What do you mean you’ve never heard of Sun Art? Sun Art is the Hong Kong-listed retailer that is emerging as a leading innovator in China’s robustly growing modern grocery retail market. The company runs two key chains in China, Taiwanese banner RT-Mart and the Auchan banner from France, but what really stands out about Sun Art are its recently published first half 2012 results.
China’s retail market grew by 14.4% in the first half of 2012 (YoY to the end of June) according to the official data, a fast clip that was matched by Sun Art revenues. But what makes Sun Art really exceptional are its first half profit growth figures: gross up 17.9%, operating up 22.9% and net up 29.2% (YoY)! So what is driving this company that has already surpassed the global retail colossus troika of Carrefour, Wal-Mart and Tesco in China?
According to our report on Supermarket & Hypermarket Retailing in China, not only have Sun Art’s Auchan and RT-Mart chains been growing fast, their stores are making more money than most of their competition. Between 2008 and 2011, the RT-Mart chain grew by 83% 185 stores by year end, while Auchan stores grew by 45% in the same time, reaching 45 stores. But this is way behind the 3,500-plus stores run by CR Vanguard (the largest domestic chain by outlets), or the 653 stores run by Carrefour (the largest foreign chain by outlets) by end of 2011.
Despite their relatively small size, in terms of 2011 total revenues in China, RT-Mart is ranked second and Auchan twelfth. Their high placing in terms of revenues compared to lower ranking in terms of store numbers means they are punching way above their weight in terms of average store sales. Based on average store sales in 2011, RT-Mart and Auchan are ranked first and third.
Why are these stores performing so well in China’s grocery market?
Firstly, they have concentrated on the hypermarket sector. As Chinese consumers’ incomes have grown, they are tending to shop for groceries less frequently, preferring bigger, one-stop shops that provide them with more convenience. They are trading-up to hypermarkets from supermarkets, especially the car-owning middle classes.
Also, Sun Art has been innovating. For example, in May 2012 Auchan launched in China the concept of the drive-through hypermarket, previously only seen in France. The first store in Suzhou has a dedicated website where shoppers can order online, after which they pick up their shopping from any Auchan Drive location during a set time.
Both RT-Mart and Auchan have also embraced the development of private label, including stratifying PL into mass, middle and higher end ranges to suit a wider scope of consumer pockets, and building loyalty across a broader spectrum of consumers.
China’s supermarket and hypermarket industry has recently been notable as the only national market in the world where all three of Carrefour, Wal-Mart and Tesco compete together. But attention will increasingly fall on the growing domestic chains in their response to the foreign invasion, and the Hong Kong and Taiwan-based (or Franco-Taiwanese out of Hong Kong, in the case of Sun Art) companies that are applying the best of local knowledge and foreign retail expertise.
This will be especially crucial as the rush to fill territory across China gives over to more direct competition for share of market. That competition begins with improving back-of-store efficiency, but success also requires front-of-store innovation. China’s retail market is already very competitive, and innovative, but things are only going to get even more interesting, as our report shows.
For more information about Mintel’s report on Supermarket & Hypermarket Retailing in China or contact us to find out about Mintel’s China market research.
