Source: China’s Top 20 FMCG Retailers, 2010. China Chain Store & Franchise Association
As a result of the domestic consumption growth in China, multinational and local retailers are strategizing their multichannel operations to compete for the country’s 14% of GDP spent on groceries. Although foreign retailers led by Wal-Mart entered China 16 years ago, local players still dominate China’s food retailing space. To the multinationals, the rising middle class in large cities has been the lure of the Chinese market. To the local retailers, however, the national expansion to underserved mass market is more the focus. At the crossroad of interests and goals, local players outperform the foreign giants by being the closest to the Chinese customers, both physically and culturally.
Local retailers achieve deeper insights and wider store coverage
With shopper behaviors highly driven by cultural and societal norms, Chinese consumers still heavily depend on informal wet markets for daily fresh food. Wet markets play a complementary role to local retailers in China as Chinese consumers rely heavily on chain retailers for FMCG and imported goods. To Chinese consumers, “freshness” entails bare-eye judgments and customization of specific cuts and parts. Supermarkets such as Wal-Mart and Carrefour in China responded by bringing traditional wet markets indoor; however, a strong perception barrier persists among their customers that prevents them from fully understanding the price and the supply chain of fresh groceries in big box retailers. In comparison, their local wet market vendors know their produce by origin and know their customers by name. Thus, a clear gap exists between retailers and informal trade for produce. For local chain retailers, operating near a wet market and supplying produce not offered by those wet markets becomes their competitive advantage in the saturated marketplace. Despite the advantages that local retailers capture, international players such as AEON and Carrefour chose to compete head-to-head against local wet markets to capture market share from the younger generation Chinese consumers.
Prosper China’s Quarterly Survey of 16,000 Chinese shoppers (Click to Enlarge)
As the majority of the Chinese population is still not reachable by the multinational destination stores, most Chinese consumers have a preference towards the local retailers that are easily accessible in their local vicinities. Chinese consumers are highly pragmatic, yet not loyal, as they make their purchase decisions upon products of the best value at a given price point. According to Prosper China’s Quarterly Survey of 16,000 Chinese shoppers, proximity is the major reason why they would prefer a local chain retailer versus a multinational one-stop-shop. To foreign retailers, the Chinese consumer has a higher expectation on their product selection and quality as opposed to their store location. To local retailers, locations come before product assortment and price. Comparing the store count of the top 20 FMCG retailers in China, local retailers have an advantage in store coverage over foreign retailers on a national scale, which allows them to capture the vast majority of rural and lower-income customers.
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