Local Chinese Food Retailers Battle Strong International Pressure

A Search for Peanut Butter in Panjin

My eyes shifted, darting back and forth, spotting feather-less chickens, pieces of pig, bloody beef being chopped into digestible meat. I was lost in the heart of an outdoor meat market in the middle of Panjin, a tier three city in northern China. My sneakers traced mud across the cold, hard concrete and I covered my face from both the obtrusive airborne particles, as well as the unbearable meat-locker like conditions.

I walked into Panjin’s most affluent food shopping market in the center of the city, pried my hands out of my pockets, and slid through the plastic door sliders supposedly protecting the inside from the outside. This market represented a food shopping destination for Panjin’s elite. Delicate slices of tender beef were marked at unaffordable prices, a special Japanese import section was carefully displayed behind velvet ropes, and a row of JIF Peanut Butter shined like gold at the bottom of a dark mine.

Panjin’s City Center

Alas, I was buying Peanut Butter at this upscale shopping center. However a typical Chinese tier three city food shopper is most likely not purchasing peanut butter, instead spending around 200 to 300RMB per month at outdoor fresh markets such as the outdoor meat market mentioned earlier. However, as the income levels of these tier three cities continue to rise, and Chinese people seek safer, sanitary, and convenient food shopping methods, the amount of wet markets in small (and large) Chinese cities will continue to diminish. The unpackaged meat industry (aka meat markets) alone in China is set to drop below 10% of all accounted purchases by 2016.

Tier 2 and Tier 3 Supermarket Expansion

The recent global economic crisis in 2009 also makes these second and third tier Chinese cities ripe for foreign supermarket expansion. Wal-Mart, playing catch-up mode to Carrefour’s strong presence and brand image, opened 17 new supermarkets in China, most in second and third tier cities including Yancheng, Jiangsu, Xiangfan, Hubei, and Changde.

However, Walmart, Carrefour, and Tesco are not alone in Chinese supermarket expansion. They may have set the standard for all local supermarkets to follow but local Chinese supermarket chains such as Lianhua (controlled by the state-owned group Bailian Group) intend to go head to head with Walmart in 2010 and beyond. In 2008, Lianhua set targets to open 15 hypermarkets per year and at that time controlled over 120 plus-sized supermarkets across China. In Xi’an a tier two city located in central China, the supermarket scene is dominated by a local Guangdong controlled retailer named Vanguard which has 22 supermarket locations, compared to one Carrefour and three Wal-Mart’s.

There are signs however of supermarket saturation, Japanese supermarket retailer, Aeon Co Ltd. is likely to miss its target of opening 70 supermarkets in China by the end of February 2011 due to local delays. Another supermarket in Beijing, “C-Mart” uprooted and disapearred overnight last year, leaving behind unpaid bills and taxes. This leads me back to the small city of Panjin. It does not represent China’s wealthiest tier three city, however as of my count there were around 5 to 7 “super” wet markets and 3 supermarket style food shopping centers. None of these supermarkets were owned by international food retailers, yet most contained similar service and products. Much like the former Wal-Mart force outs of local food retailers in America, we may yet see a similar type of supermarket strong arming occur in China’s second and third tier cities.

Shopping Habits of Chinese Youth and the Future of the Food Shopping Industry

The presence of grocery stores in large and small cities in China does not mean that young Chinese are shopping at these locations. Convenience stores, online shopping, parental reliance, and well, no shopping at all, represents more typical shopping habits of Chinese youth. Leon Ni, a 23 year old Shanghai resident claims to only use his kitchen for instant noodles, seaweed soup, or for cutting fruit.

So if Chinese youth aren’t shopping anymore, then this diminishes all hope for future growth in the industry correct? Well no. Food shopping is not going anywhere. What’s changing most amongst Chinese youth in the food shopping industry is the habits and overall shopping experience. As Leon states, he and his friends enjoying shopping at Carrefour because it’s wide aisles and excellent selection make food shopping interesting as well as having the ability to “quarrel and fight with friends.” Enhancing the overall shopping experience is a huge opportunity for food retailers to tap into the Chinese youth market.

Also look for a growth in convenience stores in first, second, and third tier cities. In addition to the myriad of convenience store options that already exist in China, Wal-Mart entered this competitive market by opening three shops in Shenzhen last year. Convenient stores represent an opportunity to “hyper-localize” both experiences and products. Chinese college students looking for a study boost find more of these types of products, working individuals find more lunch options and so on.