 retail chains, 1997 “2001

Average sales of the top 100 retail chains have grown at an accelerated speed over the past five years. In 1997, for example, the average turnover of the 100 largest retail chains was only RMB240 million but leapt to RMB1.62 billion in 2001 (see Figure 6.14.2).

click to expand
Figure 6.14.2: Average turnover of the top 100 retail chains 1997 to 2001 (RMB 100 million)

Interestingly, however, the survey of the top 100 retail chains for 2001 again missed out some of the major foreign retail players such as Carrefour, Wal-mart, Pricesmart, Makro Jusco, 7-Eleven, Roson, Parkson and McDonald's. Such omissions, for whatever reasons, have limited the representative nature of both this and the other survey of the top 20 retail chains conducted by the State Economic and Trade Commission. However, these surveys at least provide a picture of the local retail leaders and how they have been doing in their competition for a share of the market.

Foreign entry

Regardless of the fact that some of the international retail chains have been excluded from the top 20 and top 100 retail chains in China, it is undeniable that many foreign retail magnates have already established a presence in China and achieved success there. At present, 70 per cent of the top 50 largest retail chains in the world have a presence in China. From the time when China opened up the retail sector for foreign involvement on a trial basis in 1992 to the end of 2001, there were a total of 356 foreign-invested commercial enterprises operating in China, although only 40 of these were officially approved and the remaining 316 were operating without official licences.

Since the early 1990s, China's retail sector has been an international battlefield. The future competitive situation is expected to be even more aggressive as foreign retail chains start to penetrate deeper into the market.

Wal-mart, the magnate of the international retail community, entered China in 1996. Although it was relatively slow expanding its operations in the early stages, with only eight stores in the 4-5 years following its entry, it began a more aggressive expansion policy in 2001 and has now opened 20 stores in 9 cities with plans to open 50 stores over the next three years. Its first Beijing shop will be opened in 2002 and four more are planned over the next couple of years.

Carrefour, the first company to bring the huge retail store format to China in 1995, has spread all over the country, with 28 outlets in 15 big cities, making it the largest foreign retailer in China. It began to look at Chinese market opportunities in the early 1990s and opened its first premises in Beijing in a manner that circumvented the policy restrictions placed on the entry of foreign retailers to China. Along its road to expansion, Carrefour established some stores that did not have appropriate official approval and some that were virtually wholly-owned by Carrefour, which is against Chinese laws and regulations. It has been reported that Carrefour was requested to comply with government regulations by selling at least 35 per cent of its wholly - owned operations to local companies before its plan to open another 10 stores can be given the green light.

The German-based retail giant Metro has also been active in China. By 2000, it had established eight stores in the country. Since 2001, it has extended its operations to other parts of China, opening over 10 warehouse supermarkets in 11 cities including Hangzhou, Wuhan, Chengdu and Chongqing.

COSCO, the twelfth largest retailer in world, has also made progress in China's retail market. It is said that COSCO has engaged one of the leading Chinese retail chains in its plan to open ten large-scale warehouse supermarkets. New COSCO stores are expected to open in some of China's major urban centres .

Other international retail chains active in China include the Japan-based Ito-Yoado, Tesco, Auchan, B&Q, OBI and Ikea who all have aggressive plans to expand in China.

Taiwanese retail chains are also attempting to take a slice of the market. Instead of the crowded larger cities, Taiwanese retail chains began with medium- sized cities with a more regional oriented strategy. Trust-mart, for example, is concentrating its retail operations in the Pearl Delta River area, and developing from there into the west of China, where it has opened seven stores. So far, Trust-mart has opened 26 retail outlets in China, second only to Carrefour in terms of the number of outlets. Another Taiwanese retail chain, RT-mart, has successfully avoided direct competition with international retail chains in key cities by moving into cities such as Nanjing, Wuxi, Changzhou, Yangzhou, Suzhou, Changshu, Kunshan, Nantong and Jiaxing, all of which are on the flank of Shanghai.




Doing Business with China
Doing Business with China
ISBN: 1905050089
EAN: 2147483647
Year: 2003
Pages: 648
Authors: Lord Brittan

flylib.com © 2008-2017.
If you may any questions please contact us: flylib@qtcs.net