China still a land of opportunity for foreign retailers

- Last updated on GMT

Related tags: China, Cent, Retailing

The world's biggest food retail groups are continuing to strengthen
their positions in the massive Chinese market, buoyed by a recent
relaxation of the regulations requiring them to use local partners.
Carrefour and Wal-Mart are fighting for supremacy there, but Tesco
is also likely to become an increasingly important player over the
next few years.

Data from the Chinese Ministry of Commerce released this week shows that Carrefour's sales in China were RMB16.24 billion last year, an increase of 20.9 per cent compared to the previous year. The main driver of the sales growth was the chain's expansion; the French retailer now owns 62 stores there, up from 41 in 2003.

Wal-Mart, meanwhile, saw its sales in China rise by 30.5 per cent to RMB7.63 billion in 2004, helped by the addition of 10 new stores, taking its total to 43.

Another foreign player, Germany's Metro, has around 23 cash & carry outlets in China, garnering sales of RMB6.36 billion in 2004, up 13.2 per cent on the previous year. Britain's Tesco only recently entered the market through a joint venture with Taiwan's Ting Hsin group, and has around 30 stores there.

While eight of the top 30 retailers in China are foreign-owned (with Carrefour leading the way at number five in the overall list), the country's retail sector remains dominated by local players, according to the government data.

Indeed, the number one group Shanghai Bailian accounts for 22.5 per cent of Chinese retail sales and a quarter of the country's outlets. But relaxation of the regulations also allowed foreign companies to develop stores in parts of the country which were previously forbidden to them - in particular away from the east coast region which is where most major western-style stores are to be found - and this is likely to mean a stepping up of investment this year.

Carrefour, for example, is planning to add another40 stores over the next five years, investing some €600 million in its Chinese operations. It is already the first western retailer to open a store in the west of China, in the northwestern city of Urumqi, and is expected to look for further opportunities there as competition in the more populous and affluent east reaches saturation point.

Metro is another group looking to expand in China, with 40 new stores planned over five years, while both Wal-Mart and Tesco are expected to move aggressively to narrow the gap with Carrefour in 2005 and beyond.

But it is not just the desire of the retailers to offset stagnating sales in more mature western markets which is driving this Chinese expansion. The Beijing government is keen to attract more foreign investment, especially to the rural regions which make up the vast majority of the country, and improving the distribution networks there is a major priority for 2005.

A new programme announced this week by the Ministry of Commerce entitled 'Ten thousand villages and a thousand townships' is designed to attract major foreign and domestic retail outlets to China's rural communities through increasing rural incomes, and improving road and rail networks.

Per capita net income in rural China was RM2,936 in 2004, a 6.8 per cent increase on 2003 according to the Ministry's data. At the same time, spending levels reached RMB1,248 per capita in the first three quarters of 2004, up by nearly 12 per cent. With China's rural population put at around 800 million, the countryside represents a major untapped market for most retail groups.

Related topics: Business, East Asia, Industry growth, China

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