In 2012, the economic outlook has gradually shifted away from the export-oriented model and toward domestic consumption and this is especially true in South China.
THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY
USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT
GAIN Report Number: CH11877
China - Peoples Republic of
South China 2013 Retail Annual Report
In 2012, the economic outlook has gradually shifted away from the export-oriented model and toward domestic
consumption and this is especially true in South China. The retail food sector kept growing but faced a number
of new challenges. Penetration into secondary and third tier cities made the competition fiercer. Urbanization
(in particular in rural areas) as well as infrastructure upgrades has fueled the consumption market. The total
population of five South China provinces (Guangdong, Hunan, Fujian, Guangxi, and Hainan) reached 270 million,
accounts to over one fifth of China’s total population. In 2012, Guangdong’s per capita GDP surpasses $8,500
(RMB 54,095), a 7-percent increase compared to the previous year. Both the size of the middle class and overall
income levels have increased. The per capita GDP of Guangzhou, for example, hit $17,138 (RMB 109,000) and is
leading the region’s average by two percent which is now higher than Beijing and Shanghai. Massive
infrastructure and industrial investment projects have driven the region’s economic growth. In recent years,
Hunan Province committed $12 billion (RMB 75 billion) in investments projects targeting railways, highways,
waterways and other transportation infrastructure. During the economic slowdown, Fujian was seeking new
growth opportunities by emphasizing fisheries processing products in the national retail sector.
Regional Retail Food Market Developments Overview: The retail food sector has encountered a critical
period of transition. The rapid expansion in the past five years in large cities has created an environment of
intense competition. Retailers are actively identifying market development opportunities in second and third
tier cities. New stores are more likely to be constructed in these cities than in first tier cities. In addition, new
challenges from the on-line business sales channels and high operational and rental fees in first tier cities
have forced both international and local retail chains to adjust and rethink their strategic expansion plans in
Mainland China. Mergers and consolidation have enabled the leading players to capture greater market
share away from smaller players. For some retailers this means transitioning from a volume-based approach
to a value-focused approach will be need to drive sales. Similarly expansion speeds of many of the top retail
chains slowed down as they upgrade key outlet stores’ image.
Meanwhile, many retailers have had to close some outlets with poor sales performance. When developing
expansion plans, retailers are more cautious than they were three years ago in selecting an ideal location to
open a new retail outlet. There is greater specialization and consideration to the geographic location of an
outlet that is being tied to customers they intend to reach. These branding and merchandizing strategies
present opportunities for traders to take a more targeted approach in stimulating sales by hiring in-store
promoters and working with individual outlets rather than dealing with a centralized procurement office.
New value added services and existing store upgrades have become more important to retailers as they
strive to differentiate themselves from competitors and establish their place in the market. Demand for
imported food and beverage items has been on the rise as a result of increasing middle class consumers who
are paying greater attention to food safety issues and aspire to a higher quality lifestyle. With the purpose of
ensuring quality and reducing operation costs, direct farm purchasing and an integration of supply chain
development practices have been strengthened by many retailers.
New trends in China’s retail sector
a. The hypermarket format is being readjusted due to fierce competition and higher operational costs.
Overseas retail chains (such as Wal-Mart, Carrefour, and Tesco) are striving to rise above the
competition and survive the increasing rental fees incurred in first/secondary cities. Many retailers
have opted to compete in third tier city markets and reduce property investment projects in large
cities altogether. Around eight Lotus stores were also reported to close this year due to unbalanced
profit/loss ratios. Meanwhile, Carrefour and Tesco are striving to survive in China with several
negative reports about poor customer service, store closures and top management personnel
b. The next five-years are considered the golden age for Mainland China’s e-commerce vendors. Not
only has the giant ecommerce platform such as TMall and Taobao emerged as the largest leader in
the retail sector, but also supermarket chain retailers have joined the pack to gain the new market
share. Yihaodian (online retailer) with Wal-Mart’s investment is one of these examples. According
to sources in the trade, business with Yihaodian has been growing quickly.
c. Other retail formats such as convenience stores and community stores also continue growing.
Specialized food stores and fancy food outlets are picking up in secondary city markets, targeting
affluent consumers who are not as price-sensitive and are looking for higher-end products.
d. Wholesalers and retailers pay close attention to supply chain development –cold management is a
prominent discussion topic. Although Yihaodian mainly targeted packaged foods in the past, this
year, news reports revealed that although cold fresh delivery is a major challenge, Yihaodian expects
higher sales revenues with the recent addition of fresh fruit delivery services launched in Shanghai
(still on a trial basis). After the trial, Yihaodian will expand this service to South and North in the
e. Demand for high quality imported food items is growing since consumers are more concerned about
food safety. With increasing disposable income and dietary changes in the direction of healthier
lifestyles, middle class consumers are willing to pay higher prices for imported food items. Imported
milk formula and U.S. cherries, for example, are some premium products selling in most retail stores.
f. Brands and packaging have become the new marketing strategies many have used to increase sales;
such as gift packaging and packaging for designed to attract children are considered to be useful
promotional tools. Gift-packing used to be a marketing tool for packaged items with longer shelf life,
but recently there is a tendency that consumers favor fresh fruit in a gift packaging as well.
g. Holiday promotions, especially Chinese New Year (generally in January or February) is optimal for
good sales performances. Other holidays such as Lantern Festival (generally in September) and
Golden Week Holidays are also considered as good seasons to increase sales. Food is one of the most
important parts of local consumers’ celebrations.
h. Themed promotions, for example, the U.S. Fresh Fruit Festival or American Food Festival reached to
secondary/ third tier cities. In Changsha, for example, the ten-day U.S. Northwest Cherry promotion
under a theme of “The season of Love” received a positive sales feedback from local consumers.
i. Products with greatest prospects: In South China, imported products with the greatest prospects
include: snack food, dried fruits, 100% natural juice, wine, baby formula, fluid milk, candies, coffee,
crackers, nuts, cheese, butter, yogurt, meat, food supplements and fresh fruits. In addition, cherries,
blueberries, and cranberries are becoming popular since consumers are paying more attention to the
nutritional benefits of these products.
Key Retailer profile
Wal-Mart (China): Currently with over 380 stores nationwide, operating under various formats including
supercenters (hyper market format), Sam’s Club (membership retailer), and Trust Mart (smaller store
format). In 2012, Wal-Mart faced several management challenges such as frequent top management
personnel changes and an expansion slow-down. Although Wal-Mart opened around 30 new stores, this is
relatively slow pace when compared with previous 40 plus new store which opened in 2011. This was due in
part to having to close down several stores with lower profit margins due to poor sales performances. For
example, in Shenzhen, three “smart-choice” (community store format) outlets and one of the first
supercenters opened in China were all closed in 2012. The Wal-Mart “Everyday Low Price” strategy seems to
be challenged by innovation and value-added services. Demand for quality food and new varieties are
growing. According to industry insiders, there are plans to close down over 100 Wal-Mart outlets that are
underperforming by 2015, although Wal-Mart claims the chain will open 30 new outlets and upgrade
another 50 outlets this year. According to some traders who have been in business with Wal-Mart, imported
fresh fruit, for example, will be strengthened in Wal-Mart superstores to attract ongoing customers.
Sam’s Club: In addition to Wal-Mart supercenters, Sam’s Club (membership warehouse stores) is another
Wal-Mart format targeting middle class families and small businesses. Sam’s Club has an entirely
independent and separate purchasing division and operation section than Wal-Mart. Selected brands in
larger packages have made Sam’s Club a unique place to find family-size imported foods. The average per
ticket sale in Sam’s Club is much higher (on average around 30 percent higher) than that of conventional
supermarket competitors. For many local distributors, placing their products in Sam’s Club shelves brings
their products higher status and credibility in the trade, because purchasing teams are quite particular about
the performance of an SKU. To date, there are seven Sam’s Clubs outlets in Mainland China, including two in
Shenzhen, one each in Beijing, Fuzhou, Dalian, Guangzhou and Shanghai. Two new Sam’s Clubs are set to
open in Hangzhou and Suzhou. And it will compete with Metro for market share to source to small local
restaurants (with no centralized purchasing departments). With more new outlets opening in China, Sam’s
Club has begun direct sourcing for certain products from overseas. Products with prospect include seasonal
fresh fruits and snacks.
CR-Vanguard: By the end of 2012, there are a total of 4,425 outlets under CR-V’s brand. Last year alone, 782
outlets were opened, including 82 hypermarkets with sales floor space of (8,000-15,000 square meters). The
merger of Jiangxi Hongkelong chain last year helped CR-V’s penetration into central inland cities.
Olé/ BLT: Under the umbrella of CRV Corporation, Olé and BLT targets upper-middle income shoppers and
white-collar workers. These supermarkets are usually located inside fancy shopping malls. The stores have
been successful at introducing a wide assortment of imported food items such as cheeses, chocolates, coffee,
wine, liquor, biscuits, and fresh fruits albeit at higher prices. Four years ago, the Olé brand encountered
major problem due to an unstable supply chain and lack of promotion to support consumer demand;
however, Olé does not seem to have that problem anymore and is planning to open more outlet in 1st and 2nd
tier cities the near future. (ATO offices in China carried out a national promotion with this chain in 2012, for
further information; please refer to GAIN report CH1858)
AEON: The Japanese retail giant has a total of 102 various format outlets in China, previously known as
Jusco. So far, in China there are four separate regional offices including: Shenzhen, Guangzhou, Qingdao, and
Beijing. Each has separate and independent purchasing divisions. In March 2013, all stores were renamed
AEON as part of the chain’s new strategy. It is expected that the re-organization of renamed AEON group will
bring a brand new image to its consumers-- offering better service and a standardized procedure to its
suppliers. AEON enjoys a favorable reputation in promoting imported food items, mainly from Japan, Korea
and other countries. However, according to traders, the image of AEON/Jusco in the past two years has been
downgraded from what it was in years past.
ξ Pagoda: is a leading specialized fresh fruit community chain store with the head office in Shenzhen.
It has over 400 outlets in Guangdong and Hainan provinces. It started about a decade ago with a
franchise strategy. Pagoda mainly targets residential communities and families. Recently Pagoda
established a branch office in Canada to support purchases of North American fresh fruit.
ξ 7-Eleven is a 24hour business model that made 7- Eleven a pioneer in Guangdong’s convenience
store sector. It has over 600 outlets concentrated in six cities including Guangzhou, Shenzhen and
neighboring cities in the Pearl River Delta like Foshan, Dongguan, Zhongshan and Zhuhai. The chain
targets young and office white collar customers. To attract more traffic, 7-Eleven has added services
such as cell phone battery recharging stations, subway card sales, express delivery, fax, game card
and tickets purchasing to attract greater traffic. Recently, 7-Eleven opened the door to franchising.
With small sales floor (only 200 to 300 square meter), small packaged imported chocolates, candies,
and biscuits are often available in store. It is also noted that some stores have displayed imported
drinks and wine for sales. These products were supplied by various distributors.
ξ Corners’ Deli is one of the fast growing specialized imported food stores. It has over 11 outlets in
Guangdong and Hainan, all featuring a wide range of imported food items. With focus in Guangdong
and Hainan, more single imported food shops were opened.
ξ Watson’s is also expanding rapidly with over 300 stores offering selected imported food items. The
purchasing office in Hong Kong is in charge of imported merchandise assortment selection.