Chinese health and beauty retailers are now starting to face competition among supermarket operators moving into medicines and cosmetics industry.

China’s supermarket industry experienced significant growth four to five years ago, however in recent times operators have seen profits plummet since.

Wang Xianqing, director at Research Institute of the Circulation Economy of Guangdong University of Business Studies, blamed the supermarket gloom on several factors including increased operating costs, lower charges for suppliers (as required by the government), emergence of numerous convenience and discount shops and caps on price hikes.

This has led supermarket operators to diversify into the medicines and cosmetics to boost growth. One of them is Shenzhen-based supermarket chain China Resource Vanguard which now operates 10 health and beauty stores in China and says will add 500 such stores over the next three years.

Earlier this month, grocery retailer Lianhua Supermarket, with more than 5000 stores across China, opened its first health and beauty store in Shanghai.

Analysts find the move of supermarket operators more feasible as the retail industry’s average profit margin stood at two to three per cent compared to 20 per cent in the medicines and cosmetics industry.

“The annual output value of the domestic medical cosmetic sector is 10 billion yuan (US$1.5 billion). But it has large room for growth,” said Yan Qiang, an analyst at consulting firm Adfaith.

China’s medicines and cosmetics industry is dominated by major players Watsons with about 1000 stores in more than 100 cities and Mannings of Dairy Farm Group.

GB