Since Carrefour entered the China market in 1995 by opening its first store in Beijing, hypermarkets have been enjoying hyper growth. Although the global recession that started in late 2008 slowed down China’s FMCG growth, hypermarkets still grew at 15% in sales value in 2009, and overtook supermarkets to become the leading modern trade channel.
The dominance of hypermarkets in the modern trade is largely attributable to the upsurge in the number of stores. Carrefour and Wal-mart used to be the biggest two, but have started to lose share in the face of more and more severe competition from both foreign and domestic retailers. RT-mart has had a successful 2009 and reached 8.4% in value share (1.7pt up from 2008), surpassing Wal-mart and getting closer to Carrefour’s 8.7% in FMCG. Domestic retailers also expanded their share - Beijing Hualian, CRC/Suguo, Vanguard, Renrenle and Wu-mart especially.
Initially Hypermarkets took off in big cities. In 2008, 95% of capital city consumers shopped in hypermarkets every 9 days, while 74% in tier two cities and 58% in tier three cities about every 13 days. This big gap suggests future opportunities exist in these lower tier areas. Retailers are aware of this and are continuing to open stores in the white space. For example, Wal-mart opened more than 30 stores last year, and most of them in tier two/three cities. Increased store numbers contributed to the fact that 82% and 68% shoppers visited hypermarket in tier two and three tier cities respectively in 2009.
In terms of the key attractions of hypermarkets, when we asked our panel households what is important when choosing stores in our 2009 Lifestyle survey, “a good range of products” and “prices always lower” were the top 2 reasons, followed by “good quality products”. Big hypermarket stores do carry an enormous range of products with more promotions than other modern trade channels, all of which encourage consumers to revisit the stores more and more regularly.
However cheaper price is not necessarily the main appeal of hypermarkets. The average price of certain categories in hypermarkets are 2%-10% higher than in supermarkets, like soft beverage, soy sauce, milk & yoghurt, chocolate, biscuit, liquid laundry, hair conditioner, feminine pads. This is not because product for product hypermarkets are more expensive, it is due to the product mix. Premium products have more presence and acceptance in hypermarkets.
Hypermarkets have more high income shoppers and are able to present goods of wider price range to appeal to consumers’ desire for better quality products. Similarly, relatively new or non-conventional sectors for China consumers’ such as bouillon, cereals and liquid laundry are good examples of where hypermarkets have led their fast development. This year liquid laundry’s penetration reached 50%. Half of these shoppers bought it in hypermarkets. Another example would be the increasing space given to Personal Care categories. High mass tier skincare and haircare brands can be found in some stores and can be displayed in their own branded sections.
As stated above, a wide range of products, premiumisation trend and in-store display space, all have benefited and will keep benefiting the non-food categories like personal care or laundry liquid, which originally rely more on modern trade, especially in hypermarkets. Then considering grocery stores/food stores still play an essential part in food shopping, it is no wonder that non-food segment sales also grow faster in hypermarkets than food segment.
It is believed that hypermarkets would still remain fast-growing in the next few years. In big cities, hypermarket stores start to explore consumers’ growing aspiration for superior quality. In the meantime, more store are expected to open in lower tier cities, as demands of choice and good value are still to be addressed.
Emerging channels like the Internet cannot pose an instant threat to hypermarkets, as their sales are currently concentrated around some key sectors such as skincare within FMCG. Internet shoppers are generally sophisticated in their repertoires and shop online on top of bricks-and-mortar stores, meaning both channels can continue to expand alongside each other.
china-the-hypermarket-race-in-2009
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