Retailers sold on selling to China's rural residents

By Bao Chang (China Daily)
Updated: 2011-03-01 15:02
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BEIJING - With China heading toward a new model of economic growth that is driven by domestic consumption, multinational companies are looking to tap into the country's rural consumer market, which is rising from obscurity to become a major growth driver.

Customers from the countryside are now thought to offer the greatest potential for retail growth in the years ahead with their incomes set to continue to rise, according to the Nielsen Company, a global information and market research provider.

As the top economic development strategy during the 12th Five-Year Plan (2011-2015) period, the stimulation of the consumer market, especially the expansion of the rural market, will also be the focus during the upcoming session of the National People's Congress.

Rural China and the nation's small and medium sized cities together have a population of about 1.17 billion people. At the moment, they account for 64 percent of the country's retail sales but they are expected to develop a hunger for products in the years to come.

Lured by the enormous business potential, Walmart, the world's largest retailer, is launching a push to reach lower-income and rural consumers in China with a new "compact hypermarket" format originally developed in Latin America.

"It is going to help us reach more people, not only in urban markets but also in rural areas and smaller cities," the Financial Times quoted Doug McMillon, chief executive of Walmart's international business, as saying.

McMillon said that, compared with the retailer's larger "supercenters", the compact hypermarket is a smaller store that is typically a cheaper structure with a cement floor, perhaps brick walls and sometimes without air conditioning.

Leading sportswear makers are also readjusting their marketing strategies with two of the top sellers moving into lower-tiered cities and towns in order to be more competitive.

Nike Inc, the best-selling global sports brand, which is expecting record sales growth in China this year, claimed in May last year that it will double its business in China during the next five years.

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To achieve that goal, Nike will work with retail partners beyond Beijing and Shanghai and enter smaller cities throughout China.

A similar drive is also being undertaken by Adidas AG, another major global sportswear brand.

Adidas Managing Director Christophe Bezu said the company's strategy was to maintain its strong position and spread its influence throughout new areas of the country.

"In the near future, we want to bring our innovative products and the Adidas experience to more Chinese consumers. This is why we are planning to widen our product-offering in lower-tiered Chinese cities," said Bezu.

While most multinational companies plan to get a slice of the rural market by introducing new products, Procter & Gamble (P&G) says it wants to go deeper.

Shannan Stevenson, president of P&G Greater China, recently spent a day with a lady who lived in rural Hunan province. He arrived at her home in the morning before she brushed her teeth and went shopping with her and observed her for the whole day.

"I followed her all around like a little child because I wanted to know what was important to her and her family," he said. "I wanted to know how much money she earned and what she could afford and what she could not."

With the aim of increasing sales in rural markets, P&G, the world's largest consumer goods company, launched its "China Three" project in 2009 in an effort to promote its distributors' business in rural areas by providing support in terms of shop-building, human resources and market development.

P&G is now working with the Chinese government on a project named "10,000 Villages", which is designed to create distribution networks for household products in rural areas and reach more Chinese consumers.

Xu Shanda, a member of the Committee for Economic Affairs at the Chinese People's Political Consultative Conference, said the government will take a slew of measures in the coming years to improve the earnings of low-income families and stimulate domestic consumption.