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China Grocery Chains To Shop
A shopping spree for China's supermarket chains is about to begin.
Kenneth Fang, the majority shareholder of Times Ltd., which runs 65 stores in eastern China, is looking to sell the business for about $560 million in a sector ripe for consolidation. By the end of 2009, revenue growth in the supermarket sector over the previous five years will have averaged about 15%, market-research firm IBISWorld expects.
Reason No. 1 for consolidation: That growth rate is going to drop in the next five years, admittedly to a still healthy clip of about 9.5% per year.
As individual wealth rises in China, shoppers are becoming keener on supermarkets, attracted by their product variety and quality, cleanliness and competitive pricing.
Reason No. 2: There's scope for firms to scale up and form nationwide franchises. Carrefour China has the largest market share among supermarkets at just 7.4%, with the top-five players accounting for 22.5% of sales this year.
A company such as Wumart, China's fourth-largest retailer by sales but with its 400 stores confined to northern China, is typical of a supermarket chain with room to grow, and the cash to do so. The company looked at making a major investment in Times in 2006, but the timing may be more propitious for it now.
A Wumart-Times tie-up would result in little geographic overlap, though Wumart might see a dip in its gross profit margins, which are higher than those of Times. That matters little. For now, market-share growth is the priority for China's leading supermarket chains.
