“In the U.S., stores such as Wal-Mart have been able to create an entirely new shopping culture. The one-stop shop philosophy, in particular, is achieving the attention of China's largest spenders, middle-class consumers,” said Jason Yu, regional account development director for TNS Worldpanel in China.
Hypermarkets are retail outlets with huge product ranges, including groceries and general merchandise, in spaces often larger than 4,000 square meters.
They win business by focusing on “every day” low prices, one-stop shopping with a wide range of food and non-food items, and convenient locations. Most Chinese hypermarkets are found in city centers or shopping malls close to residential communities, and many offer consumers free shuttle buses. Hypermarkets often include restaurants, cinemas, department stores, and coffee shops.
TNS continuously measures household consumption in 20 provinces as part of Worldpanel, a global consumer panel. The latest data show hypermarkets increased their share of China's grocery sector in 15 major cities from 28.5% by value in 2005 to 29.8% in 2006. The share in provincial cities has continued to increase this year, reaching 30.1% in the first half of 2007.
TNS is predicting hypermarkets will reach a market share of 35% by the end of the decade, compared to just 19.7% in 2001. The panel measures a pre-recruited sample of families in China in 20 provinces and four big cities--Beijing, Tianjin, Shanghai and Chongqing. The survey covers household consumption, with participants keeping a diary of purchases in different product categories including cosmetics, food and beverages and personal care and household items.
On average, China's middle class consumers visit a hypermarket every 10 days, creating a frequent-shopping pattern that gives hypermarkets a predictable revenue stream.
“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,” Mr. Yu said.
In July 2007, Carrefour opened its 100th hypermarket in China in Shaoxing, a city with 650,000 inhabitants. And Wal-Mart's recently acquired a local chain called Trust-mart.
The hypermarket success story contrasts with the declining supermarket sector. Supermarkets' share dropped from 28.4% by value in 2001 to 19.1% in the first half of 2007. TNS data show that since 2005, consumers are making fewer trips to supermarkets and more visits to hypermarkets.
Hypermarkets have made the biggest inroads in Shanghai, accounting for more than 45% of grocery sales by value in mid-2007. Hypermarkets also have a large chunk of the market in cities like Hangzhou (37.9% share in mid-June), Shenzhen (37.2%), Guangzhou (35.5%) and Chengdu (33.8%).
Most hypermarkets are owned by global retailers. The leaders are Wal-Mart/Trust-Mart (U.S.), Carrefour (France), Tesco (U.K.), and RT-Mart (Taiwan). In the first half of 2007 those retailers controlled 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.”
The opportunity is even bigger in smaller cities. Hypermarkets' market share is just 12.9% by value in tier two cities and 7.6% in tier three cities.
“These figures indicate there is plenty of room for new hypermarkets. A few international hypermarket operators are already looking into expanding into tier two and tier three cities, and numerous retailers are beginning to offer higher margin departments such as textiles, fresh food, and their own labels.”
He added: “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.”