Retail battle heats up in China

29 July 2011

BEIJING: Competition is rapidly intensifying in the Chinese retail sector, as major international players like Wal-Mart and Auchan battle with each other and with emerging local challengers.

Kantar Worldpanel, the research firm, continuously assesses the purchase behaviour of 40,000 Chinese households in 20 provinces and four cities: Beijing, Chongqing, Shanghai and Tianjin. Its data covers over 100 product categories in the FMCG segment, and revealed total industry sales had grown by 20% across the year to 17 June, 2011.

Hypermarkets were among the core drivers of this process, as spending climbed by 25% on an annual basis, measured against the lift of 17% recorded by traditional outlets.

One development that could exert an impact on the retail market going forward is the founding of the Sun Art Group, a new holding company housing the operations of RT-Mart and Auchan.

These two chains took a joint market share of 8.2% in the modern retail sector during Q2 2011, according to Kantar Worldpanel.

More specifically, RT-Mart, boasting 156 stores, held a 6.4% share in the second quarter of 2011, up from 5.6% a year earlier.

Auchan, which entered China a decade ago but has a modest 41 stores, saw an increase from 1.6% to 1.8% in the same period.

Sun Art raised $1.1bn following its initial public offering on the Hong Kong Stock Exchange this week and plans to open a further 48 branches in 2011.

"Sun Art is very well positioned," said Oscar Chung, a marketing analyst at Capital Securities Investment Trust. "It is the leader in the future's biggest retail market."

An immediate consequence of Sun Art's formation was to knock Wal-Mart's collected chains from the number one position in China, with a 7.8% share in Q2 2011.

Wal-Mart's branded stores registered a share gain from 4.9% to 5.3% year on year, but its Trust-Mart banner endured a decline from 3.1% to 2.4%.

However, Trust-Mart did see figures rise from 2.1% compared with Q1 2011, suggesting the conversion of its store formats to a template closer to Wal-Mart's is paying dividends.

"The Wal-Mart Group will need to build on this momentum throughout the third quarter in order to return to 2010 share levels and remain competitive in the battle for the number one spot against the Sun Art Group," Kantar Worldpanel said.

Wal-Mart, which has 333 branded stores in China, currently holds a 35% stake in Trust-Mart, running 104 branches, and is waiting to receive regulatory approval to acquire the other 65%.

Moreover, according to Kantar, when these two banners are combined with Sam's Club, the Wal-Mart Group has the highest penetration in China, reaching 27% of households.

An additional trend identified by Kantar was the strengthening of several local chains, with CR-Vanguard Group seeing its market share rise from 6.2% in Q2 2010 to 6.7% in Q2 2011.

This rating peaked at 11.9% in provincial capitals, and shoppers in CR-Vanguard's stores spent almost 100 yuan ($15; €11; £10) more in Q2 than 12 months ago, equating to a 27% increase.

By contrast, Carrefour was essentially flat on 4.8% and Tesco proved similarly static on 2.1%.

Tesco's recent initiatives in China have included launching a new, free quarterly customer magazine, 750,000 of copies of which were circulated in its Shanghai and Shenyang stores.

"We are on a journey to build our brand as the most highly valued retailer in China - an international retailer that understands Chinese customers better than anyone and delivers great value," Paul Morris, Tesco China's marketing director, said.

"Our customers have told us that we could do more to engage them with our brand beyond promotion and price."

Data sourced from Kantar Worldpanel; additional content by Warc staff