Rising Demand for Delivery Is Shifting China's Grocery Landscape
June 24 2019 - 10:16AM
Dow Jones News
By Julie Wernau
BEIJING-- Carrefour SA, one of Europe's largest grocery
retailers, is unloading most of its operations in China, where
big-box retailers are struggling to keep pace in a market whose
shoppers are turning toward nimble delivery providers.
Nanjing-based Suning.com Co. will buy an 80% stake in Carrefour
China for EUR620 million($705 million), the companies said Sunday.
The transaction will enable the Chinese retailer to diversify
beyond consumer electronics and appliances as consumers demand
all-in-one e-commerce platforms. The deal follows Suning's purchase
earlier this year of 37 department stores in China owned by Dalian
Wanda Group.
Once a dominant force in many Chinese cities, France's Carrefour
is the latest Western company to pull back from China, where
upstart domestic rivals have been better able to respond to demand.
That is compounded in sectors that rely on delivery, where local
competitors have ramped up logistics networks to meet Chinese
expectations for speedy service.
To compete, brands such as Walmart Inc. have either partnered
with one of the domestic titans that largely control the e-commerce
space or sold to their competitors. Earlier this year, Amazon.com
Inc. sold its third-party online marketplace in China to a
competitor after years of declining market share.
Hypermarkets--stores such as Carrefour whose outlets are larger
than 6,000 square meters--have been losing market share, according
to Bain & Co., dropping from 23.6% in 2014 to 20.2% in
2018.
"Vegetables and meat and dairy delivered to your door, that's
the tipping point we're at right now," said Michael Norris,
research and strategy manager at AgencyChina. "The hypermarkets
haven't quite adjusted to these changing dynamics--that it isn't
necessarily shoppers finding products but products finding
shoppers."
China has by far the largest online food-delivery market, with
45% of global market share, according to Sanford C. Bernstein. To
compete in the fast-delivery market, the products should be within
3 kilometers of the consumer to arrive within a half-hour of
ordering. Hypermarkets' locations on the edges of cities make that
difficult.
The deal with Suning follows several moves by Carrefour in
recent years to shore up its China business, including a
partnership last year with Tencent Holdings Ltd. to benefit from
the tech giant's digital expertise. Carrefour's sales in China fell
5.9% last year to EUR4.1 billion.
Suning shares closed up 3.29% at 11.62 yuan a share Monday.
Suning said the partnership would combine its delivery network and
digital strategy with Carrefour's global supply chain and
supermarket-management experience.
Carrefour didn't respond to requests for comment.
The company helped change the retail landscape in China. When
Carrefour entered the country in 1995, it was one of a handful of
Western grocery chains here. The company currently operates 210
hypermarkets and 24 convenience stores in 51 Chinese cities.
"They've been around for so long, so to invest in e-commerce and
e-commerce logistics and warehouses would be a totally new endeavor
in what is already a very low-margin business," said Ker Zheng, an
e-commerce consultant with Azoya.
In the past few years, direct delivery has become a way of life
for Chinese consumers. Big data and a build-out of logistical
operations have extended this trend to groceries, allowing stores
to plan better and get fresher food items to customers faster.
Retail giants such as JD.com Inc., Alibaba Group Holding Ltd.'s
Tmall and Walmart Inc. are experimenting with combining in-store
shopping with e-commerce, while going head-to-head with newer
online-only fresh-grocery providers such as Miss Fresh and Dingdong
Maicai.
At Alibaba's Hema stores, shoppers browse in the same space
where employees fill bags with online orders that are placed on
conveyor belts. At JD.com-backed 7FRESH supermarkets, customers can
inspect produce and peruse other items in person, then use a mobile
app to place their orders for delivery.
By year-end, Walmart said, its more than 400 stores in China
would offer one-hour delivery through its partnership with JD.com.
E-commerce platforms such as Pinduoduo and Taobao, as well as
WeChat, feature farmers live-streaming and selling their goods
directly to consumers.
The grocery race even has retailers snatching up suppliers for
popular products. In April, Tencent-backed JD.com signed a deal
that grants it access to nearly a quarter of Thailand's supply of
durian in a three-year agreement valued at five billion yuan ($728
million). Durian, a tropical fruit famous for its gym-sock stench,
has recently become wildly popular in China.
Xiao Xiao contributed to this article.
Write to Julie Wernau at Julie.Wernau@wsj.com
(END) Dow Jones Newswires
June 24, 2019 10:01 ET (14:01 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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