Orient Express With lorries known to disappear and local supplies arriving at stores by bike, hypermarket retailing Chinese style does not come easy. But Carrefour reckons it's got it sussed. Julian Hunt reports from Shanghai on the retailers' ambitious plans As luck would have it, the literal Chinese translation of Carrefour is happy, prosperous family'. And as it celebrates six years of trading in the People's Republic, that translation looks increasingly like a prescient description of Carrefour's experience in the world's most exciting region. With 27 hypermarkets in 15 of China's major cities, strong brand recognition and aggressive plans for further growth, Carrefour is well placed to build a strong position in an economy predicted to double in size by 2010. However, the competition is hotting up with more overseas retailers coming into China and local operators getting their collective acts together. At the same time, a major dispute with the national planning authorities in Beijing, which broke at the end of last year, rumbles on without any sign of an early conclusion, casting a cloud over Carrefour and its rivals. If any of that worries Jean-Luc Chereau, president of Carrefour China, he masks it brilliantly. The cheerful Frenchman claims the well publicised spat with Beijing will be soon sorted, has no long-term ramifications for Carrefour and will not derail its expansion plans. "We are working with the national authorities and go once a week to see different ministers to solve the problem," Chereau insists. As for the implications of new, and more intense, retail competition in China, that too is dismissed by Chereau, who says there is plenty of room for everyone to prosper. "In big cities with the numbers of people they have, we can easily cope with having 40 hypermarkets around us and it would not be a problem." Chereau points out that in Shanghai ­ population 20 million ­ Carrefour is already up against 25 hypermarkets operated by the likes of Metro, Lotus, Hymall, RT-Mart, Hualian, Auchan, E-Mart, Lianhua, Trust-Mart and Nongongshang. "In other cities we do not face that level of competition ­ but even there we are ready," he says. "The real issue is how many strong competitors we face," he adds. "In my opinion it will be two or three and no more, because this is a difficult market." Brave words. But Chereau is adamant that Carrefour will be competing against only "one Dutch, one German, one US and two or three local supermarket and c-store operators" in years to come. Ask him about Tesco's on:off plans for China and he responds with a typically Gallic shrug. "We are still waiting," he says. Chereau thinks Britain's top chain is wary of tackling such a complicated market because its Asian experience is limited, albeit successful. "Thanks to our work in Taiwan, we have 12 years' experience of operating in Greater China and we have learnt a lot," Chereau adds."We made a lot of mistakes in our early days, but we corrected them and afterwards found it easier to have a fast expansion programme." Early mistakes included stocking too much frozen food ­ most Chinese don't have a freezer and in any case prefer to buy fresh. So the ranging was revamped. Other errors were not as easily rectified. For instance, Chereau says Carrefour chose the wrong partner in Beijing and that decision delayed its store opening programme in the city by five years. But it has not repeated that mistake and Chereau says it has been able to grow rapidly to such an extent that China is now "very profitable". As well as taking the time to understand the market, Chereau says Carrefour has put a lot of effort into developing its staff, using a training centre in Shanghai. Of its 60,000 employees in China, just 80 are expats (and 13 of them are from Taiwan). It now has four Chinese and four Taiwanese store managers, with more on the way. "We need five years to train the first local store manager. If you train too fast, you fail. So we are now promoting more and more Chinese people," says Chereau. That's why he believes Carrefour has the resources ­ human and financial ­ to open seven to 12 hypermarkets a year for the forseeable future. The chain is planning to open new stores in Harbin and Jinan in the north this year, is already building stores in Suzhou and Hangzhou in the east of the country, and is looking at Xian in the central region. But opening lots of new space does not by itself guarantee success for any retailer in China. It's more complicated than that for one very good reason: China is not a country, it is a continent. And unless a retailer fully understands the implications of that apparently obvious statement, they will have no chance. Chereau explains that there are 34 provinces in China and income levels, local customs, officialdom and consumer demands differ wildly between them. They are almost like separate countries and need to be treated accordingly. Geography also creates unique operational issues. The distance between Carrefour's stores in Shenyang in the north and Zhuhai in the south is 4,700km. Think about it: that's the same as Kiev to Malaga. Chereau says: "The temperature differences are so extreme that we may be selling a lot of air conditioning equipment in Shanghai, and at the same time still be selling heating equipment in the north where it is 5 to 10degC colder. That's one reason why it's quite impossible to have a common assortment in China." These vast distances also create nightmarish logistical issues. Forget local bureaucracy, this is the thing that causes the real headaches for retailers operating in China. "We recently ran a promotion in all our stores on a number of non food items," Chereau remembers, "but at an executive meeting somebody said they were missing 37 items. Why? Some trucks had started out five days before the promotion and had still not arrived." Chereau also talks about lorries disappearing altogether enroute. And he points out that even Coke has 17 differents firms handling its product ­ which helps explain why it is proving so hard to run truly national activity with big brand owners. "Sometimes we have to delocalise production for logistics reasons, for instance we have three factories making TVs for our stores," Chereau adds. On the food front, life is just as complicated. Managers in Carrefour's four operating regions take a lot of responsibility for sourcing, particularly of fresh foods, which are bought directly from co-operatives in each area. Chereau points out that in France a hypermarket usually gets eight to 12 trucks a day delivering stock from an RDC. One of its Chinese stores will receive as many as 300 vehicles a day ­ which may include bicycle deliveries of locally sourced produce. Looking ahead, Chereau doesn't see any way of establishing a national platform for buying and distributing much of Carrefour's food and he thinks it will continue to be done on a regional, or even city, basis. The upside of all this is that Carrefour is able to promote heavily the fact it buys only local produce for its hypermarkets. This is a hugely important marketing tool for Chereau who says his biggest rivals in China today are not necessarily the other retail groups. "The main competitors for us are the street markets. The Chinese buy fresh foods such as fish, meat and vegetables every day. In terms of quality of produce these markets are exceptional." So wooing shoppers away from local street markets is going to be vital. But Carrefour would already appear to be doing well on this front. A well established hypermarket will typically turn over about ¥400m (£33.6m) a year, about 60% of a comparable store in France. The average spend is about four times lower than in France at about ¥100 a basket, but customer numbers are twice as high. And, critically, they come into the store about 1.7 times a week. Carrefour is trying to attract two key groups of consumers through a combination of price, self service and a range running to 80,000 lines. The first can loosely be described as China's middle class. This group comprises 70 million people with an average income of between $3,000 and $5,000 a year (the same as in Portugal or Poland). The second group is much bigger ­ about 200 million people ­ who are just starting to earn serious money (anything up to $3,000 a year) and are keen to spend it on consumer goods such as TVs. Sure, Carrefour is no longer the only retailer trying to win the business of these new, and increasingly wealthy, recruits to the age of consumerism. But six years after opening its first store in Beijing, the French chain has built a massive lead over its rivals. And Chereau for one seems confident Carrefour will maintain its happy and prosperous' position as China's top hypermarket operator. {{FEAT. COVER }}