Sun Art extends grocery-share lead on Wal-Mart and Carrefour in China

Sun Art, a joint venture between Taiwanese conglomerate Ruentex Group and privately held French retailer Groupe Auchan SA, enjoys a 16.2 per cent share of the grocery market and recently reported a 15.2 per cent rise in net profit for 2013.

The company has maintained a rapid pace of new store openings compared with key competitors like CR-Vanguard, Wal-Mart, Carrefour, Balian, Yonghui, Tesco and Zhongbai. After expanding its footprint in the South and West of China, where the hypermarket chain has historically been less present, it now has 323 stores across the country.

Sun Art's 16.2 per cent share of the modern trade (defined as hypermarkets, supermarkets, mini-markets and convenience stores) category rose from 13.6 per cent at the end of 2012. Chief executive officer Bruno Robert Mercier plans to open up to 160 new hypermarket complexes in the next three years, of which 99 are already under construction.

Most western retailers have not achieved the same growth rate, facing pressure from local retailers. Even Yonghui, a much smaller player, has particularly impressive growth, with its retail footprint now touching all city tiers and all four regions in China. Just two years ago, the retailer did not operate any stores in key cities or in the North and East. 

Q4 2012 Q4 2013 Sun-Art Group 8.1 8.3   RT-Mart 6.4 6.6   Auchan 1.6 1.6 CR-Vanguard Group 6.8 6.5 Wal-Mart Group 6.9 6.4   Wal-Mart 6.1 5.7   Trust-Mart 0.6 0.5 Carrefour 5.1 4.7 Balian Group 4.3 4.2 Yonghui 2 2.4 © 2013 CTR Market Research; Source: Kantar Worldpanel China

The top 10 retailers now account for 56 per cent of modern trade within urban China. However, the market is still very fragmented within lower-tier cities and counties, with these same retailers only accounting for 16 per cent there. Consolidation will be a natural part of retail evolution, according to CTR. 2013 already saw a merger between Tesco and CR-Vanguard.

Local retailers have demonstrated an ability to expand operations at a much quicker pace than the international rivals to establish themselves as regional or even national players. Yonghui was an obvious example, but more will follow suit, according to CTR. The key implication for manufacturers is to ensure they partner quickly with local retailers that have a viable growth strategy to benefit from greater reach.

Chinese shoppers will be even smarter as they shop across more channels, looking for the best deals and buying larger pack sizes and more premium products. The trend will carry on as increaasing usage of digital platforms provide better access to information and word of mouth.

As shopper needs evolve, so will the retail formats offered to cater for these needs. The number of neighbourhood stores, premium supermarkets and e-markets will accelerate, according to CTR, either through acquisitions or opening new store formats under the existing retail banners.

A recent example is Sun Art's launch of an e-commerce portal on 16 January, similar to Yihaodian.com. Although still relatively small in terms of value share, the e-commerce channel will add incremental growth to the FMCG market as shoppers buy more products online. The challenge for e-commerce retailers is how to encourage shoppers to spend larger amounts rather than cherry-pick certain items based on price. Currently, the total number of items purchased online is five, compared to eight items in offline hypermarkets, highlighting a clear opportunity to increase the e-commerce basket size, CTR stated.