China’s huge and fast-growing consumer market has been a powerful magnet that attracts lots of foreign investment. While offering huge potential, this market, however, is also very tricky.
“Sourcing” is synonymous with the supermarket business in China. Here is where many foreign supermarket operators are having difficulty.
Overseas supermarket giants such as Wal-Mart rely on sales of foreign goods as a pillar of their marketing strategy. However, despite their better quality, these brands suffer from a widening gap between Chinese and foreign tastes.
For example, Tesco’s big-box concept — stocking large stores with a wide array of products — has failed to cater to Chinese consumers’ growing preference for smaller and less pricey supermarkets closer to home. That has given an edge to domestic players China Resources Enterprise (00291.HK), Lian Hua Supermarket (00980.HK) and Wumart Stores (01025.HK).
Also, dealing with local suppliers and maintaining tighter quality control is a big headache for foreign players.
Running a supermarket store in China requires a complicated application process involving at least eight government departments and usually takes a long time, CCTV reported. Dealing with the tedious regime also happens to be one of the weakest links for most foreign supermarkets.
Since British retail giant Tesco (TSCO.UK) made its foray into China in 2004, it has not turned a profit despite repeated investment. It recently decided to abandon its solo business and teamed up with China Resources to set up a joint venture.
After the deal, China Resources will hold 80 percent of the venture while Tesco will take 20 percent.
“This may look like a win-win but in reality, Tesco is saying ‘I can’t figure out China’,” an analyst was quoted as saying. Some interpret Tesco’s decision as waving the white flag.
Tesco is not the only one to experience obstacles in doing business in China. Two other major supermarket chains, Carrerfour (CARR.FR) and Wal-Mart Stores (WMT.US), have met their waterloo in the country.
Carrefour is reportedly planning to withdraw from the China market. Wal-Mart, which has racked up losses for 10 straight years, has only managed to break even. Growth has stalled. It now has 393 stores in China, accounting for about 3.3 percent of its worldwide total, according to its financial report.
The largest supermarket chain in the mainland, Sun Art Retail (06808.HK), controlled 13.6 percent of the market last year. China Resources and Wal-Mart each had a market share of about 10.9 percent while Carrefour and Tesco had 6.9 percent and 2.4 percent, respectively, according to research house Euromonitor.
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