China food retail sector set to boom in 2005

"It is now popular knowledge that China holds the potential to become the world's largest retail market,"​ said Robert Gregory, analyst for M+M Planet Retail​. "The deregulation of the China market at the end of this year will increase opportunities for foreign retailers no end, allowing them to expand much more freely."​

The saturated food retail markets of North America and Europe mean that key players such as Wal-Mart, Carrefour and Tesco will all be clamouring to increase their foothold on the China market, where a fragmented food retail sector combined with outstanding market growth are further signs that point towards significant prospects.

This week Metro announced plans to add 12 more outlets to its existing 21 warehouse cash and carry operations in the country. Carrefour has even more outlets than Metro and in turn has a slightly higher turnover than the German retailer. It is planning to open a further 21 'Champion' discount stores to add to its 53 existing hypermarkets in the country.

Adding to the competition is the relatively recent arrival of British retailer Tesco. It's joint venture with Taiwanese retailer Ting Hsin has given a strong start in the market, with 30 hypermarket outlets.

Gregory views Tesco's move as a good one, although he adds that joint ventures will not prove the way forward for the big retailers in the future.

"The deregulation of the market means that food retailers are no longer obliged to enter the market through a joint venture,"​ Gregory said. "This is likely to spell the end of such arrangements for the biggest international players. On top of that, the potential for these players has also been increased because geographical restrictions on where new retail outlets can be set up have also been lifted. This means that retailers are now likely to expand outside of the three main urban conurbations of Beijing, Shanghai and Guandong into smaller tier one and two urban areas and cities."​

Currently the biggest international retailers in China are Carrefour and Wal-Mart. But with Wal-Mart poised to expand aggressively in 2005, many industry experts expect that it will take the lead next year. Last year Wal-Mart and Carrefour were neck and neck with turnovers of $1.6 billion, while Metro followed closely with a $1.3 billion turnover.

But the domestic retailers should not be forgotten in this equation. Currently the leading player is Lianhea, which in 2003 had a turnover of $3.2 billion. The company was expanding rapidly during the course of this year, and, like its foreign counterparts, is set to increase rapidly in the year ahead.

Either way, with deregulation just around the corner, the race is well and truly on to carve up the biggest slices of the China food retail segment.