With its massive consumer base, China is a retailer's idea of paradise, and successful western and Japanese companies have been active there for some years now. But Carrefour, Wal-Mart, Metro, Auchan, Ito-Yokado and the rest have all had to follow the same route to market, taking local partners whether they wanted them or not.
But China's accession to the WTO in 2001 brought with it a commitment to completely liberalise the market, removing the requirement of a local partner and theoretically making it as easy for foreign groups to trade there as local ones. This move has been a long time coming, and will not be completely implemented until the end of the year, but for groups such as Carrefour it is a welcome development.
"Carrefour has had to slow down its store expansion over the past year or so as it has been required to sort out some problems with its planning regulations (although this has been cleared up now) and issues such as this are clearly going to be less of a problem in the future," Robert Gregory, retail analyst at M+M Planet Retail, told FoodandDrinkEurope.com.
But welcome as it is, the decision will not necessarily make life much easier for foreign investors. "The Chinese authorities seem intent on protecting the local retailers and it is likely that they will continue to give the locals more favourable treatment in the future - maybe preferential treatment when it comes to store locations, for example," Gregory said.
"Just a few weeks ago, the Chinese Ministry of Commerce announced that it was going to focus on strengthening the top 15-20 local retailers in order to compete against the international entrants. Many of these remain state-owned enterprises, so it is likely that they will continue to benefit in many ways from their relationship with the powers that be."
Despite this not of caution, Gregory was broadly confident of a change for the better for foreign groups seeking to expand in China. "Life will get easier. Companies like Ito-Yokado (Japan) have already announced their intentions to establish wholly-owned subsidiaries in China over the next few years (in this case, to operate 7-Eleven in Shanghai).
"And it is inevitable that others will follow. The likes of Carrefour and Wal-Mart are likely to push ahead with company-owned stores, where at the moment they establish joint ventures with local partners. As the best sites are taken up in the major cities, then they will increasingly look to the east and north of the country, with all geographical regulations on foreign retailers due to be dropped by December 2004.
"Local players are already rushing into these secondary-tier cities in order to secure the best sites and establish themselves before the foreigners arrive!"
But just because foreign groups will no longer be obliged to take a local partner does not mean that a raft of wholly-owned stores will hit the market. "A joint venture with a local partner is also a valuable way of learning about the Chinese market and consumers - very different from any other market," said Gregory.
"That's probably why the likes of Tesco (which has made no secret its intention to enter China at some time or other) are likely to acquire a local player first rather than diving in head first." As we reported earlier this month, Tesco is thought to be close to acquiring a 50 per cent stake in Hymall, a Taiwanese-based hypermarket operator, with about 25 stores in China, a move which is likely to be just the first phase of a more focused roll out of the British group's banner in China.
With its population of nearly 1.3 billion and economic growth of around 7 per cent a year, it is easy to see why the multinational groups are interested in China. Consumer spending levels are growing rapidly as the economy strengthens, and are forecast to reach $534 this year, more than double the level of the mid-1990s. Grocery retail sales rose by around 38 per cent between 1999 and 2003, according to M+M Planet Retail data, and are set to reach $383 billion this year.
Despite the arrival of leading global players such as Wal-Mart and Carrefour, China's retail market is still dominated by local groups. Lianhua Supermarket is the leading group with more than 2,200 stores and net sales of $4.5 billion a year, according to M+M Planet Retail statistics, far ahead of second-placed Beijing Hualian with $2.5 billion.
But the foreign-funded retail groups are rising rapidly up the rankings, with six such companies already among the top 30 Chinese retailers (both food and non-food). China Resources Vanguard is the leading foreign-owned group, holding fourth place in the food retail rankings with sales of $2 billion, ahead of Carrefour (fifth, with sles of $1.7 billion), Wal-Mart (sixth, $1.6 billion) and Metro (seventh, $1.3 billion).
Gregory suggests that the arrival in greater numbers of foreign operators will pile further pressure on a number of domestic firms that have over-expanded, ultimately forcing them out of the market. And with the leading group having just a 4.5 per cent share of the Chinese food retail market, consolidation is a distinct possibility, even at this relatively early stage in the sector's development, especially among local players seeking to strengthen their hands against the international groups.