Mixed performance in 2011 for international retailers in China

Growth for Walmart has come from both the top tier cities, where Walmart already has a stronger presence, as well as the lower tier cities where the American chain is expanding its operations.

Kantar Worldpanel, the global market leader in consumer panel insights, reports 18% value growth for the FMCG (Fast Moving Consumer Goods) market for the latest year up to 30th December 2011 compared to the same period a year ago. This growth is predominantly driven by inflation but shoppers moving to more premium products and expanding their overall consumption of FMCG products is also contributing.

Walmart is the only key international retailer to gain share over the last quarter and now represents 7.8% of modern trade, just 0.1% away from the number one retail group, RT-Mart plus Auchan.

Growth for Walmart has come from both the top tier cities, where Walmart already has a stronger
presence, as well as the lower tier cities where the American chain is expanding its operations. The group’s accelerated conversions of Trust-Mart are now delivering positive results as the total group has gained 0.3ppts over the last quarter. Walmart has also managed to continue to grow in the West 1* region despite the recent mislabelling of pork incident in Chongqing.

Many of the other top retailers have struggled over the last quarter either remaining still or even losing share in the case of Carrefour, for example. The top ten retail groups, in the latest quarter accounted for 39% which has fallen by 1ppt compared to the same quarter a year ago. This suggests that China’s national retailer landscape hasn’t become consolidated as the smaller players fight back against the big international chains who now dominate many cities.

Local Retailers Fighting Back

International FMCG retailers in China have slowly been growing their presence over last decade but this trend is changing and in some areas of China the international retailers are actually losing share to the local players. For example, in the East 1** region Century Mart, which is part of the Balian Group, has now reached a share of 7.7% and increase from 6.8% in the same quarter a year ago. Also, in China’s North 2*** region the Wu-Mart Group, which consists of the Wu-Mart and Merry Mart banners, continues to stretch their lead of the international chains now reaching a share of 10% in the latest quarter up 0.8ppts from last year.

International retailers are considerably more dominant in China’s four key cities (Shanghai, Beijing, Guangzhou and Chengdu) where as a group they account for 49% of all FMCG sales whereas in China’s counties they represent a share of just 5%. However, the pressure from local retailers is not just seen in the lower tier cities where they are more established. They are also giving the international players a tough time in the provincial capitals.

So what has driven the performance of these local retailers? One success story has been the retail chain Yonghui. During 2011 Yonghui opened 49 new stores, an increase of 31% taking its total number of stores to 204. With its wide range of store formats, strong focus on fresh food offer and now substantial number of hypermarkets within their portfolio the company is able to compete on a more even playing field with its international competitors. Yonghui’s heartland is in Fujian and Chongqing region where it has built regional strength but its recent expansion to cities such Jiangsu, Henan and Heilongjiang is helping the retailer on its way to become a truly national player.

Looking Ahead

2012 will continue to see a changing and challenging landscape for FMCG retailers and there are a number of key trends which will play a key role in the future development of FMCG retailing in China.

• Local retailers will continue to grow and international retailers will need to be more adaptive to regional variance in consumption particularly in those areas where the local retailers are posing increasing challenges.

• E-commerce will become even more important for brick-and-mortar retailers as many of them are building their online presence to cope with the competition from the likes of Yihaodian and Tmall.

• A more rationalised approach to store portfolio management. The key retailers will continue to focus on opening new stores to capture more shoppers but many will look to take a more rationalised approach by closing those stores which perform poorly perhaps due to being situated in the wrong location. Both Tesco and Carrefour started to withdraw from some cities during 2011.

• As competition becomes fierce we expect to see retailers being forced to differentiate their offer more by offering unique merchandise and more private label lines.

• Offering different store formats, such as Tesco Express and Sam’s club, will continue to grow in importance as retailers look to attract a different type of shopper and grow their overall footfall.

The Kantar Worldpanel Retailer Flash, which provides quarterly and annual analysis of key retailers by region and city tiers, is now available for subscription. The report, based on continuous tracking of consumer grocery purchases by 40,000 representative households in urban China, allows FMCG manufacturers to closely monitor market movement and formulate fact-based key account strategy.

Notes:

* West 1 region consists of Chongqing, Shaanxi and Sichuan provinces

** East 1 region consists of Shanghai, Jiangsu and Zhejiang provinces

*** North 2 region consists of Beijing, Tianjin, Hebei, Shandong and Shanxi provinces.