Market Information
Asia Pacific

Retail - Profile - Shanghai and the
Yangzi Delta Regions

December 2002

Canadian Consulate in Shanghai
Suite 604, Four Shanghai Centre
1376 Nanjing Xi Lu
Shanghai, China
200040
Tel: (86-21)6279-8400
Fax: (8621) 6279-7456
Internet: http://www.shanghai.gc.ca

Market Overview

Over the last decade, the Chinese retail market has undergone remarkable growth, as well as significant, profound change. Traditionally, food products were purchased daily from local wet markets and dry goods from local State'run stores. Western-style retail stores have begun to replace the traditional structure. Today, food retail outfits house flashy displays and a complete set of goods in one location. Hypermarkets, Supermarkets and convenience stores have proliferated the city providing convenience, reasonable prices and improved sanitary conditions. The Shanghai consumer has accepted the evolved system with enthusiasm.

Consumer spending has increased dramatically over the last decade. Retail sales have increased 79% since 1991. The main driving force behind the retail revolution in Shanghai is economics. Shanghai's 13.3 million residents now have an average annual income per capita of 2,390.69 CAD1 (nearly double the national average). Increased convenience and improved selection of goods were also key. Food purchases represent the largest consumer expenditure.

Shanghai Statistical Yearbook 2002

Official statistics show China's consumer goods retail sales reached nearly 370,328,143.89 CAD over the first half of 2002, posting a 8.6% growth rate compared to the same period in 2001. This statistic is below the Chinese government's projected rate of 10%. A slower growth rate may occur due to consumer fear of WTO caused job loss and higher costs of medical, housing and education. Though even with this slowed growth rate, retail spending will continue to increase in the post-WTO market.

Opportunities

• Retail opportunities exist in various sectors of the agri-food industry. Shanghai is an ideal market for processed (or value-added) food products. Key areas for Canadian exporters are fish, seafood, processed meats, dairy products, wine, beverages, confectionery and nutraceuticals. Increased retail space and a consumer penchant towards convenience have provided a demand for frozen and microwaveable foods.
• Chinese retailers have begun to restructure and adapt to the new market changes. Opportunities exist in the realm of management expertise and foreign direct investment. Local companies must generate the much-needed capital to expand and modernise their operations. Opportunities may exist in the area of joint venture projects.
• The retail industry encompasses numerous different faucets. Logistic, distribution, warehousing, packaging and marketing are all important elements to the success of a product in Chinese market. All these areas are rapidly developing. WTO accession will eliminate many of the barriers to foreign companies.

Key Participants

The food retail market is complex and multi-tiered. A combination of the below players is the main outlet for food distribution in the city.

Hypermarkets and Discount Warehouse Stores

Hypermarkets are one of the newest market players to the retail industry. At their advent on the scene, sceptics quickly predicted their failure as Chinese traditionally purchase daily, small purchases. The store's ability to offer convenience and low prices to the consumer won the loyalty and acceptance. Today, there are 50 hypermarkets operating in Shanghai. Hypermarkets are normally foreign and joint venture owned. The largest foreign presence is French based Carrefour. Carrefour was one of the first retailers to enter the Chinese market and to pioneer the hypermarket movement. Since 1994, they have opened 32 stores nationally, six of which are in Shanghai. Metro, a German based retailer, is also prominent in the market. Local Chinese retailers are quickly adjusting to the new process and entering the market. China's largest retailer Lianhua Supermarket holdings' has recently opened a series of hypermarkets under the name Century Mart. Other Chinese retailers include Lotus, E-Mart, Hymall, and Concord hypermarket.

Defined by size and product selection, a 'Hypermarket' is a large retail concern selling a wide variety of products from frozen goods to household products in one location. One floor may also be dedicated to restaurants and services. Stores are often two or three floors and have extensive frozen food, produce, fresh meat and household sections. Additional features, such as bakeries, pre-made foods and alcoholic beverages are the norm. At present, the imported selection is relatively small, but is expected to grow. Hypermarkets are the best entry point for imported food.

Prices are kept down due to the unique nature of their distribution system. Retail concerns, such as Carrefour, are now planning to establish a nationwide procurement system to further streamline their operations. Hypermarkets often buy directly from the manufacturer or importer. Thus, eliminating the numerous layers that regularly characterise the industry. Effective supply chain management systems and foreign expertise also contribute to their success. To supplement their income further, hypermarkets charge high 'slotting' fees for goods to be displayed on their shelves.

Supermarkets

The advent of supermarkets in the mid 1990's was the beginning of the retail revolution in Shanghai. In 1991, the first supermarket opened its doors. Today, in 2002, there are over 2020 supermarkets operating throughout the city representing the most widespread outlet for food procurement. The largest supermarket operators are Chinese-owned companies. The top leading companies in Shanghai are Lianhua and Hualian. Each company also operates a set of convenience stores and hypermarkets.

Stores (700 to 1,200 square meters) are located in city neighbourhoods and cater to individuals in their vicinity. Neibourhoods with higher disposable income or foreigner populations tend to carry higher priced items, higher quality and imported foods. Shelves are cramped with a variety of dried goods, beverages, certain dairy products, and a limited frozen food selection. Depending on the store, fresh produce and meat can also be purchased in the outlet. While some of these retail outfits carry imported food, the penetration is rather low. Foreign brands produced in China can be purchased from the stores.

In 2001, 75% of supermarkets operate a part of a larger chain. Stores form close relationships with local food distributors. The Chain store approach facilitates and co-ordinates distribution. The hypermarket distribution system is more effective.

Convenience Stores (C-stores)

Convenience stores have and continue to sprout up on every street corner. At present, there are over 3000 stores in Shanghai. By 2005, the estimated number is 5000. The majority of Shanghai's chain stores are locally owned, with the exception of a few foreign funded enterprises. 7-11 owns 30% of the Lawson stores. The convenience store market in Shanghai is extremely competitive, and has limited room for expansion.

2001, Shanghai Municipal Commercial Commission

Convenience stores resemble their Canadian counterparts, offering a selection of convenience foods and groceries at slightly higher prices than supermarkets. As in Canada, they often provide 24 hours services offering an array of hot, late night and early morning snack food. It is important to note that convenience stores carry a majority of local products, or local foreign joint venture products. Imported products rarely adorn the shelves.

Convenience stores are often operated by larger retail concerns, as supermarkets or other food producers. For example, Kedi stores are owned and operated by Shanghai Bright Dairy & Food Corporation, the main dairy producer, processor and distributor in Shanghai. Lianhua (Kuaike) and Hualian (Lawson) also operate a convenience chain store. Few independent stores exist in the market. This link facilitates the distribution of goods as stores tap into the system of their larger counterpart.

Wet Markets

Traditionally wet markets were the main centre for food procurement. Fresh meat, fish, vegetables, fruit and grain can be purchased from a multitude of different vendors. Wet markets predominantly cater to the low-income and older population, as prices are low and the produce fresh. Purchases are generally small and intended only for daily consumption. Although, today wet markets are declining in importance, they still remain an important source for food procurement. Wet markets are found throughout Shanghai and outlying areas. They tend to be located on side streets and back lanes.

Kiosks

Small kiosks are often found on street corners or hidden in back lanes. Kiosk shelves are crammed with a miscellaneous assortment of goods. Neighbourhood patrons or passer-bys' purchase small convenience goods such as a beverage product, cigarettes, snacks, instant noodles or tissue. Imported foods have not reached this level of the retail structure. Purchase amounts are normally quite small, as patrons do the majority of their food shopping at bigger retail outlets as the supermarket or hypermarket.

Kiosks are normally owned and operated by independent families. Family members are responsible for the procurement of the products in their stall. Accessing and distributing to this sector of the retail section is complicated, costly and time consuming. The independent nature, the size and physical locations of the kiosks makes distribution a key problem.

Department Stores

Modern day department stores, similar to the Hudson's Bay of Canada often have one or two floors dedicated to food sales. Normally department stores are operated as independent units and sell the same products as the supermarkets or hypermarkets. The Department stores primary purpose is not to sell food products, but to sell a host of products from clothing to electronics. Food retail is an added convenience for the shopper. Depending on the store, a certain degree of imported products are sold in this medium.

Public Sector Customer

Food purchases represents the largest expenditure of consumer spending. Urban households currently spend 39% of their annual living expenditure on food purchases. Recreation and education represent the second biggest expenditure with only 13%. Shanghai consumers are diverse in their tastes and preferences. The younger population is more apt to import goods and shop at large retail outlets. The older generation tends to be conservative and price conscience.

Shanghai Statistical Yearbook

A key success factor in the Chinese market is to be attentive and address local market needs. Shanghai consumers are sensitive to issues of convenience, sanitation, flavour, nutrition and price. Consumers are willing to pay a premium price for foods viewed as higher quality, nutritious and imported. Chinese labelling (ingredients and instructions) are important.

Key Contacts

Canadian Government Contacts in China

Canadian Consulate General in Shanghai
#604-1376 Nanjing West Road
Shanghai, 200040
Contact: Mr. Henry Deng,
Commercial Officer
Tel: (86-21) 6279-8400
Fax: (86-21) 6279-7456
E-mail: henry.deng@dfait-maeci.gc.ca
Internet: http://www.shanghai.gc.ca

Canadian Consulate General in Shanghai
#604-1376 Nanjing West Road
Shanghai, 200040
Contact: Ms. Shirlie Wu,
Commercial Assistant
Tel: (86-21) 6279-8400
Fax: (86-21) 6279-7456
E-mail: shirlie.wu@dfait-maeci.gc.ca
Internet: http://www.shanghai.gc.ca

Shanghai-China Government Contacts

Shanghai Customs of The People's Republic of China
' Responsible for the regulations and inspections on
import and export documents and certificates

Address: 13 Zhong Shan Dong Yi Lu
Shanghai 200002
Tel: 86-21-63232410
Fax: 86-21-63232095
Website: http://www.shcus.gov.cn

Shanghai Entry-Exit Inspection and
Quarantine of People's Republic of China
' Responsible for the inspection of imported and exported goods

Address: 1208 Minsheng Road, Pudong
Shanghai 200135
Tel: 86-21-68563030
Fax: 86-21-68565939

Shanghai Import Food Enterprise Association
' Provides assistance for the application
and approval of labels for imported foods

Address: Room 1702, Hero Building
2669 Xie Tu Road
Shanghai 200030
Tel: 86-21-64398189
Fax: 86-21-64398191

Bibliography

Print

China Statistical Yearbook 2002, National Bureau of Statistics of China, China Statistics Press

Shanghai's Retail Development, Canadian Consulate General Shanghai, Department of Foreign Affairs and International Trade, September 2000 (available by contacting the Shanghai consulate)

Shanghai Statistical Yearbook 2002, Shanghai Municipal Statistics Bureau, China Statistics Press

South China Retail Food Market Report, Canadian Consulate General Guangzhou, Department of Foreign Affairs and International Trade, March 2002

Supermarket chain seeks to raise 1 billion yuan in IPO,China Economic Information Network June 22, 2002 Downloaded from http://ce.cei.gov.cn/enew/new_g1/fo00gff6.htm on December 12, 2002

Electronic

Convenience and Selection Helps win Customers, China Daily July 31, 2001

Downloaded from http://www1.chinadaily.com.cn/bw/2001-07-31/23502.html on December 13, 2002

Moustakerski, Peter China, Peoples Republic of Retail Food Sector Report 2001 US Consulate General, Shanghai USDA Foreign Agriculture Service GAIN Report February 2001 http://www.fas.usda.gov/gainfiles/200212/145784823.pdf

Useful Information

The Canadian consulate has prepared and published a series of market reports on the different food sectors in Shanghai and the Yangzi Delta region. Please contact us directly for a complete list of available reports or visit our website at http://shanghai.gc.ca/ag_food.

1 All monetary amounts are expressed in Canadian dollars, unless otherwise indicated. The conversion rate to Canadian dollars is based on the Bank of Canada rate of 1 CAD = 5.3937 CNY January 2003