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This in-depth guide to China explores the key trends in grocery retail and the growth strategies of the leading retailers in the country.
We review Sun Art's FY2017 results, its growth forecasts for the next five years, plus progress against key strategic objectives.
Sun Art has posted a 0.3% decline in sales revenue to CNY52.1bn (US$7.6bn) for the first six months ending 30 June 2018.
As China becomes a key global retailing market for companies looking for inspiration about how operating models and formats could develop, France-based Auchan and Carrefour have made separate announcements about the country’s growing importance.
Following the opening of its Le Marche concept in May, created with Tencent has increased its use of in-store technology alongside its grocery-focused range, Carrefour has said the country is ‘the ideal location to develop new methods for attracting shoppers’. Carrefour’s executive director for Asia, Thierry Garnier, said the retailer remained ‘very positive’ on its outlook in China, with Le Marche concept set to play a key role. Garnier went on to say Carrefour sees ‘the Chinese market as a true laboratory that can inspire the rest of the group’.
Carrefour has said the concept ‘is smart life store with French touch, focusing on catering, fresh, imported products, with many digital innovations applied with the support of Tencent’. Le Marche offers 25,000, mainly grocery, products, of which 20% are imported, while there is also a focus on health and beauty and apparel ranges. The store also offers free delivery within 3km for orders over CNY188 (US$29.40)
RT Mart has said it has finished the digital transformation of 100 stores. The initiative has seen it incorporate Alibaba-owned technology. As part of the update programme, RT Mart has incorporated elements of the Hema supermarket design owned by Alibaba. In an attempt to blur online and offline channels, RT Mart said its stores now offer ‘in-store fulfilment of online orders, “smart” shopping kiosks and a selection of popular products from Tmall’.
Commenting on the step, RT Mart’s chief executive, Peter Huang, said: “ New Retail has introduced a new way of thinking. By digitizing the store’s operation, the online and offline business merge into one. This will boost retailer’s online transaction volume.”. One hour delivery of orders to shoppers within a three kilometre radius of a store is part of the solution being rolled out.
Although the most visible elements of the partnership will be in-store, RT Mart also benefits from access to Alibaba’s customer insights, supply-chain management, retail technologies and electronic payments via Alipay, which is part of the company’s wider ecosystem.
Walmart and Tencent have announced a strategic partnership, allowing the two companies to develop and implement digital retail innovations in China.
Alibaba continues to revamp Sun Art hypermarkets in China, integrating digital features across RT Mart banner stores up and down the country.
The strategies and initiatives helping retailers to globalise are changing. We consider the partnerships being built at the moment and look in-depth at four key companies.
Alibaba continues to revamp Sun Art hypermarkets in China, integrating digital features across RT-Mart banner stores up and down the country.
RT-Mart has finished the digital transformation of 100 stores and Alibaba plans to support transformation of 300 more outlets by end of the year. Revamped stores will be fully integrated into Alibaba’s New Retail ecosystem, and act as fulfilment centres for online orders alongside existing shopping operations. Stores will have dedicated staff picking-up products from shelves and sending the shopping bags directly to the delivery department, via overhead conveyor belts placed on the ceiling of the store.
Source: IGD research
Transformed RT-Mart stores are a demonstration of the positive impact Alibaba has brought to Sun Art. Auchan is learning from Alibaba's New Retail concept and the move will also tie-up Hema supermarkets with RT-Mart to share resources to make deliveries.
Alibaba owns a 36% stake in Sun Art, which operates the RT-Mart and Auchan hypermarket banners in China. In FY2017, Sun Art reached a total of 461 stores, covering 226 cities across 29 provinces, autonomous regions and municipalities. It has secured 78 sites to open new hypermarket stores over the next three years, many of which are already under construction.
Sun Art's online proposition, Feiniu, is also growing rapidly with GMV doubling in 2017 from previous year. Feiniu is now shifting its focus to B2B sales through a standalone app RT-Mart e Lu Fa. It aims to provide a strong range of products at low prices to support mom-and-pop stores in tier three and tier four cities.
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Following the acquisition of a stake in Sun Art by Alibaba in November 2017, the latter has announced that it is set to begin implementing its aim to blur online and offline retailing as part of a digital transformation of both RT Mart and Auchan hypermarkets in China.
Initially Alibaba has said it will enhance two stores, one each in Shanghai and Suzhou, electronically connecting them to Alibaba’s Taobao marketplace. During the rest of 2018 all the hypermarkets owned by Sun Art – about 400 – will be connected and to Taobao. The step will enable shoppers to order groceries from Taobao and have them fulfilled from a Sun Art-operated store.
RT Mart’s chief financial officer, Nelson Hsu, said the investment required per store was between CNY3.0m and CNY5.0m (between US$473,886 and US$789,811). Stores would not need to be closed during the investment period, meaning trading will be unaffected.
The investment will see the addition of electronic point of sale terminals and automation facilities developed by Alibaba in-store. Behind the scenes, the spending will see big data systems that track and analyse shopper behaviour, also developed by Alibaba, added to RT Mart’s internal processes.
As part of the same announcement, RT Mart China’s chairman, Peter Huang, said the integration of offline and online channels is aimed at boosting the share of online sales at RT Mart and Auchan stores to about 20% by 2020, from less than 2% presently. One corollary of the investment by Alibaba will be that RT Mart will limit its collaboration with other online retailers, like Tencent, which itself has recently taken a stake in Carrefour China’s operations.
Sun Art Retail has posted its 2017 annual results, with revenue rising 1.9% to RMB102,320m (US$16,130m) and profit up 2.9%. However, its revenue growth has slowed down compared to previous years, having grown 6.6% (CAGR) between 2012 - 2016. We review the retailer's recent performance and future outlook.
During the year, the Group opened 18 hypermarkets, of which one was under the Auchan banner and 17 under RT-Mart. As of 31 December 2017, it had a total of 461 hypermarkets in China with a total gross floor area (“GFA”) of approximately 12.46m sq m. The Group has identified and secured 78 sites to open hypermarkets in the coming year. The retailer's smaller and premium supermarket banner, HiAuchan!, continued to show strong progress. Both sales and the number of customers increased by more than 30% compared to 2016. Expansion and more new stores will be seen in lower tier cities thus the Group has improved the standards of site selection.
Last year, Sun Art launched Auchan Minute, a 18 sq m unstaffed convenience store with 500 SKUs. Having launched the first in September 2017, it rolled-out a further 66 'boxes' in Shanghai, Anhui, Guangdong, Jiangsu, Sichuan and Zhejiang provinces by end of 2017. Further expansion is expected this year, but as it continues to scale-up, profitability will become even more important.
The Group also opened five LLABEAU beauty stores in Shanghai, Suzhou, Kunshan and Ningbo in 2017. Stores operate between 60 to 160 sq m retail space and mainly sell skincare and make-up products. The shift towards smaller formats has been a prevalent trend in many countries in Asia. Sun Art has plans to develop and integrate small-medium sized formats with its online infrastructure in the future.
Last year, Sun Art’s ecommerce site Feiniu, shifted its focus to B2B sales through a standalone app RT-Mart e Lu Fa. The business effectively uses a network of around 400 physical stores as B2B warehouses to provide quick and efficient delivery to, for example, mom-and-pop stores. For 2017, the GMV of Feiniu almost doubled (like 2015 to 2016), reaching RMB4.1 bn (US$646m). The operational loss also continued to reduce in 2017. As part of integrating online and offline, Sun Art also rolled out a standalone RT-Mart Fresh app to all RT-Mart stores. Consumers can order from a range of approximately 6,000 to 7,500 SKUs, with selected stores providing a one-hour delivery service.
Another key development during 2017 was Sun Art's strategic alliance with Alibaba Group in November. Sun Art aims to combine its supply chain with Alibaba’s technology to make it more convenient for consumers to shop, especially those living in tier four and tier five cities. The alliance continues to help Sun Art optimise its product range, as it seeks to provide more streamlined shopping experiences to customers. Alibaba already has plans to connect Sun Art's hypermarkets to Taobao, allowing customers to order products from Taobao and have them delivered from a Sun Art store.
Sun Art recognises the increasing pressures to operators of large 'traditional' formats and hopes by reinventing its hypermarkets, developing new formats and delivering its O2O strategy, it will be able to sustain and drive future growth.
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