Chinese supermarkets: Spoiled

In a modern supermarket the problem is often an excess of choice, not a shortage. In China, the consumer is spoilt for choice among retailers themselves. The promise of a $640bn grocery market, which Euromonitor thinks will grow by a quarter over the next five years, has the vendors lining up.

The future may be bright. The present is a nasty fight in which both local and foreign retailers are suffering. This week, China Resources Enterpriseannounced that it will sell its non-beer businesses back to its state-owned parent, China Resources Holdings. Retail and the associated property make up two-thirds of revenues outside of beer. This looks like an admission of defeat. Just last year, CRE consolidated Tesco's Chinese supermarket business, forming a joint venture in which the UK food retailer still owns one-fifth (a stake it recently partly wrote down). The combined entity is the market leader, with share of just 3 per cent, according to Euromonitor. Still, the venture's performance was weak enough to drag down CRE's subsequent results.

Carrefour, in China for two decades, has also struggled. The country's contribution to the company's top line has doubled from 3 to 6 per cent over the past eight years. Still, last year the French food retailer had its first year-on-year drop (of 2 per cent) in Chinese revenues since at least 2008. Organic sales fell 6 per cent. In the first quarter this year, the trend worsened, like-for-like sales dropping by 13 per cent in an environment the company described as "frugal".

The situation is unlikely to improve. Tesco may have bowed out, but the remaining players are expanding. Euromonitor forecasts that over the next five years supermarkets will increase their number of outlets by a third. Meanwhile internet operators such as Alibaba and JD.com are facilitating the delivery of fresh products from New Zealand milk to American cherries. The retail environment is spoiling.

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