China’s largest food retailers have suffered “a torrid 18 months” and will need to transform their offer to recover from declining growth, according to a new report from OC&C Strategy Consultants Greater China.
In Need of Fresh Ideas reveals that nearly all of the major players among China’s ‘big-box’ supermarkets and hypermarkets, including SunArt, CRV, Carrefour, Walmart and Wumart, have experienced near-consistent negative growth since 2010. During this period, any ongoing growth has been supported almost entirely by new store openings.
OC&C says hypermarkets have come under attack from all sides and in particular from online grocers.
“Online offers a more convenient and often cheaper way to buy packaged groceries and consumer electronics, which make up over three quarters of typical hypermarket sales. Meanwhile, shopping malls offer a far superior day-out experience for consumers with wider ranges of F&B, entertainment and apparel retail compared to hypermarket malls.”
One market sector that continues to prosper in the face of online retail is the traditional wet market. Despite strong efforts from online retailers to develop their fresh food offering, Chinese consumers still prefer to go to these traditional outlets. The frequency of customer visits to hypermarkets is declining far more rapidly than for wet markets as consumers stay loyal to the best fresh food offering because of superior choice, price and perceived freshness.
Richard McKenzie, partner at OC&C Greater China, said that despite poor performance, it’s not all doom and gloom for the big hypermarket groups and it would be a mistake to write them off.
“But they do need to embrace significant change and shift their offering. Even before they begin to adapt, they retain the strongest buying scale in many categories and hold prime shopping locations that will continue to draw customers,” McKenzie said.
China’s largest grocery retailers are likely to continue underperforming unless they revamp their business. The report outlines four ways in which retailers should transform their current customer offering:
* Further invest in fresh produce to drive loyalty: Even more so than before, fresh food is the key offline battleground. With fresh food typically low-margin or loss-making for the majority of grocers, this will be a difficult, but essential, option for many to win back customers.
* Revive large-formats as destination venues by revamping co-located shopping malls:
Including more or better quality food and beverage and entertainment in the associated malls will help recover some of the destination element to hypermarket venues. While unlikely to ever rival a full-scale mall as an entertainment venue, there are still significant gains to be made from rising traffic.
* Build online, notably multi-channel capabilities: Grocers are late starters in the online space but can leverage their brand trust to attract online shoppers as a well as using their regional store networks to deliver multi-channel shopping experiences such as click-and-collect.
* Develop smaller/more focused store formats: China’s grocers should start to develop their smaller store portfolios, as in many developed markets. This could be achieved by expanding the current network of mid-sized community stores or developing and piloting smaller-format local stores.
OC&C is a global consulting firm and the preferred strategy consultancy with 65 partners in 10 countries, including Greater China, Europe, India, South America and the US. The Greater China Practice has offices in Hong Kong and Shanghai, serving both domestic and multinational clients across Asia.
