Current Status and Format of China’s Retail Industry

1. Current Status and Format of China’s Retail Industry

2. Current Status of China Retailing Overview • Total volume of retail sales of consumer goods is $1,253 Billion RMB, an increase of 15.5% (2009) • Top 100 Chain Store Retailers in 2009 • $136 Billion in sales, an increase of 13.5% • 137,000 stores, an increase of 18.9% • Market share, 11% • Foreign retailers • Sales increased 20.4%; • Number of stores increased 15.7%

3. Sales of Top 100 Chain Store Retailers in China (Billion Yuan)

4. Current Status of China Retailing Overview (Cont.) • Regional growth • First Tier Cities • Sales increased 5.3% • Number of stores increased 7.2% • Second and Third Tier Cities • Sales increased 19.3% • Number of stores increased 14.7%

5. Types of Retailers in US (Levy and Weitz, 2004) Food Retailers GeneralMerchandise Retailers Conventional Supermarket Big-Box Food Retailers (Supercenters, Hypermarkets, and Warehouse Club) Convenience Stores Discount Stores Specialty Stores Category Specialist Department Stores Drugstores Off-Price Retailers Value Retailers Nonstore Retailers Electronic Retailing Catalog and Direct-Mail Retailing Direct Selling Television Home Shopping Vender Machine Retailing

6. Characteristics of Food Retailers

7. Characteristics of General Merchandise Retailers

8. Types of Retailers in China (China’s National Standards on Classification of Retail Industry) Store-based Retailers Nonstore Retailer Conventional Grocery Stores Convenience Stores Value Retailers Supermarkets Hypermarkets Warehouse Clubs Department Stores Category Specialist Specialty Stores Home Improvement Center Shopping Centers (Community, CBD, Suburb) Factory Outlets Electronic Retailing Catalog and Direct-Mail Retailing Direct Selling Television Home Shopping Vender Machine Retailing

9. Conventional Grocery Store

10. Conventional Grocery Store (Cont.)

11. Conventional Grocery Store (Cont.)

12. Conventional grocery store in China vs. Mom and pop stores

13. Mom and pop store (US) Conventional grocery store (China)

14. Street/Open Market

15. Street/Open Market

16. Open Market

17. Open Market

18. Open Market

19. Open Market

20. Open Market

21. Open Market

22. Department stores in China

23. Department Store Format

24. Sales of Department Stores (100M RMB)

25. Key Players (2008)

26. The Market Share of Department Stores

27. Current Status • Fast Growth • 30% Growth Rate • Relatively High Profitability • Gross margin =15.8% • Profit = 4.4% • Geographically Unbalanced • Sales in Shanghai, Beijing, Tianjing, Liaoning and Shandong comprise 46.5% of national sales. • Industry is Relatively Fragmented • CR4 = 21% • Mainly Regional and No National Leaders

28. Current Status (Cont.) • It has been influenced the most by the current economic recession, but the industry is continuously growing. • Market is further segmented • Community Department Stores, Fashion Department Stores, High-end Department Stores, and Shopping Mall Department Stores • Customer service has significantly improved • Large scale discounts hurt the profitability • Distribution system needs changes. • Buying from regional agents

29. Supermarket and Hypermarket

30. Supermarkets

31. Hypermarkets

32. Introduced in the early 1990s Serving International Visitors 1990s: Shifted focus to the local community. Supermarket developments took off in big cities. 2000 to Present: Have been experiencing rapid growth and competition became fierce. History

33. Supermarket and Hypermarket Sales (Billion RMB)

34. Number of Supermarket and Hypermarket Stores

35. Key Players (2008)

36. Current Status • Hypermarkets • Gross margin is 13.43%, profit is 4.53% • Supermarkets • Gross margin is 12.32%, profit is 4.15% • Market concentration • CR4=40% • CR8=60%

37. Current Status (Cont.) • Fresh food is becoming the “cash cow”. • The relationship with suppliers needs improvement. • Hypermarket growth is the fastest among the various formats. • Saturated in the first and second tier cities • Expanding in the third and fourth tier cities • Foreign retailers dominate the Hypermarket format. • Innovations and Differentiations • High-end Supermarkets, Fresh Food Supermarkets, and Community Supermarkets. • Supermarkets pursue regional advantages and serve communities.

38. Convenience Store

39. Convenience Stores

40. U.S. Vs. China Convenience store (US) Convenience store (China)

41. Convenience Store (Cont.)

42. Convenience Stores

43. Convenience Stores

44. Convenience Stores

45. Number of Convenience Stores

46. Sales of Convenience Stores (Billion RMB)

47. Market Share of Convenience Stores

48. Current Status • Convenience stores are mainly regional. • Haode, Kede and Suguo in Eastern China • Meyijia, Tianfu and Shanghao in Southern China • Liqun and Weike in Shandong • 7-11 is a national store chain • 12 leading retailers own 60% convenience stores • Domestic retailers dominate the convenience store format, with the exception of 7-11. • Shanghai and Zhejiang have half of the convenience stores.

49. Current Status (Cont.) • Competition with other retail formats has become intensive. • More attention is paid to fresh food • Instant food and meal boxes • Improved distribution • Foreign convenience retailers replenish twice daily • Chinese convenience retailers replenish once daily • Constructed distribution centers • Become big chain or die • Most of the convenience stores are in the red.

50. Specialty store