Introduction

Sunrising Co., a local company in Xiamen, Fujian, had planned to open a supermarket last year. During ATO/GZ's recent visit to Xiamen, we discovered that Sunrising had suspended launching of its retail business. It shifted to the development of name brand products and a sales network. The following is a report from its senior management. It reflects the thinking of a significant segment of the South China retail industry.

A Case Study: Developing Retail Industry in Xiamen, Fujian

1. General Analysis

According to the related statistics, Wal-Mart (from the U.S.) opened 8 chain stores last year in China, with a total sales volume of about 3 to 4 billion RMB. Other multinational supermarkets, such as Carrefour, Price-Smart and Macro, were all doing very well in China, with a big increase in sales volume. During the past several years, those multinational retail super stores got a deep understanding about China's retail market system and business patterns through their business experiences.

In 2001, Wal-Mart and Macro have respective plans of opening 8 more chain stores in China; Carrefour also plans to open at least 4 more stores. Meanwhile, COSCO, ranking as No. 12 largest supermarkets in the world retail industry, had reached an agreement with a large domestic supermarket to open more than 10 inventory super stores in China. By the end of 2001, we should see those super COSCO stores available in our major cities. The world supermarket giants are about to divide the China market in different cities.

The policy background behind all this should not be overlooked. China has promised to gradually open its retail industry by eliminating its restrictions on geography, share percentage, quantity and business patterns after three years of its accession into the WTO. Generally, comparing with foreign retailers, Chinese enterprises need improvement not only in technology, appropriate managemnt on logistics and investment, but also in personnel management. Facing the tough competition from the world retail giants, for the first time, Beijing Xi Dan Department Store, Beijing Supermarket and Shanghai Hua Lian Supermarket (among the 50 largest Chinese retailers) had jointly formed Beijing Xi Dan Hua Lian Supermarket Ltd., and planed to open about 500 chain stores in Beijing within three years.

Based on our research, Xiamen retail industry is facing almost the same problems as in the rest of the country. In recent years, the prices for daily necessities kept decreasing. Together with other factors, this phenomenon caused some of the government owned supermarkets to have a big deficit in sales. They had to lay off many employees. Besides, the population of Xiamen (excluding the Tongan District) is less than 1 million, with 40% from other cities and/or provinces. As supermarket operation demands more inventory investment in daily necessity than other retail sector, and Xiamen consumers do not yet possess a strong purchasing power, the risk involved [in retail business] is relatively higher. Till now, Xiamen does not have any large supermarket. Some of the companies are discussing about the possibility while the rest are just watching [the potential development].

As for market development, Macro (from Europe) was the first one to enter Fujian Province. Last year, Macro opened its first store successfully in Fuzhou and achieved an excellent sales record. Wal-Mart is considering to enter the Fuzhou market and open three stores. Till now, none of them is considering to enter the Xiamen market. However, Trust-Mart (a Taiwan supermarket) had chosen and been renovating the Fushan Internation Exhibiton center as its store location. This made some of the government owned retail stores become worried about their future.

Apparently, the foreign supermarket giants have lots of advantages over the domestic ones, in terms of financial situation, management and product brands. The domestic supermarkets are facing tough challenges from the foreign enterprises. This added lots of pressure on forming the Sunrising Supermarket. Under such circumstances, the Sunrising Co. decided not to enter the retail market precipitously until it is more likely to get a good return from the investment. We plan to collaborate with some foreign retailers who could not get the permit to enter the retail market in China, utilizing their advanced management techniques and investment, and making full use of our sales network. Based on the above, our company decided to stop the plan of opening a supermarket under the current situation.

2. How to follow the market principles to adjust our business management:

Facing the tough competition, we realize that, in order to improve our competitiveness in the world market, it is essential for us to learn from the foreign enterprises. Thus, in 2000, our company sent a team to visit the United States and learn from the U.S. supermarket retailers.

Through our visit, we realized that, comparing with the foreign retailers, domestic companies lack of not only the modern business management techniques but also the control over logistics, investment and cost plan. Furthermore, we are far behind in personnel management. This made us hard to keep harmony between the economic benefit and the development tempo. Nor could we keep the market scale at the same pace with the business management.

After returning from the U.S., we made a depth research on the following topics: how to lower the purchasing cost; how to utilize the logisitic technology; how to adjust information management to keep up with the market structure change; how to adjust the marketing strategy to improve our competiveness. We understand if we could not realize the above, our company would be eliminated through competition. Furthermore, our society has entered into a network era, many companies have made plans to expand to the convenient chain store market development. Under such circumstances, we think it meaningless for us to open just only one supermarket store. Therefore, we adjusted timely our company's business direction.

We plan to set up a logistic system as our main priority, because sufficent logistic supplies could satisfy the needs of consumers at different levels. Meanwhile, we implement an OEM method to single out our "Sunrising" brand. We manufactured some typical Xiamen specialty food using "Sunrising" brand, such as Xiamen rice noodles, Song Hua preserved eggs and salted eggs. Our company plans to build up a food and daily necessity network in China through our supplies to some supermarket stores. This sales network will be the base for introducing foreign brand products to China after China's accession to the WTO. We will enter the retail sector at a later time when our company builds up a more mature logistic system.

Written by Mr. Huang Shao Jun, General Manager, Sunrising Co., Ltd., Xiamen
Translated by Ms. Lynda Jiang, ATO Guangzhou