China’s Retail Revolution Analysis

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Table of Contents

Introduction
Marketing plan for Tesco Limited
SWOT Analysis
China’s retail revolution; An overview
Conclusion
References

Introduction

The demographic and economic features of the Chinese market are highly attractive for foreign investors. International retailers are strongly located in the market and it creates intensive competition in the retail sector. Most of the local business firms are adopting a combination strategy with the international partners for avoiding competition. China’s fastest growing economy with the h biggest population in the world with a growing middle class, attracting most of the retail firms in the European and other Western regions. Chinese retail market is the 7^th biggest retailing market in the world. The average annual retail sales increase is at a rate of 13 percent. The current retail market is valued at 430 billion dollars. Economic experts predict that by the year 2010, this will attain a worth of 596bn Dollars. China’s average annual GDP growth rate is 9 % since 1994. This results in an increasing middleclass population. Vast variation in income distribution in the Chinese economy imposes challenges to the retailers in meeting their business goals. The climate and customs of people throughout the region are also showing huge differences. Thus a better understanding of each part of the region is important for successful business launching in the country.

Marketing plan for Tesco Limited

Tesco is one of the well-established international retailer groups in China and they have business combination with most of the local business firms. For entering the Agri-food retail sector in the Chinese market, a detailed analysis of existing market conditions in China’s agri-food business is necessary. For this purpose, SWOT analysis is an adaptable method.

SWOT Analysis

For profitable launching in the highly competing China’s retail agri-food sector, the strengths and weaknesses of Tesco Limited have to be analyzed together with the opportunities and threats provided by the market environment.

Strengths

Strong Company image: In the retail food marketing field Tesco has achieved a strong company image by following accurate business strategies. Customer satisfaction is ensured through localization strategy and business combination with local firms.

Diversified product mix: Tesco occupies a wide range of product mixes in the Chinese market which provides greater advantages to the company in entering the new market sector. Tesco is a prominent international retailer operating in the Chinese market.

Weaknesses

Tesco is affected by the weaknesses such as inefficient sales force with limited contact with customers, defective allocation, and use of resources in the product marketing field. Scarce and limited sources of raw material supply in the market are also affecting the proposed business badly. The supply of food products becomes localized, inefficient, and costly by the involvement of Chinese agribusinesses and supply networks in the market. Efficient and reliable suppliers are only limited in number in the Chinese market. Secure suppliers are not available to all business firms. Varying local customs prevent business firm to sell goods beyond the local area. Most of the suppliers are not capable of carrying their business operations nationwide.

Opportunities

Estimation of the Chinese population reveals that by the year 2025, the earnings of the Chinese population will be highly increased and more than 520 million people will be integrated with the upper-middle classes and it will be more than half of the total urban population. These developing factors in the Chinese economy will result in huge consumer spending in the Chinese urban market and this provides a great opportunity for retail firms in the market. Food consumption in China is tending to be increasing with the increasing GDP per person. Due to the high growth, the Chinese economy bank lending is high in the country.

The entry of China into WTO in the near future will provide greater advantages to foreign investors. It will lead to import liberalization as well as liberalization of foreign investment. Firms can enjoy price decontrol for their product. There is no large-scale agribusiness existing in the Chinese agri-food market. Fragmented nature of the Chinese agri-food market, existing firms are not efficient for ensuring better quality control or supply chain management. These provide great opportunities for large-scale firms to enter the market with products ensuring adequate quality through efficient supply chain management.

Exporters of agri-food products have great opportunities in China. Population and geographic factors provide advantageous for firms to enter and exit in the market with successful growth. The Chinese economy is the third largest economy in the world. It supports the potential export market. The living standards of the population is increasing over the years with annual GDP growth of 9%. Improved income of population makes changes in the food habits of the population and thus large scale agri-food marketing have bright future in the economy. It is the second-largest agri-food industry in Asia after Japan.

Threats

Delicensing threats always exist in the Chinese market. Government is more conscious about food safety standards and firms who do not occupy adequate food safety and nutrition standards may be banned. Consumerism is much developed in the market. Consumers are more price-conscious and the sellers always want to cut down their selling price for attracting customers. Thus the profitability of firms is limited. The battle for buyers is strong in the Chinese retail sector.

Two conflicting feature of the market is prestige and patriotism. Chinese branded food enjoys patriotic support from the part of native consumers. However foreign brands are attractive to younger and higher-income consumers. The prestige and convenience of foreign foodservice outlets and supermarkets are attracting them and they are ready to pay much more for these facilities. The market share of supermarkets and hypermarkets in the Chinese retail food sector is around 30 % it is showing an increasing trend.

The demand for business locations is strong in the Chinese market and this will lead to boosting the rental costs. Together with this profit margin of retailers is also reduced due to strong competition and battle for customers.

China’s retail revolution; An overview

The retail revolution in China has resulted from the high demand for consumer food. Supermarkets and hypermarkets are dominating China’s food retail sector. By combining the retailing knowledge of international business firms with the local knowledge of native business firms customer satisfaction and business development can be increased in the retail sector. Vast variation in income distribution in the Chinese economy imposes challenges to the retailers in meeting their business goals. The climate and customs of people throughout the region are also showing huge differences. Thus a better understanding of each part of the region is important for successful business launching. Regulations of tariff reduction for food products importing in the country will lead to an increase in the food import in coming years also.

The food trend in the Chinese urban market is now tending to spread in rural areas also through the rural economic development. Rural economic sectors also held with efficient market conditions and better communication and transportation facility and this facilitates investors to profitably expand their business in rural areas also. This revolution makes the rural areas a part of the national market.

Food safety standards are prescribed by the government due to the increasing issues related to food poison. The government takes strict regulations relating to food quality, safety, and nutritional issues. Consumers are more conscious about food safety and quality together with the taste appealing. Clean food is attaining more customer preference. China’s decreasing soil fertility and low level of mechanization in agriproduction, local production of food pieces of stuff become inadequate for meeting higher demand of the population. It forces the country to allow more food product importing. In the year 2004, the food import of the country is for a value of $ 8bn.USD. The buying capacity of natives is increasing over the years. Western branded food products are highly accepted by the market due to the price and performance of branded products.

Foreign investors will be highly assisted with the changes in regulations provided by entry of China into WTO. Economic reforms introduced by the government to reduce income disparity between regions will support business growth in all parts of the country.

Food habits among different Ethnic groups in China are entirely different. Thus the development of a national-level food brand in China is not effective in this condition. The regional market share for branded food products in the Chinese market is comparatively smaller than in other countries. The processed food market sector is dominated by foreign brands. Most of the foreign firms in the economy are adopting localization strategies. For this, they form a business combinations with native firms. When taking the sales volume of China’s food retail sector, it shows that the market is relatively smaller. The current net sales volume of the country is $126 billion, which is equivalent to Britain’s sales volume. Major food categories in the market include baby foods, breakfast cereals, frozen foods, noodles, and snacks. For each of these product categories, more than five foreign brands are available in the market. Most of these brands are produced by foreign investors through their domestic plants or joint venture with local firms. Western brands are prominent in the market. Along with this Hong Kong, Japanese, and Taiwan brands are well established in the market. The fragmented business combinations and regional nature of the Chinese consumer market prevent firms from accepting nationwide production and marketing strategy. There exists higher variation in product prices between regional regions as well as within a particular marketplace also. The considerable price variation is challenging for firms to adopt proper pricing for their branded product. In the local markets, the price difference between different brands is higher. The market share of a particular brand along different regions is showing high variation.

” For example, the French firm Danone Group has produced biscuits in Shanghai since 1993 and has a 16 percent market share in the city, but can claim only a 5 percent share of the national biscuit market.”

Internal political support in reducing the income disparity between regions and different communities is supportive for the development and growth of firms. Through new economic policy, the Chinese government intends to reduce the gap in income distribution among different social classes. They follow the methods of modernization and economic reform activities in rural areas for enhancing their economic conditions. The government provides incentives and other financial support to the state-owned firms to protect them from foreign competing investors. Firms in the country are affected by manipulative beaurocracy and tariff and non-tariff trade barriers. Unequal income distribution in the county results in communal and labor unrest. Thus proper working conditions for business firms cannot be ensured in an unrest society.

Conclusion

Tesco Ltd. can achieve market acceptance and growth through customer satisfaction through developing technical advantages in production and applying advanced marketing skills. By empowering brand loyalty through attractive promotional techniques will help to achieve market share and growth in the Chinese keen competitive agri-food market. The biggest retailer in China is Vanguard which occupies more than 1000 hypermarkets. Thus Tesco had to face keen competition from Vanguard for market share and customer acceptance

By developing a national brand by combining the features of the right product, the right price, and the right place and time Tesco can strongly enter in China’s agri-food market. Setting up of business relations with local firms will help employ localization strategy effortless. The sophisticated national distribution channel is adopted for the firm for standardized and quality product distribution. The production and marketing strategy should be attractive for the local community. By combining the retailing knowledge of Tesco from international business experience with the local knowledge of native business firmscustomer satisfaction and business development can be increased in the retail sector. By ensuring a smooth supply of raw materials and finished goods and state-of-the-art technology in production they can ensure customer acceptance.

References

China food market overview, department of Primary Industries, China. Web.
China’s Food Market Revolution Reaches the Countryside by Fred Gale.
Developing a national brand; Food for Thought by Richard Bowles, China Business Review.
Spreading the Word; Agri-Food Trade Service, Opportunities in the Food Market of China, 2005.
Agri-Food Trade Service, Opportunities in the Food Market of China, 2005.

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