"So it's no surprise that most international retailers are looking closely at China, a market where the grocery sector has continued to see rapid growth year-on-year above the rate of GDP expansion. Hypermarkets are rushing in. In July, Carrefour opened its 100th hypermarket in China in Shaoxing, a prefecture level city with a population of 650,000. Walmart's recent acquisition of Trust-mart is another notable development that underlines the growth story for hypermarkets."
TNS Worldpanel (China), which continuously measures household consumption in 20 of China's provinces as well as Beijing, Tianjin, Shanghai and Chongqing, says latest data show that hypermarkets increased their share of the value of China's grocery sector Note 1 in the country's 15 largest cities Note 2 from 28.5% in 2005 to 29.8% in 2006. The share in these largely provincial capital cities and municipalities - known as tier 1 cities - has continued to increase this year, reaching 30.1% in the first half of 2007. TNS is predicting a share for hypermarkets of 35% by the end of the decade - compared to the level of just 19.7% seen in 2001.
The hypermarket successes contrast with the supermarket sector which has recently experienced retrenchment. Supermarket share of value dropped from 28.4% in 2001 to 19.1% in the first half of 2007. TNS data shows the number of visits consumers make each year to supermarkets has trended down since at least 2005, while the number has risen for hypermarkets over the same period. As of mid 2007, hypermarkets had made their biggest impact in Shanghai, where this channel accounted for more than 45% value share of the grocery sector. Hypermarkets are also dominating Hangzhou (37.9% share in mid June), Shenzhen (37.2%), Guangzhou (35.5%) and Chengdu (33.8%).
Hypermarkets are retail facilities carrying comprehensive product ranges, including full lines of groceries and general merchandise, and in spaces often in excess of 4,000 square meters. TNS says hypermarkets are winning business for a variety of reasons, including:
- Low Prices - Most hypermarkets are utilizing price cutting and "every day" low price strategies to attract shoppers into the store.
- One-Stop Shopping - A wide range of food and non-food items are pulling Chinese families into the stores. Fresh food (including cooked ready-to-eat food) is playing a key role in attracting consumers into the store.
- Location - Most Chinese hypermarkets are conveniently located in city centers or shopping malls close to residential communities and also offer free shuttle buses.
- Total Shopping Experience - Restaurants, cinemas, department stores, and coffee shops are often located on the premises of a hypermarket, allowing people to plan other leisure activities around shopping.
Hypermarket operators predominantly comprise international retailers. Among the companies leading this industry growth are Wal-Mart/Trust-Mart (US), Carrefour (France), Tesco (UK), and RT-Mart (Taiwan), with individual shares in the first half of 2007 of 4.7%, 4.4%, 2.7%, and 2.2%, respectively of China's grocery spend as measured by TNS Worldpanel across 15 cities. "The fact that even the market leader does not command a share above 5% reflects the current fragmented nature of the grocery trade," said Mr Yu. "At the same time, it points to significant market opportunity arising from future market consolidation, which we believe will be inevitable."
TNS says there is a significant opportunity for hypermarkets to penetrate China's retail sector still further, since the hypermarket share of value stands at just 12.9% in tier 2 cities (prefecture-level cities) and 7.6% in tier 3 cities (county-level cities). Mr Yu said: "These figures indicate there is plenty of room for new hypermarkets. A few international hypermarket operators are already looking into expanding into tier 2 and tier 3 cities, and numerous retailers are beginning to offer higher margin departments such as textiles, fresh food, and their own labels. The hypermarket channel is a nascent industry, whose turning point is still to come as the lack of competition in second-tier cities is an opportunity for further development. However, to gain a profitable share in the hypermarket channel, retailers must act now as local competitors are faster in developing a multi-format portfolio to diversify the business risks and capitalize other development opportunities."
