Foreign supermarkets crushed between local competitors, Internet giants
The Lotte Mart supermarket chain, the retail arm of South Korean conglomerate Lotte Group, is closing four underperforming supermarkets in East China's Shandong Province, the Beijing-based China Business Journal newspaper reported Saturday.
Experts told the Global Times Sunday that the South Korean supermarket operator is losing market share in China, crushed between competitive local players and the online venues of e-commerce giants such as Alibaba Group Holding and JD.com Inc.
Two of the four supermarkets are in Qingdao, a major coastal city and one of the most prominent second-tier cities. One Lotte Mart is closing in Weifang, an industrial city in central Shandong, and another in Weihai, the Chinese city that is closest to South Korea.
South Korea is Shandong Province's second-largest trading partner, with two-way trade of 201.7 billion yuan ($32.5 billion) in 2014, data from Shandong customs authorities showed.
"Lotte Mart's prices are not that compelling. Some local supermarkets, such as Likelai and Liqun, offer lower prices and more choices," a consumer surnamed Zhang in Qingdao told the Global Times on Sunday.
"Other supermarkets such as Wal-Mart Stores Inc or Carrefour SA provide free shuttle buses, which are convenient for older people. Lotte Mart does not have such a service," a Qing-dao resident, who only gave his surname as Guo, told the Global Times in a telephone interview on Sunday.
"For young people, Lotte Mart is not a good choice if they want to eat out as well as shop. There are not many fancy restaurants in Lotte Mart compared with other markets," Guo said.
"Lotte Mart has never been a big brand, although it made headlines with two takeover deals of local Chinese supermarket chain stores in 2008," Chen Yuefeng, editor-in-chief of the China Chain Store magazine, told the Global Times Sunday.
Because Lotte has less brand visibility, it faces a tougher job than the likes of Wal-Mart in competing with strong Chinese rivals, Chen noted.
"Lotte has failed to differentiate itself from the other supermarket brands and to identify and build on its advantages," Chen said.
Chen noted that Lotte Mart is hampered by a lack of new investment and a weak supply chain.
Most of all, it is being hurt by a tough environment in which big supermarkets see their market share eroded by cash-burning e-commerce sites and smaller, more agile niche shops that sit in residential communities and sell differentiated merchandise, said analysts.
Lotte's sales in China declined from the equivalent of 1.73 trillion won ($1.56 billion) in 2013 to 1.51 trillion won in 2014, according to the company's annual report.
Lotte Mart has 120 stores in China, 10 in Vietnam, 39 in Indonesia and 116 in South Korea, information on the company's website showed. Lotte Mart is not the only foreign supermarket chain that is having problems in China.
Wal-Mart, along with France's Carrefour SA and Britain's Tesco Plc, have all seen sales growth slip over the past five years, according to a Reuters report on April 29, which cited a study by consumer analytics firm Kantar Worldpanel.
In 2014, Wal-Mart, the world's biggest retailer by market value, shut 29 outlets in the Chinese mainland market, according to media reports. An executive of Wal-Mart reportedly said the company would close a number of poorly performing stores in the future but at the same time pursue a plan to open 115 new stores in China by 2017.
After struggling in the Chinese mainland market for nine years, UK-based Tesco choose to package its China business into a joint venture with China Resources Enterprise, a retail-focused Chinese conglomerate, in May 2014.
According to a ranking of the top 100 supermarkets by the China Chain Store & Franchise Association (CCFA), published on April 21, Lotte Mart ranked 15th with annual revenue of about 18 billion yuan ($2.89 billion).
This compared with 45.7 billion yuan for Carrefour (the China branch), which ranked fifth, and 72.4 billion yuan for Wal-Mart (the China branch), which ranked third. China Resources Vanguard Co Ltd topped the list with revenue of 104 billion yuan.
The CCFA said that rising rents and labor costs, both of which had risen about 10 percent from 2013, were weighing on retailers' performances.
"Brick-and-mortar supermarkets are still exploring plausible ways to survive in a new era marked by e-commerce giants waging a price war, fickle consumers and a retail environment in which convenience is paramount," Chen said.
Chen noted that the e-commerce giants have also yet to find a profitable business model in the retail sector.
"Were the supermarket operators to burn money to compete [with e-commerce giants], they could face them on a level playing field, but they've chosen not to do so," Chen said.
