
'EVERY LITTLE HELPS' FOR TESCO IN CHINA
It's minus 12C in Shenyang, the capital city of Liaoning province in north-east China.
It's so cold my teeth hurt. An 11th century Mongol trading centre and the one-time capital of the Manchu's Qing dynasty, Shenyang is now an industrial city with a population of 4m.
Shenyang's frozen streets and endless grey high-rise housing blocks appear largely untouched by Western influence. However, over the past few years the city has unwittingly become the focal point of a hotly contested battle involving some of the West's largest companies.
Tesco, Wal-Mart and Carrefour, the three behemoths of the global retail industry, have all opened supermarkets in the city. As incongruous as it may sound, Shenyang is one of only a small number of cities in the world where these three retailers compete with each other. And given the lure of China as a revenue source for these chains, the battle is set to intensify across the country in the years ahead.
Despite current economic wobbles, disposable incomes in China have increased by 118pc over the past eight years and are projected to double in the next five. China is expected to overtake Japan as the world's second-largest economy by 2015.
As an urban society replaces a rural one, these retailers have massive growth plans in China.
Outside Tesco's Tie Xi store in Shenyang – one of five that it has in the city – Ken Towle, the president and chief executive of Tesco's Chinese operations, starts to explain some of the cultural differences between operating in the UK (population 60m) and operating in China (population 1.3bn but with lower consumer spending than the UK).
Mr Towle is interrupted by a noisy minibus pulling up in the snow next to him. The vehicle has a large Tesco logo down its side and is painted in the chain's familiar red, white and blue livery. Dozens of shoppers step out and march quickly into the store. Cultural difference number one: there are only two cars per 100 people in China, meaning that retailers have to lay on transport.
Cultural difference number two is apparent as soon as we step into the store; the product mix. Foodstuffs range from the obscure, such as coffee-flavoured tea, doughnuts covered in spicy shredded "pork floss", live fish and tortoises in tanks, and pig faces, to huge volumes of products more readily associated with China, such as rice and seaweed. There is also a large non-food offer.
The store's atmosphere and fragrance are more akin to a traditional wet market than a supermarket. Employees shout out about their products, "essentially hawking", says Mr Towle. Customers jostle around piles of fruit that are on promotion, squeezing the products and violently disregarding any items deemed substandard. Any packaging is ripped off – customers believe it adds to the weight and do not like paying extra for it.
The only familiar aspect of the store is the Tesco signage, although the "Shopping is pleasant and easy for you" slogan on the walls certainly lacks the pith of "Every Little Helps". The store, as in all supermarkets in China, is spread over two levels, starting on the first floor, mainly as space restrictions dictate that growth is upwards not outwards. The ground floor is occupied by third party retailers chosen by Tesco to complement its product offer.
Understanding the needs and motivations of Chinese consumers is the name of the game for Mr Towle, who has run Tesco China since 2005 and cut his teeth running Tesco's store on Warwick Way in London's smart Pimlico. A butcher chops up a pig carcass on a block. Mr Towle explains that shoppers in wet markets check whether meat is fresh by seeing how warm it is; if meat is warm, the pig has been recently slaughtered and is good. This is as close as Tesco comes to replicating that.
Chinese consumers are among the most demanding and strong-minded in the world. "People's instinct is to be suspicious of the quality," says Mr Towle.
Tesco has a "secret weapon" in its bid to conquer China, Mr Towle says. The chain has launched Membercard, the equivalent of its Clubcard, in the country. It already has 4.5m members (out of 6.5m total Tesco shoppers). As in the UK, their shopping patterns are collated to inform Tesco's buying decisions. Customers are also offered targeted money-off promotions. The Membercard data is crucial to Tesco's local management, allowing them to understand the "language" of shopping in a land where they can not speak the actual language.
In as stark an example as possible of Tesco grabbing the bull by the horns, it is launching a massive building project in China. Through a wholly-owned property subsidiary, five large Tesco malls are already under construction. A further 15 have been committed to, and there is a "very strong pipeline" of further malls, Mr Towle says. The developments will contain dining facilities on the fourth floors and entertainment areas on the fifth (possibly including cinemas). Tesco will also build residential areas, offices and maybe even hotels adjoining the malls.
The system will give Tesco total control, and also let it work with provincial Chinese governments in implementing their mind-bogglingly ambitious urban regeneration programmes. Developments will happen at an alarming rate. When land is bought in auctions, developments must start within two years. There is no "land-banking" in China.
Mr Towle denies that the building project will be overly intensive on capital at a time of economic slowdown. "For the price of a hypermarket in the UK we'll be able to build a shopping centre in China." .
Despite Tesco's ambitious plans, China has been hit hard by the credit crisis. However, Mr Towle believes the slowdown might not last that long, and says the company will invest its way through the downturn. Perhaps the retailer is mindful that the Chinese word "crisis" is often translated to mean "danger and opportunity".
(From an article in the Daily Telegraph)