THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Voluntary - Public Date: 2/26/2016 GAIN Report Number: CH166008 China - Peoples Republic of Post: Guangzhou Annual Retail Report Report Categories: Retail Foods Market Development Reports Approved By: Hoa Van Huynh Prepared By: Yaqing Liu, Tong Wang, Shiliang Xu, Rex Zhang Report Highlights: China’s economic growth rate has dropped for the fifth consecutive year; it however continues to be a huge potential food market that U.S. exporters should not ignore. Food consumption accounts for 31% of the annual urban household expenditure. There are multiple challenges in such a complicated and changing market. Demand for imported food and beverage is expected to remain resilient. The major drivers of China’s retail growth include continuous urbanization and rising number of middle class as well as the increasing per capita disposable incomes. In addition, innovative business models such as internet and mobile business have created vibrant marketplaces and shopping tools. 1 | P a g e General Information: Table of Contents ......................................................................................................................................................... 1 Executive Summary: ....................................................................................................................... 3 Section 1: Overview ........................................................................................................................ 4 1.1 Economic Situation .......................................................................................................... 4 1.2 Demographic development .............................................................................................. 6 Section2. Retail Market Updates ................................................................................................... 8 2.1. Food Retail Updates ......................................................................................................... 8 2.2. Hypermarket and supermarket ....................................................................................... 11 2.3. Convenience Stores and Specialty Stores ...................................................................... 14 2.4. Digital Shopping Tools .................................................................................................. 15 Section 3: Suggestions to U.S. Food Exporters ............................................................................ 16 3.1. Opportunities and challenges ......................................................................................... 16 3.2. Promising U.S. Food ...................................................................................................... 17 3.3. Market entry tips ............................................................................................................ 18 Section 4: Regional Markets Profile ............................................................................................. 19 4.1. ATO Beijing: North China ............................................................................................ 19 4.2. ATO Shanghai: East China ............................................................................................ 21 4.3. ATO Guangzhou: South China ...................................................................................... 27 4.4. ATO Shenyang: Northeast China ................................................................................... 31 4.5. ATO Chengdu: Southwest China ................................................................................... 35 Section 5: Appendix ...................................................................................................................... 39 5.1. FAS China Contacts: ...................................................................................................... 39 5.2. Key retailers in Southwest China ................................................................................... 40 5.3. Major Food Retailers in Northeast China ...................................................................... 42 2 | P a g e Executive Summary: China’s economic growth rate continues to drop for the fifth consecutive year; however, it is still a huge potential food market that U.S. exporters should not ignore. Food consumption accounts for 31% of the annual urban household expenditure in China. Despite the economic slow-down, consumption of imported food and beverage is expected to remain resilient. China’s annual retail trade sales valued $1.76 trillion in 2014 with the total retail sales of consumer goods valued at $431.5 billion, up 12% from 2013. If calculated by sector, China’s total integrated retail sales reached $413.8 billion in 2014. While offline retail sector is undergoing a critical transition phase, online retail business is growing dramatically and accounts for over 11.4% of the total integrated retail sales in the first half of 2015. With a much complicated economy climate and a diversified and segmented retail market in China, earning profit has become much (Source: dreamtime.com) harder for retailers. As a result, offline retailers seek ways to differentiate themselves. With a huge population of 1.367 billion, consumers have demonstrated very different purchasing habits. Therefore, tailored marketing plans should be implemented to target different consumer group and for specific distribution channels. Key words for consumers: Convenience: easy to buy, easy to pay, home delivery, online and mobile, we-chat Value: brands, status, nutritious benefits, freshness, safety, traceability, price Fun: do-it-yourself, innovative packages, group purchase Key words for retailers: Integration: supply chain, distribution, multiple formats, merger and acquis ions Digitalization: internet plus, online-to-offline, cross-border, mobile, Ali-pay, We-chat Specialization: Fancy grocery, Specialty fruit, Frozen meat stores Penetration: Merger and acquisition, 3rd and 4th tier cities Key words for U.S. food exporters: Products: packaging design, brands, price, market position, taste, Partner: regulation, distribution channels, marketing strategy, promotions Service: adaptability, the quick learning, fun-entertainment elements 3 | P a g e Section 1: Overview In the year of 2014-2015, China’s GDP grew at single-digit rate. As a matter of fact, 2014 was the fifth consecutive year that China’s retail sales growth rate dropped, mainly due to the economy slow-down as well as the increasing operational cost and labor salary. However, with a population of 1.367 billion, China is still a huge potential retail market. The major drivers of China’s retail growth include continuous urbanization and rising number of middle class as well as the increasing per capita disposable incomes. Besides, innovative business models such as internet and mobile business have created vibrant marketplaces and shopping tools. In 2014 China’s annual retail trade sales was valued at $1.76 trillion. The total retail sales of consumer goods reached $431.5 billion, up12% from 2013. In China, there is a saying “民以食为天 (min yi shi wei tian in pinyin)”, which means “food is the most important in one’s life”. On average, in 2014, food consumption accounts for 31% of the annual urban household expenditure in China. If calculated by sector, China’s total integrated retail sales reached $413.8 billion in 2014. Among which $233.1billion sales was from general merchandise retail stores and $160.5 billion from retail supermarkets. The specialty retail sales of food, beverage and tobacco totaled $ 4.88 billion, up 10% from 2013. In the first half of 2015, internet retail sales accounts for over 11.4% of the total integrated retail sales. This is a great break-through record ever since the first online transaction in China back in 1998. Multiple business models and distribution channels have emerged in China’s retail sector. Integrated supply chain and expanded distribution channels are the new practice. Small sized convenience stores and specialty stores are in favor. Merger and acquisition make the strong players even stronger in both supply chain and distribution channel consolidation. Direct sourcing and multiple retail formats are the new focus in the coming year. Despite the economic slow-down, consumption of imported food and beverage is expected to remain resilient. Imported foods are sold to a range of different demographics. Expatriates and returned Chinese used to form the high end of the market, but this are now occupied by wealthy Chinese and an increasing number of middle-class. However, with a much complicated economy climate and a diversified and segmented retail market in China, there are some challenges for U.S. food exporters. Higher import tariff and longer period of shipment plus concerns on Chinese currency (RMB) depreciation may have some negative impact on potential traders’ purchasing decision on imported items. Tailored marketing plans and consumer analysis should be implemented in different region for specific distribution channels. In short, 2015-2016 is a year composed of opportunities and challenges. 1.1 Economic Situation 4 | P a g e In 2014 and 2015, China’s GDP consecutively grew at a single-digit rate. Although the economic growth (6.9% year on year) in the third quarter of 2015 was better than expectation, it is likely that