A government-initiated program to establish large retail groups to compete with the foreign mega-store operators like Wal-Mart from the United States and Carrefour of France, is seen to be producing results in the highly competitive Shanghai marketplace.
The lessons learned by these domestic retail conglomerates in Shanghai, led by Brilliance Group, which owns a chain of stores under names such as Hualian and YiBai, will be incorporated into operational models that can be applied nationwide, retail experts and economists said.
Although large foreign chains continue to increase their presence in Shanghai, domestic brands are fast catching up, as indicated by new store openings and revenues, the experts said.
With more than 7,000 outlets covering 25 cities, Brilliance saw a revenue increase of almost 8.5 billion yuan in 2006, up 43 percent over a year earlier.
In 2003, four local retailers, Shanghai YiBai (Group) Co Ltd, Hualian (Group) Co Ltd, Shanghai Friendship (Group) Co Ltd, and Shanghai Materials (Group) Corp, merged into Brilliance Group to compete with the muscle of incoming foreign companies.
Wang Liang, head of the Shanghai Current Economics Research Institute attributed Brilliance Group's speedy expansion largely to its concentration of assets, capital and network. He said the combination cut costs of stock, management and delivery that improved profits.
Local companies also boast the advantage of good supply chains. Suppliers have more trust in large State-owned enterprises such as Brilliance Group, Wang said, noting that a stable chain of suppliers is already established for these large local retailers.
"Suppliers are more willing to sustain this chain than providing goods to newcomers with an unforeseen future," he said.
Yet foreign companies' financial support wins them favor from Chinese suppliers. Wal-Mart's bankroll enables it to pay 60 percent of the total purchase price to suppliers immediately.
"It brings them more suppliers and a relatively lower price for goods."
In contrast, many Chinese supermarkets, following the example of Carrefour, pay suppliers once every six months.
"It shifts the risk to suppliers and puts them in an embarrassing shortage of cash flow. That may harm their supply chain."
Foreign companies also gained a favorable foothold through mergers. Wal-Mart's acquisition of a 35 percent stake in Trust Mart in February this year was a classic example.
"If Wal-Mart buys Trust-Mart completely, it gets not only the stores, but also its supply chain and carefully chosen network of locations," Wang said. He predicted that the competition would no longer exist among mere retailers, but among the entire system of manufacturers, suppliers and retailers.
"In few years, foreign retailers will pose a greater threat to local ones", he said.
While Wal-Mart and other foreign rivals are busy localizing, Brilliance Group tends to optimize its management.
The 2006 annual report of Brilliance Group showed its emphasis on management system transformation, gradually pooling stocks of foreign commodities and shifting key operational tasks to improve every store's performance.
It plans to withdraw from places where operational conditions are unsatisfactory, and intensify in strong locations, Wang confirmed.
Wal-Mart, however, will insist on its tried and tested concepts. "We will try to provide better prices, quality of goods and other services," said Paul Hu, spokesman for Wal-Mart's Shanghai office.
"Markets like Wal-Mart are larger in size and more complete in the variety of goods," said Zhou Shu, who prefers to go to stores operated by foreign companies.
Yin Jingmei, 23, who chooses to go to local supermarkets, said "it is convenient to go there and goods are cheaper than in the markets run by foreign companies".
"But foreign invested big malls have more discounts and a more complete variety of goods. Compared to local supermarkets, they have more exporting goods," she adds.
(China Daily July 6, 2007)