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The most populous country on earth and one with enormous regional differences, China’s complexity should not be underestimated.
In fact, it’s probably better to think of it as eight or nine different countries, stretching down the developed East of the country, across to the barely inhabited mountainous area close to Nepal and Mount Everest.
And this is just the start of the challenge in understanding China. Add to this distinct interregional variation, the varying approaches of local and regional governments, and the tremendous differences in levels of development between different 'Tier' cities, and the task of unravelling the opportunity in China becomes even greater.
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| The contrasts in Shanghai reflect the huge variations across the rest of China | |
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From a grocery perspective, the need to work with a complex network of distributors, with different pricing structures and inevitable different levels of efficiency, makes the challenge even greater. What soon becomes clear is the need to dedicate considerable focus and expertise (as well as a strong in situ presence) in order to unravel the opportunity. While everything may be possible in China, nothing is necessarily easy.
Formats developing apace
A 20m annual rural-urban shift is making the cities bigger, and the size of Tier 1 cities such as Shanghai, Beijing, Guangzhou and Shenzhen is almost beyond comprehension. And they’re merging into neighbouring cities too - we went for one trip to Changzhou, a Tier 3 city over 100km from Shanghai, and struggled to identify the end of one conurbation from the start of the next.
Hypermarkets are all the rage in China at the moment, and leading global players, in particular Walmart and Carrefour, have played a key role in driving the hypermarket phenomenon in Chinese cities.
Though arriving in China a little later, Tesco too is building its presence, now operating over 100 hypermarkets down the Eastern coast of China, Local players, too, are consolidating and emerging as stronger regional players across the country. Shanghai Brilliance, for example, is particularly impressive with its multi-format strategy including the attractive hypermarket format Century Mart.
Targeting the cities
Though Tier 1 cities are getting more saturated with hypermarket formats, in smaller cities the opportunity for growth remains strong . Both Walmart and Carrefour are shifting their expansion focus to include Tier 4 cities, still cities of over 1m inhabitants, but as of yet relatively undeveloped from a modern retail perspective.
In fact there are over 160 cities with a population of over 1m, providing much scope for growth. What’s more the economy has largely remained on track through the global downturn, meaning most shoppers are continuing to benefit from growing spending power.
In Tier 1 cities in particular, convenience is emerging as a key growth area. Local players, together with Japanese operators such as 7-Eleven, Lawson and Family Mart, are among the key players in what has traditionally been a smaller format dominated sector, with average sizes of less than 1,000 sq ft.
But the market is starting to evolve: Tesco Express has brought something new to Shanghai, with a wider offer, including much focus on fresh ranges . Despite encouraging signs and an offer that proved popular during our visit, with only eight stores across Shanghai, it's still early days.
Building the brand to build the category
A key difference between stores in China and those in Western Europe is the role of brands. Chinese shoppers have an obsession with brands, and many luxury brands have been able to develop surprisingly large businesses in China, as shoppers spend liberally on the likes of Prada, Armani and Burberry.
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Brand display units are very prominent in Chinese stores |
And leading manufacturers are finding the Chinese market to be fertile ground, with penetration of private label remaining very low, and often confined to entry price point ranges. Brand display units are prominent, and are often manned and positively encourage product trial. With a fragmented media and the importance of word of mouth, often the best place to build a brand can be in-store.
But for brands there's more to it. It’s also about building the wider category through a combination of entertainment, information and education. Health and beauty products, for example, have recently experienced tremendous increases in penetration, while household products are among those categories going the same way at present , as consumers learn to appreciate the benefits of products that previously may not have even been on their radar.
Despite its tremendous recent growth, China remains a land full of opportunity with further growth to come. Understanding how to take advantage of the highly complex opportunity is the key to success in this global power.
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Our trip to China is part of the ongoing primary research programme that makes IGD the ideal source for your customised research needs. Contact Jonathan for further details of how we can help your business develop a robust and sustainable business strategy based on global retail insight. |
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