Retailers in China often operate in several market segments as some domestic players have operate in hypermarkets, supermarkets, convenience stores, and specialty stores (USDA 2012). A recent report (USDA 2012) stated that the hypermarket format is much more concentrated than other grocery channels. Hypermarket format is dominated by foreign operators including Carrefour, Wal-Mart, Metro, Lotus, RT-Mart, Auchan and Tesco. However, some domestic retailers, including CRV-China Resources Vanguard and Lianhua, also have a significant presence of this format in China (USDA 2012).
USDA (2012) also listed that domestic players have dominated in supermarket sector. Major players in this sector including Lianhua, China Resources Vanguard, and Suguo. However, the report (USDA 2012) also mentioned that this sector is quite a fragmented market as it consisting a large number of regional small chained or independent supermarkets in China, especially in many Tier-2 and Tier-3 cities.
Thanks to the strong and sustainable development in China's macro economy, there is a continuous steady growth in urbanization process. Consequently, the hypermarkets benefited from the urbanization growth (USDA 2012). Hypermarket facilitated with large parking facilities, multiple stores, and also including numerous restaurants and coffee shops that enable consumers to combine shopping and leisure activities, has been well accepted by affluent customers (USDA 2012).
Catering to the tastes and demands of local consumers, supermarkets in Shanghai are putting more efforts into expanding their fresh section, to compete with hypermarkets. This is also encourage by the local government to create fresh supermarkets, enlarging the floor space for selling fresh products from less than 1/3 to over 1/2. More than 300 stores in Shanghai have finished the change in enlarging their fresh section, and thus sales of fresh products also gradually increasing. More and more supermarkets are appear to be moving toward this direction. However, due to the problems in sourcing large quantities of quality product, this trend is being slowed down. 'Wet markets' are often unable to match hygiene standards of supermarket and hypermarket chains (USDA 2012). USDA (2012) define this phenomena could indicate the trend is away from low cost and traditional 'wet markets'. Notwithstanding, wet markets still dominate the sales of those fruits and vegetables.
According to USDA (2012), local retailers dominated in China supermarket sector. China Resource Vanguard, and Suguo are the major domestic companies in the market. In supermarket sector, it is still quite a fragmented market since there are present of large number of regional small chains or independent supermarkets in China, especially in many Tier 2 and Tier 3 cities. Chang & Luan (2010) mentioned that international retailers may also rely too much on their existing business model and thus lack of flexibility and adaptability in the local market. But in recent years, some international retailers have started to enter this supermarket sector (USDA 2012). In mid-2008, Tesco Express, a new brand launched by Tesco in Shanghai, was designed as an outlet mainly selling fresh food and daily supplies to nearby communities. Wal-Mart also opened its neighbourhood market outlets in 2009. USDA (2012) believes that more and more international retailers will enter this supermarket sector in the future.
2.3.4.3 Rapid adjustments
In consideration of specific locations in a particular city, some foreign retailers have based on their international experience to made strategic decision, whereas others made strategic changes through learning. Sieber (2012) had stated a real case in her study. As car ownership is low in China, Carrefour located all its stores in the centre of cities on bus routes, with ample of parking lots and waiting areas for taxis, bicycles and also three wheel cycles. On the contrary, Wal-Mart did not choose good locations as they located Wal-Mart stores outside the city centre, and were not served by convenient transport systems. This is because Wal-Mart assumed the Chinese would follow Western shopping styles. Carrefour has been greatly benefited from their previous experiences in the Asian ores in market and operating stores in Taiwan. Wal-Mart eventually adjusted its location strategies by 2005 and started to located new stores in walking streets, such as in the shopping districts of Shenyang city in Northeast China and similar locations in other regions for example, Middle China. USDA (2012) found that most of the hypermarkets in China are offering free shuttle bus service to nearby communities. According to Sieber (2012), free mini bus services from affluent suburban residential areas to their stores have been provided by both Wal-Mart and Carrefour. Sieber (2012) notes that these changes manifest the strong sense of customer orientation of these foreign retailers.
China accession to WTO
Upon China joined WTO, it gradually eliminate market access barriers for foreign investors. Prior to 2004, foreign retailers could operate only within the areas of major cities and special economic zones. In 2004, the Chinese government issued the Administrative Measures for Foreign Investment in Commercial Sectors, which permitted foreign investors to establish retail businesses in China without geographic limitations, and foreign retailers also allowed holding 100 % equity in Chinese firms (Business Monitor, 2012). Foreign investors are now allowed to enter into China retail businesses through joint ventures (JVs) or wholly foreign-owned enterprises (WFOEs). Hence, China's retail sector experienced an accelerated growth. Beginning in March 2009, Administrative Measures for Foreign Enterprises or Individuals Establishing Partnership Enterprises in China has also permitted foreign investors or individuals to establish partnership retail businesses (Business Monitor 2012).
China Delegates Retail Approvals to Local Governments
Chinese central government agencies, Ministry of Commerce (MOFCOM) and the State Administration for Industry and Commerce (SAIC), both are responsible in approving business licenses and registration applications for foreign-invested commercial enterprises in China (Lu 2010). However, there are some changes in recent years. To simplify the licensing process for some foreign retailers, the agencies have gradually delegated this authority to local governments.
SAIC and registration approval
Under 2003 Administrative Measures on Authorizing the Registration of Foreign-Invested Enterprises, SAIC is responsible for the registration of all foreign retail businesses in China, but qualified provincial or county governments may also apply for such authority from SAIC. Currently, almost all of SAIC's provincial branches and about 100 county branches are authorized to approve foreign retailers' registration applications (Lu 2010).
The Chinese government also give full supports on the development of e-commerce in retailing market. By the end of the Twelfth Five-Year Plan (2011-2015) , the government targeting to get more than 5 % online shopping sales of the total retail sales in China.
Given the differences in regional tastes, the size across China, and,logistical difficulties, many retailers are now choose to focus in a particular region of China first rather than try to develop the entire market at once. The Chinese Central Government is also aggressively promoting policies to develop these potential interior regions. Accordingly, more and more foreign retailers are racing to establish an early presence in many of these major urban centres. Although opportunities are waiting to be found, but resources and patience are required (USDA, 2012).
3.1.4.2 Infrastructure in China
There are presents of best infrastructure and also the largest number of experienced distributors in three cities of Shanghai, Beijing and Guangzhou have. Increasingly, those systems are being extended to the large webs of satellite cities surrounding the three cities. Although other major cities along the eastern seaboard beyond the reach of the 'big three' generally have good logistics infrastructure, but most traders still rely on one of the 'big three' as an entry point for imports. Farther inland, good market potential also available in a number of large cities.
In fact, many retailers in China face serious problems in logistics and distribution. The first is China's infrastructure. While China's infrastructure is more efficient than most of the developing countries, there are still plenty of bottlenecks. Some of these are physical, relating to roads, ports, and so on. China is lack of nationwide network of trucks, highways and cold storage warehouses that can efficiently deliver supplies from manufacturers, suppliers, or importer to the store shelf.
Special problems for temperature sensitive items also arise due to a lack of concern in maintaining the cold chain. With some notable exceptions, distributions are handled based on a store-by-store or city-by-city. These stores receiving most imports through a local distributor, often even when alternatives exist (USDA 2012).
Others are attitudinal as many Chinese suppliers have a hard time adjusting to the stringent standards of modern supply chain management. A final bottleneck is one of scale as many foreign retailers' operations in China are not yet large enough to reap efficiencies from its logistics system (Harvard Business Review, 2007).
Although logistics can be problematic, however enhancements in the national highway system have made trucking direct from Shanghai or Guangzhou far more easier than it was in the previous years ago (USDA 2011). Consequently, using truck for shipping of high value and temperature sensitive products directly from the importer to a local distributor has doing exceptionally well.
Currently, particularly for high-value or temperature-sensitive products, many Tier-2 cities have only a few distributors for imports. According to USDA (2012), in the next few years, multi-modal refrigerated rail transportation to inland cities may become viable. Currently, several international companies are aggressively developing local partnerships to create modern cold chain and distribution systems across China (USDA 2012).
