By Julie Wernau
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (June 25, 2019).
BEIJING -- Carrefour SA, one of Europe's largest grocery
retailers, is unloading most of its operations in China, where
big-box retailers are struggling to keep up with nimble delivery
providers that are winning over shoppers.
The move also marks the latest retreat by a Western company in
China in the face of stiff competition from homegrown rivals.
Carrefour is selling an 80% stake in its China business,
including more than 200 stores, to Nanjing-based retailer
Suning.com Co. for about $700 million. The French company, once a
dominant force in many Chinese cities, saw its sales in the market
fall 5.9% to EUR4.1 billion ($4.67 billion) last year.
Western companies, lured by a once surging Chinese economy,
often find the country brutally competitive and fraught with
regulatory hurdles. McDonald's Corp., Hewlett-Packard Co. and Uber
Technologies Inc. are among those that have pulled back or changed
strategy in recent years.
The challenge to foreign companies has become especially intense
in sectors that rely on delivery, as local competitors have ramped
up their logistics networks to meet Chinese expectations for speedy
service.
To compete, brands such as Walmart Inc. have either partnered
with one of China's e-commerce giants or simply bowed out. Earlier
this year, Amazon.com Inc. sold its third-party online marketplace
in China to a competitor after years of declining market share.
Carrefour has tried to shore up its China business, including a
partnership last year with Tencent Holdings Ltd. to benefit from
the tech giant's digital expertise.
Delivery is emerging globally as one of the biggest puzzles
facing the food business as consumers increasingly opt for
convenience. Logistics are tricky, and finding a profitable
business model has been complicated because of the large upfront
costs to get close to customers.
Carrefour's outlets typically are larger than 6,000 square
meters (about 64,600 square feet), and such hypermarkets as a whole
have been losing market share in China, according to Bain &
Co., dropping to 20.2% in 2018 from 23.6% in 2014.
"Vegetables and meat and dairy delivered to your door, that's
the tipping point we're at right now," said Michael Norris,
research and strategy manager at AgencyChina. "The hypermarkets
haven't quite adjusted to these changing dynamics -- that it isn't
necessarily shoppers finding products but products finding
shoppers."
Carrefour operates 210 hypermarkets and 24 convenience stores in
51 Chinese cities.
Online food delivery has grown quickly in China, accounting for
45% of the global market, according to Sanford C. Bernstein.
To compete in the fast-delivery market, products should be
within 3 kilometers, or about 2 miles of the consumer to arrive
within a half-hour of ordering. Hypermarkets' locations on the
edges of cities make that difficult.
Carrefour didn't respond to requests for comment. The stock rose
slightly in Paris on Monday.
The French company helped change the retail landscape in China.
When the retailer entered the country in 1995, it was one of a
handful of Western grocery chains here.
"They've been around for so long, so to invest in e-commerce and
e-commerce logistics and warehouses would be a totally new endeavor
in what is already a very low-margin business," said Ker Zheng, a
consultant with Azoya, which advises global retailers and brands
that are setting up e-commerce businesses in China.
Suning said the partnership would combine its delivery network
and digital strategy with Carrefour's global supply chain and
supermarket-management experience. For the Chinese retailer, the
deal is seen enabling it to diversify beyond consumer electronics
and appliances.
Suning shares rose 3.3% to 11.62 yuan ($1.69) a share on
Monday.
In the past few years, direct delivery has become a way of life
for Chinese consumers. So-called big data and the build-out of
logistical operations have extended this trend to groceries,
allowing stores to plan better and get fresher food items to
customers faster.
Retail giants such as Tencent-backed JD.com Inc., Alibaba Group
Holding Ltd.'s Tmall and Walmart are experimenting with combining
in-store shopping with e-commerce, while going head-to-head with
newer online-only fresh-grocery providers such as Miss Fresh and
Dingdong Maicai.
At Alibaba's Hema stores, shoppers browse in the same space
where employees fill bags with online orders that are placed on
conveyor belts. At JD.com-backed 7FRESH supermarkets, customers can
inspect produce and peruse other items, then use a mobile app to
place their orders for delivery.
Walmart said that by year-end its more than 400 stores in China
would offer one-hour delivery through its partnership with
JD.com.
E-commerce platforms such as Pinduoduo and Taobao, as well as
WeChat, feature farmers live-streaming and selling their goods
directly to consumers.
The grocery race also has retailers snatching up suppliers for
popular products. In April, JD.com signed a deal that grants it
access to nearly a quarter of Thailand's supply of durian in a
three-year agreement valued at five billion yuan ($728 million).
Durian, a tropical fruit famous for its gym-sock stench, has
recently become wildly popular in China.
--
Xiao Xiao
contributed to this article.
Write to Julie Wernau at Julie.Wernau@wsj.com
(END) Dow Jones Newswires
June 25, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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