Date of publication: March 25, 2006
Source: Guardian
By Bill Quinn
US giant launches big push in competition for burgeoning £140bn retail market Jonathan Watts in Beijing
The last things the turtles see in the Wal-Mart megastore in northern Beijing are bright fluorescent lights, masked shop assistants and, if they crane their necks over the edge of their plastic container, a chalk board offering them for sale at the bargain price of 39.8 yuan (£2.86) each.
Once that sum is paid even their shells cannot protect them. They are whisked off to the in-store slaughter counter, where their necks are cut, their blood is drained and they are bagged and tagged ready for the checkout counter.
A similar fate awaits the bass, perch and carp crammed into glass tanks, while there is equally no escape for the crayfish and shrimps that scuttle their last moments around a plastic tray half-filled with water before being scooped onto the scales.
Compared with their counterparts in Britain, Chinese shoppers are not satisfied simply pushing a trolley around a shop to buy products that are carefully packaged to look as different as possible from their origins. They want to net their own fish, grab their own turtles and chop the heads off their own dead ducks. If that means facing up to the fact that every purchase of meat or fish is an execution order, then so be it. If it's not fresh, it won't sell.
This is one of the lessons being learnt by a growing number of western supermarket chains as they surge into the fast-growing Chinese market. This week Wal-Mart - the world's biggest retailer - declared its intention to lead the charge, announcing that it will hire up to 150,000 new staff in China over the next five years. The plan is the most ambitious attempt yet to convert China to western consumer culture - albeit with a local flavour.
"We're going to be growing in all directions," Joe Hatfield, chief executive of Wal-Mart Asia, told Reuters news agency in predicting that his company's Chinese operation could be as big as its 3,700-store United States business within 20 years. It is one of many. Britain's Tesco and B&Q, France's Carrefour and Leroy Merlin, Germany's Metro and Tengelmann, and Japan's Ito-Yokado and Aeon have all moved into China in the past decade. Most are now expanding at the rate of 10 to 20 megastores a year. In the fast-food sector western firms are so ubiquitous that there is even a Starbucks inside the Forbidden City - Beijing's old imperial palace - and Kentucky Fried Chicken and McDonald's outlets beside Tiananmen Square.
It is the same in the luxury goods sector, where Prada, Louis Vuitton and Chanel are opening outlets in shopping centres across the wealthy eastern regions. Even more spectacular is the advance of the sporting giants, Nike and Adidas - adding to their Chinese franchises at the rate of more than a store a day each as the 2008 Beijing Olympics approaches.
Like everything in China these days, the change is at a spectacular speed and on a scale the world has never seen before. It is already one of the fastest expansions in retail history, but analysts say it could get faster as international giants race for territory in a £140bn retail market that is growing at a double-digit pace.
"All the big players are engaged in a turf war. It is about being first and getting as much coverage in as many cities as possible," said Atiff Gill, senior manager of the Kurt Salmon Associates consultancy. "This is a period of very aggressive growth. We are bordering the top end of the curve. But there is a possibility that investment could grow even faster."
There are no shortages of incentives. The average annual income of China's 1.3bn people is less than £1,000. But the middle class is growing fast, particularly in eastern cities, and it has enough disposable income to start focusing on brand, safety, quality and taste. For many, price is no longer the priority. Foreign retailers are also finding it easier to set up shop because many restrictions on overseas firms were lifted in 2004 under China's World Trade Organisation commitments.
Wal-Mart currently has 56 megastores - mostly in the south-east - with about 30,000 employees. But even after it opens 20 more this year, its sales are unlikely to enter the top 20 of China's major retailers. The domestic supermarket leader is Hualian, with nearly 2,000 stores, while the foreign legion is led by Carrefour, which has 70 hypermarkets, eight supermarkets and more than 100 discount shops.
Tesco is a late arrival, having moved into China in 2004 with the purchase of a £140m stake in Hymall, a leading food producer and hypermarket chain.
But it is adding 10 to 15 new megastores every year. Beijing will get its first Tesco by the end of this year - a 20,000 square metre site on the city's fourth ring road.
"China is a very big, exciting market," said a Tesco spokesman, Greg Sage.
"The economy is growing fast, and 1.3 billion people is a great opportunity."
As well as the live fish and crab tanks, there are several differences from the company's UK stores. Staffing levels are higher, reflecting low labour costs (salaries are usually less than £70 a month) and the tendency of customers to shop more frequently than their British counterparts.
B&Q is also pushing hard. The British firm's owner, Kingfisher, plans to increase the number of its stores in China from 49 to 100 by 2010. Ikea has also caught the expansion bug. For several years it has had only two superstores in China, but it plans to open two a year from now on.
Until now foreign investment has been focused in Shanghai, Beijing, Shenzhen and other large eastern cities. But, in a sign of the growing power of Chinese consumption, many of the new shops are being opened in smaller cities.
This invasion has started to raise alarms in some quarters. In many cases foreign firms sell Chinese-made products to Chinese consumers, which is a source of contention. Wal-Mart sources 80% of its products worldwide from China. At its Haidian store in north-west Beijing the Budweiser beer (5 yuan a can) was made in the central city of Wuhan, the Skippy peanut butter (9
yuan) was made in the coastal province of Shandong, and the Coca-Cola (5 yuan for a two-litre bottle) was made in Beijing.
Trade diplomats say marketing and distribution expertise adds value at foreign-owned stores. But the success of Carrefour and others has started a debate about the adverse impact on domestic retailers - particularly smaller family-run groceries.
"There are worries in China about the opening of more and more foreign-owned supermarkets, but we must put these in the context of the whole retail sector," said Yang Qingsong of the China Chain Store and Franchise Association. "Foreign supermarkets have more advanced management methods, which they pass on to local trainees, They also provide a stable flow of finance and rapid turnover, which boosts manufacturing."
For Chinese consumers, increasingly conscious about food safety and hygiene, they also offer greater reassurance and a wider choice than traditional markets.
"Compared with a Chinese supermarket, the service is good, the variety is wide, the food is fresh and they provide shuttle buses," said Yang Shupeng, a retired woman who spends about 100 yuan during her weekly shopping trip to Wal-Mart. Her husband also appeared to be enjoying himself with a fishing net as he scooped out two carp from a tank.
The fish had survived longer than they would have done in Britain. According to the shop assistant, a small minority of the 100 turtles sold every day could also expect a brief respite. "A few customers like to take them home alive so they can play with them for a few days before making them into soup," she said.
Expert view: High cost of low prices
A lot of companies have reached the summit before, looked around a bit, and enjoyed what they saw. But none has ever stayed on top. Wal-Mart was going to do wonders in Germany when it opened stores there about 10 years ago. But from what we've read and heard, Wal-Mart continues to lose money in that country. My recollection of a story on Wal-Mart in 2000 is that the company predicted it would hit the trillion dollar sales mark in 2008. My best guess is that they'll be far, far below this. Why?
Wal-Mart has been saying since 1962 that they'll never tolerate a union.
Funny. When the company went into China in a big way the Chinese government demanded unions. Wal-Mart gave in. The Bentonville, Arkansas-based retailer loves to point to company loyalty at the highest level. But even this 93-year-old brain remembers a recent story in which Wal-Mart's second-highest executive admitted hiding tens of thousands of company cash.
With dozens of US news investigators running free in China, the poor workers there are 100% sure to read that they are working for a fraction of their US and European counterparts. We'd bet that salaries will soon change there.
Newspaper articles have recently revealed that Wal-Mart is insisting that US Congress approve a bank for every store. If that is done, we predict a mini-rebellion in our banking system.
Both the federal and state governments giving medical and dental aid to the poverty-stricken are looking to big employers such as Wal-Mart to pay their proportionate share of health benefits. According to one union, Wal-Mart alone indirectly gets close to $2bn (£1.1bn) government benefits paid to their workers.
With tens of millions of US jobs being outsourced and exported (to China and other countries) our worker base has truly felt the impact. Because of our millions of job losses, we often wonder if a medium to large-sized depression could hit the world before the next US election.
Final questions:
1 We wonder if Wal-Mart's constant price changes, depending on management's authority to vary its prices store-to-store, may prompt more customers to challenge the claim of "Low Prices. Always."
2 We wonder if 21st century shoppers will recall what the Roman philosopher Seneca said: "Failure changes for the better, success for the worse."
Bill Quinn
· Bill Quinn is the author of How Wal-Mart is Destroying the World and What You Can Do About It