The Marketing Strategy of the foreign Hypermarket Wal-Mart in China

Is Wal-Mart’s Marketing Strategy adapted to the Chinese Market?


Term Paper, 2011
14 Pages, Grade: 2,0

Excerpt

The Marketing Strategy of the foreign Hypermarket Wal-Mart in China

Introduction of China’s hypermarket industry:

Hypermarkets are taking hold in China because of the lure of low prices, convenient one-stop shopping, accessible locations and the integration of facilities such as restaurants, cinemas and coffee shops. And experts predict there are further opportunities for hypermarket growth in smaller cities all over China. They say that the one-stop shop philosophy is more and more attracting the attention of middle-class consumers, the largest spenders in China. Every ten days the middle-class consumers in China visit hypermarkets.[1]

Market Structure:

In 2003 Chinese consumers spend as a whole 9.2 trillion RMB. 41 percent of that was invested in food - a decline of 7 percent compared to the year 1997 and the simultaneous expression of a transformation to a modern consumption structure. The sharp increase of the consumer spending overall by 64.2 percent since 1997 is due mainly to the high economic growth of 9 percent annually. Therefore the household income rose steadily from 1997 to 2003.[2]

The Chinese hypermarket sector is still stuck in transition. Chinese supermarket chains have also not a decade-long experience like similar companies in Europe because there were not any private supermarkets in China until the mid-90s. There were almost only national department stores and small independent shops and street markets. They are not (yet) represented all over the country, but they grow fast.[3]

Market demand:

Studies state that from the year 2005 to 2006 hypermarkets increased their value share of China’s grocery sector in the 15 largest cities of the country from 28.5% to 29.8%. The share in these big provincial capital cities and municipalities – called tier one cities – has continued to increase and reached 30.1% in the first half of 2007. At the end of the decade the share of the hypermarkets was 35%.[4]

The hypermarket success interacts with the supermarket sector, however, which has recently experienced retrenchment. The supermarket value share has decreased from 28.4% in 2001 to 19.1% in the first half of 2007. The number of visits consumers make each year to hypermarkets have risen since 2005, while visits to supermarkets has been dropped over the same period. Till now, hypermarkets had made their biggest impact in Shanghai. They have a 45% value share. Hypermarkets have also a huge influence in Hangzhou (37.9%) and Shenzhen (37.2%).[5]

Main players & competitions:

The one hundred largest hypermarkets in China achieved total sales of nearly 1.4 trillion RMB in the year 2009. This represents an increase compared to the previous year by 13.5%. Among the ten largest retailers were only four foreigners like last year: RT-Mart, Carrefour, Wal-Mart and Taiwan’s RT-Mart. Their market shares range between 2.2% (RT-Mart) and 4.7% (Wal-Mart) in the 15 largest cities of China.[6] Not long time ago, for instance, Carrefour opened its 100th hypermarket in China in Shaoxing, a comparative small Chinese city with a population of 650,000.[7] The largest German representative is the Metro Group, which however could not keep up with the expanding market. Revenues decreased 5% to 12.0 billion Yuan, and the company slipped down in the ranking by seven places and ranks now at the 31st position. IKEA improved much more favorable, which sales rose 16% to 3.1 billion Yuan.[8]

The gained revenues show how strong fragmented the Chinese retail market still is. Less than 25% of the proceeds of the hundreds of major retailers account for Suning, Gome or Bailian. In terms of total retail trade (including cars, pharmacies, etc.), there are even much less. China's largest retailer - Suning - In 2009, revenues in the amount equivalent to only 17.1 billion U.S. $, while, for example Metro realized worldwide with $ 91.4 billion over five times as much.[9]

OBI has however given up its business in China and the main rival B&Q bought the company. The discount supermarket Plus, owned by the international trade chain Tengelmann, has used its opportunities in China, where it is successful now. In the recent months many major players have announced to try to expand strongly in the Chinese mainland. In addition, China has also some very national chains such as Lianhua, Hualian, Auchan and Wumart.[10]

There still exists a trend that was already evident in recent years. Increasingly the big retailer chains target the Chinese hinterland, which has indeed already higher growth rates than the so-called first-tier cities of the East, but still has a large backlog.[11]

Even if this trend should continue for many years, the expansion into the Chinese hinterland is a major challenge to retailers. On the one hand, the consumer needs differs in the second-and third-tier cities significantly from the habits of East Coast residents. On the other hand, the enormous logistical problems are often underestimated, that new supermarkets will face in the hinterland.[12]

Experts mention there is an opportunity for hypermarkets to penetrate China’s retail sector still further by expanding into tier two and tier three cities. The hypermarket sector is a nascent industry, whose turning point is still to come as the lack of competition in second-tier cities is a chance for further development. Retailers have to act now to gain a profitable share in the hypermarket, as local competitors are faster in developing a multi-format portfolio to diversify the business risks and capitalize other development opportunities.[13]

Overview of Wal-Mart:

Wal-Mart Stores Inc. is a global American retailing company, which dominates a large part of the U.S. market. Wal-Mart is in the list of Fortune Global 500 listed on the top of the largest companies in the world with the highest turnover. Wal-Mart has over two million employees; therefore it is the largest private employer in the world.[14]

The turnover of Wal-Mart in the year 2009 climbed from the previous year by 1% to 405.6 billion U.S. dollar. The profit rose by about 7% to 14.3 billion U.S. dollar. The company name is derived from its founder Sam Walton at (Walton's Mart). On 2 July 1962 Sam Walton opened his first Wal-Mart in Rogers (Arkansas). Ten years later, in 1972, the company went public, which gave him the necessary capital for expansion. The big rise started in 1987, when Wal-Mart opened its first supermarkets under the name Hyper Market USA. It had a department store which retail space was ten times larger than an average store.[15]

Wal-Mart has 3702 chain stores in the U.S. and has also huge representations in Mexico, Great Britain (Asquith Dairies), Japan (Seiyu), Canada and the People's Republic of China, while markets in Germany and South Korea in 2006 were abandoned. In Mexico, Wal-Mart operates through its subsidiary Walmex.[16]

The biggest competitor, the French Carrefour group is not even half as big as Wal-Mart. Eight out of ten U.S. households buy at least once a year at Wal-Mart, every week 138 million customers worldwide enter a business of the Group. Nevertheless Wal-Mart only controls eight percent of the U.S. retail market, but in many other countries, in this area the market leader have a market share of over 30%.[17]

[...]


[1] Chaudhrey, R. (2007).

[2] Wesnitzer, A. (2005).

[3] Wesnitzer, A. (2005).

[4] Chaudhrey, R. (2007).

[5] Chaudhrey, R. (2007).

[6] Schaaf, B. (2010).

[7] Chaudhrey, R. (2007).

[8] Schaaf, B. (2010).

[9] Schaaf, B. (2010).

[10] Wesnitzer, A. (2005).

[11] Schaaf, B. (2010).

[12] Schaaf, B. (2010).

[13] Chaudhrey, R. (2007).

[14] Dong, J. (2008).

[15] Dong, J. (2008).

[16] Dong, J. (2008).

[17] Dong, J. (2008).

Excerpt out of 14 pages

Details

Title
The Marketing Strategy of the foreign Hypermarket Wal-Mart in China
Subtitle
Is Wal-Mart’s Marketing Strategy adapted to the Chinese Market?
College
Shanghai University
Grade
2,0
Author
Year
2011
Pages
14
Catalog Number
V203402
ISBN (eBook)
9783656300182
ISBN (Book)
9783656300823
File size
487 KB
Language
English
Tags
Walmart, Walmart China, Wal-Mart, Wal-Mart China, Wal-Mart marketing, Wal-Mart marketing strategy, Walmart marketing, Walmart marketing strategy, Walmart marketing China, hypermarket China, Walmart Marketingstrategie, Wal-Mart Marketingstrategie, Marketing China, Marketingstrategie China, Marketingstrategie China Walmart, Verbrauchergroßmarkt, Verbrauchergroßmarkt Walmart, Verbrauchergroßmarkt China, Einzelhandelskonzern, Einzelhandelskonzerne, Einzelhandel, Marktstruktur China, Marktbedarf China, Marketingmix Walmart, Carrefour, Carrefour China, RT-Mart, Metrogruppe China, Metro Group China, Metrogruppe, Metro, Suning, Gome, Bailian
Quote paper
Nicola Gundrum (Author), 2011, The Marketing Strategy of the foreign Hypermarket Wal-Mart in China, Munich, GRIN Verlag, https://www.grin.com/document/203402

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