Walmart vs Wumart: The Battle for Chinese Retail Dominance

The US has Wal-Mart, China has Wumart – China’s largest supermarket chain operates 469 franchise stores; including 330 convenience stores and 100 hypermarts in Beijing, Hebei, Tianjin and surrounding areas. Like it’s American counterpart, the prices are wonderfully low. 

It’s Q2 profit rose by 20 percent and the company opened 69 new outlets over 12 months. It’s secret: mergers and acquisitions after competition from local and foreign rivals intensified as China relaxed restrictions on foreign retailers.

The US has Wal-Mart, China has Wumart – China’s largest supermarket chain operates 469 franchise stores; including 330 convenience stores and 100 hypermarts in Beijing, Hebei, Tianjin and surrounding areas. Like it’s American counterpart, the prices are wonderfully low. 

It’s Q2 profit rose by 20 percent and the company opened 69 new outlets over 12 months. It’s secret: mergers and acquisitions after competition from local and foreign rivals intensified as China relaxed restrictions on foreign retailers.

The Economist reports: 

[quote]China is the world’s fastest-growing major retail market, and may one day be the biggest. Foreign chains such as Carrefour, Walmart and Tesco are piling in. Yet none of them nor any of their local rivals comes close to dominating China as Walmart dominates the supermarket business in America. The largest chain, Shanghai Bailian, has only 11% of the market and barely registers outside its home region. [/quote]

So how does Wumart compare to Walmart?

Well, Wumart is cheaper. Thought Walmart is fancier, cleaner and well lit. The wares are safe, reliable and tastefully displayed. In Wumart, piles of raw chickens and basins brimming with live fish and sea turtles customers can kill or have slaughtered greet customers in China.

Walmart entered China in 1996, 2 years after Wumart began to take over China. Walmart has 338 stores in China with annual sales of US$7 billion.

Wumart makes US$2 billion across 469 stores.

 

Zhang Wenzhong, Wumart’s founder, is serving an 18-year prison sentence for bribery is still ambitious and wanted to open 1,000 stores by 2010, though that did not happen. [quote] “We dream about being the Walmart of China,” says Fu Yu, a Wumart spokesman. [/quote]

Wu Jianzhong, Wumart’s chairman, thinks Chinese stores need to spruce up. [quote] “Foreign retailers wear suits when they welcome visitors, while the Chinese wear shorts because they feel they are familiar with their clients,” he sighs. Chinese executives should at least wear long trousers, he reckons. [/quote]

Retail sales in China are $1 trillion a year and growing by around 18% annually. China’s 1.4 billion people are rapidly urbanising and ravenous for all the goods they couldn’t have a generation ago. Their government is eager to promote domestic consumption.

But the Chinese middle class is not nearly as rich as the middle class in developed countries. A mere 1.4% of urban households make more than $15,000 a year, and only 11% make $5,000-15,000. And all these people save furiously, because unless they work for the state they are unlikely to receive much of a pension.

Small wonder that they love low prices.

Small wonder, too, that the government, which fears anything that might provoke unrest, fears inflation. Consumer inflation is officially 5.3% but probably higher. The central government has cranked up interest rates, banned the hoarding of staple foods, raised subsidies to low-income families and increased the minimum wage.

Supermarkets could cut prices if their supply chains were better-oiled. Moving food from farm to fork is a nightmare. China has few big farms. More than four-fifths of the rural population of 675m work on tiny plots. “Logistics, warehousing and shipping are still very inefficient,” says Chiang Jeongwen of the China-Europe International Business School in Shanghai.

The market has a Wild West feel. Huge areas of China are wide open, and it helps if you are chums with the local lawman. Retailers depend on local government for a licence and a place to operate. “The prime space always goes to local players,” says Sunny Wong, the boss of Lifung Trinity, a retailer. Tellingly, the Bailian Group, China’s biggest retailer, is state-owned.

“There could be political tensions if a foreign retailer gets too big or too dominant,” says Matthew Crabbe of Access Asia, a consultancy. There seems little danger of that. Neither Carrefour nor Walmart has much more than 6% of the market.

But are these low prices sustainable or will manufacturers and producers be hurt – leading to China’s cheap merchandise bubble to burst?

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