China - land of retail opportunity

Related tags Hypermarket

China's fast-growing retail sector could offer a golden opportunity
for western companies - but only those that understand the
challenges faced in catering to the Chinese consumer.

A new report from UK-based food and grocery think tank IGD predicts that the Chinese grocery market will grow by 65 per cent to $456 billion in the next five years.

This growth will be fuelled by the development of modern retailing, in particular growth in hypermarket and convenience formats and consumer demand for value-added, processed and ready-to-eat products, according to the IGD report.

"This growth presents fantastic opportunities, but entry into China does come with a health warning,"​ the report said. "China is one country - but with 32 markets, each with its own tastes and shopping habits, and the greatest challenge facing anyone operating in China is understanding the diverse, fragmented and constantly evolving needs of the consumer."

IGD said that found there are huge differences between Chinese consumers, in terms of different generations, eating habits and where they live.

"Key political events over the past 50 years including the Cultural Revolution, the opening up of China and its recent economic growth mean that three distinct generations have emerged, and differing experiences mean that consumption habits vary between these generations.

"For example the over 35s are more traditional and conservative, preferring to shop daily and stay loyal to local brands, while those aged 25-35 and under 25 have a higher disposable income, prefer to shop weekly, are familiar with foreign lifestyles and open to western products."

The IGD report added that eating habits and tastes vary widely between provinces, and as such there was no guarantee that a product successfully introduced into one region will prove popular in another.

"The rapid urbanisation of China as a result of continued economic growth is a tempting prospect, but there are huge regional differences. The urban population accounts for 41 per cent of the total population, and has an average annual household expenditure twice as high as that of the rural population. The concentration of wealth is predominantly along the east coast, although there are pockets of wealth developing in the centre and west."

Despite the relatively rapid growth of western chains such as Wal-Mart, Carrefour, Metro and, most recently, Tesco, China's supply chain is still in the early stages of development, due to the fragmented market and lack of scale of international retailers, according to the IGD report. As a result, "suppliers will come under increasing pressure to improve their service levels, while retailers will seek to develop sophisticated automated distribution centres"​. Joanne Denney-Finch, chief executive of IGD, said: "China is, without doubt, one of the most exciting grocery markets in the world and the potential for growth is astounding. The race to win has only just started and the next five years will be critical. However, anyone entering this market must keep very close to the consumer and be able to adapt very quickly as the markets develop.

"Retailers and suppliers must be flexible and prepared to continually fine-tune their approach, for example using different approaches for primary, secondary and more rural markets and ensuring that product quality and service are high."

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