At first, it is important to define the retailing. This is the fact for a company to sell products food or non-food to customers in a fixed place in order to earn money and generate profits. Retail establishments are often called shops or stores. Retailers are at the end of the supply chain. Manufacturing marketers see the process of retailing as a necessary part of their overall distribution strategy. There are many formats of stores. The most important is the hypermarket. In fact a hypermarket is a large retail (minimum floor space of 2500 square metres in the UK), selling both food and non-food items. It is characterized by an optimized cost structure compared to other forms of smaller businesses (supermarkets, convenience, grocery …).
Concerning the market of retailing, there are 65 million potential customers in the UK and 1, 3 billions in China. This will be the first reason of investing in China. China is in full expansion and it’s very interesting to understand why a firm like Marks; Spencer wants to invest in China and no in other country less prize by the competitors. So, concerning China, it is an encouraging country. In 1992, it opened its barriers of market. The foreign companies can also invest in China but they must collaborate with a Chinese company. So it is a joint venture with the competitors. Fortunately after its adhesion of OMC, China was engaged to change its policy concerning the trade (importation and exportation) (www.business-in-asia.com).
So in 2004, it changed its policy and opened its doors completely. At that moment, the foreign companies could have invested in China as they wanted. This changed in order to help the growth of the economy and develop the country. China is very interested by its number of customers, its labour cheaper and its development. (ibid).
This consists of the sale of goods or merchandise from a fixed location, such as a department store, in small individual lots for direct consumption by the purchase. Purchasers may be individuals or businesses. In commerce, a retailer buys goods or products in large quantities from manufacturers or importers, either directly or through a wholesaler, and then sells smaller quantities to the end-user.
The food sector had a very strong growth in recent years. Indeed, the compound annual growth rate (CAGR) was 10.6% for the sum of 377 billion dollars in 2006. In comparison, Japanese and Indians have had respectively over the same period, revenues of 332.1 billion and 168 billion dollars. However, the performance of the industry will certainly slow down according to economists, with a CAGR of 8.8% and revenues of 574 billion dollars planned between 2006 and 2011. China is the country most vendors and creates 37.5% of total revenue in the countries of the Asia Pacific. (Reports of Retail Food in China “Business source premier” digital library)
Then, the format of stores that generated the most turnovers, i.e. 132.9 billion, is the supermarket. In vogue at the moment in China, the supermarket achieves the equivalent of 35.2% of Chinese food market. (ibid) About the third and fourth articles in the literature review, it is necessary to explain in more detail the Chinese market. Thus, for this reason, the following is a presentation of the analysis of competitors, an analysis of the demand and an application of the tool PEST analysis.
Competitor analysis The Chinese market has a large number of Chinese food distributor and non-Chinese. Indeed, Marks ; Spencer has a large number of competitors. Wal Mart, an American distributor has 55 stores and a turnover of 307 million Euros in China for the moment and Carrefour, a French distributor has 338 stores and a turnover of 2 billion Euros (2006). But, in the end of 2007, Wal Mart has buy 35% of actions of the Giant Chinese retailer “Trust Mart”. This participation enables Wal-Mart to grow its network of 101 Chinese stores and 16 additional cities. Thus, Wal-Mart begins to catch up with Carrefour. And normally in 2010, it should buy the totality of action of Trust Mart and it should become the first foreign retailer in China. So, Carrefour is the first foreign retailer in China for the moment but if it does nothings, it will lose its first place.
Then, there is Tesco, the No. 1 distributor of UK, also decided to locate in China. Finally, Auchan and Metro are also members of the competitors of Carrefour in China. (Source: “The rise of the Chinese consumer” (2005)) Therefore, Carrefour must also deal with many local competitors who hold a majority market. One of the most important is Bailin Shanghai, which has 5000 stores and a turnover of 6.2 billions Euros. (www.fiducia-china.com) There is the top Mainland Chain Store Operators in Appendix 2.
Since that foreign retailers have settled in China (1995 to Carrefour) the rate of penetration is very strong. This means that the number of settlements since the last decades has been significant.
The problem for foreign retailers is the fact that the Chinese are very attached to their traditional businesses. The foreign retailers must offer the same products at the same price or less. Thus, they can expect to compete with the local traders. Gambling view, in recent years Carrefour, Wal Mart, Tesco adapt its stores to Chinese customers. For example, customers can buy egg “bulk” but also buy their fish directly sin in the basins by the consumers themselves ect … .There is a constant war between the different traders. But this will only escalate because the foreign competition is becoming increasingly important and ferocious.
Finally, there is another important point regarding the distribution networks. In fact, traditional traders already have their own suppliers and trust is installed. Thus suppliers may choose to select only the local retailers (seen their impressive number). Regarding Carrefour, there is no real threat because with a high purchasing power, it is too important for suppliers. Especially since the Chinese appreciates foreign retailers. Indeed, foreigners have a good network in China. Finally, until now, the competition in the countryside is low. First, since foreign firms are not yet implemented. But also as agricultural production is still very important and rural population lives primarily with these productions.
Demand in China
The demand is characterized by the number of potential customers, the target, expectations of the target and finally his interest in a store more than another. There are over 1.3 billion potential customers in China. Appendix 3 Thus, the demand is very important especially in big cities. Consumers spend Chinese loan of 30% of their total revenues in the diet. Thus, they are demanding in terms of prices because they want value for their money.
Carrefour’s and Wal Mart’s success is due to the respect of the food habits of the Chinese population. The consumption habits of Chinese are different from the country of Europe for example, with a high percentage of fresh products in the basic food basket, and a high frequency of purchase. (www.carrefour.com, www.walmart.com) They offer a wide variety of local products, often cheaper than in the traditional stores. The retailers know that their ability to adapt to a customer is a demanding part of the keys to success.
But the problem remains the differences in classes. Indeed, a minority of the population can afford to buy products that are more high-end, but millions of Chinese have had barely enough to buy food at their convenience. The criteria for selecting the most important are the price and service providers. Broadly speaking, the Chinese attach great importance to the search for information on a product before buying it. They are curious compared to the nature and composition of the product, particularly with regard to foreign products. (www.laposte-export-solutions.com) Finally, like said before, Chinese customers prefer traditional retailers. But gradually, the foreign retailers like Carrefour and Wal Mart win market share and proposed the same things that the local retailers. So, the competition is very severe and nothing is play.