Carrefour strengthens position in China

By Leah Vyse

- Last updated on GMT

Related tags Carrefour Department store

Intense competition in Western food markets is driving European
retailers to take advantage of increasing demand and access to
Asian markets.

Carrefour for example, the world's second largest retailer, has taken a further step to cement its status as the leading hypermarket retailer in China by acquiring 100 per cent of its Chinese joint venture, Kunming Carrefour Supermarket.

International Retail Analyst at Euromonitor, Raphael Moreau, told​ that Carrefour looked abroad for expansion because of the regulatory issues it faces at home, particularly in terms of planning permission.

He also explained that the heightened competition it faces from discount retailer Leclerc has made it difficult for the leading retailer to expand within its home country.

He said that following a change in legislation similar moves are likely by other leading European retailers.

"Retailers are now planning a move into second-tier cities which are smaller areas in main land China, Spar for example is moving into these areas."

"Wal-mart also has plans to expand its presence in the market, the company was hoping to build 12-15 new stores in China in the second half of 2005. They saw a 31 per cent increase in sales last year."

A recent Euromonitor report on Carrefour claims: "International expansion will continue with a special emphasis on the Asian continent, since the company expects around half of new openings to occur in this region."

Carrefour paid the Kunming Department Store (Group) €4.2 million for its 35 per cent share of Kunming Carrefour Supermarket giving the retailer its first wholly owned unit in China.

The original venture was set up in June 2002 with registered capital of €9.8m when Carrefour invested €6.4 m for a 65 per cent share.

At the end of 2004 Kunming Department Store (Group) had net assets of minus €5.8million. The company reportedly hopes the deal will optimise its asset structure and generate a return of €1m.

High unemployment, low GDP growth and conservative consumer spending at home have been attributed to the top French retailers expansion in other world markets.

So far this year the retailer has acquired hypermarkets in Brazil and Poland, along with majority stakes in Cyprus, Turkey, Italy and Rome.

A reform of retail regulations introduced in December 2004 allowing foreign retailers to establish wholly owned subsidiaries in China along with a floundering French market has reportedly led Europe's largest retailer to secure its position in the expanding Asian Market.

Following the change in legislation that led to Carrefour's acquisition of a 100 per cent share in its joint venture, Europe's second largest retailer, Metro, has also raised its stake in its joint venture with its Asian partner the Jinjiang Group, from 60 to 90 per cent.

German-based Metro is also reported to have ambitious targets in China with plans to increase its presence there by 50 per cent by the end of 2005.

For European retailers China holds a wealth of opportunity in terms of high demand and reduced operating costs. According to the Chinese National Bureau of Statistics there was a 13.1 per cent increase in retail sales in the first half of the year, with a predicted annual sales increase forecast at 12.8 per cent for 2005.

Europe's third largest retailer in terms of sales, Tesco, is also reportedly considering increasing its investment in its joint ventures in Asia. Speaking in Seoul last week, the chairman of Tesco, David Reid, said that the retailer is considering increasing investment in its joint venture in South Korea.

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