Metro Cash & Carry China
The Metro Cash & Carry was established in Germany in 1964. The first store opened in Mulheim an der Ruhr, and it had a retail space of 14,000 square meters. Although the large store retail format was new in Germany at that time, it proved popular among the working class, which enabled the company to open other branches in the country. The founders of the group were Wilhelm Schmidt-Ruthenbeck, Erwin Schmidt, and the Schell family (Metro, 2017a). Today, the company has over 750 stores that operate in 31 countries in Europe and Asia. These stores serve over 21 million customers with a broad range of high-quality products and bespoke services (Metro, 2017). Worldwide, the company has around 250,000 employees who work in 180 countries. Additionally, it operates more than 2200 branches in Europe and Asia. The company offers various products and services under the following categories: Metro Cash & Carry, Real hypermarkets, and Media Market and Saturn (Metro, 2017)
Metro Cash & Carry first moved to China in 1996, after the country opened its doors for international retailers. Noteworthy, it was the first international wholesaler to receive an operating permit in China. Metro Cash & Carry opened its first store in Shanghai by working with a Joint Venture partner Jinjiang group. Today, the company serves more than 7 million customers in 58 cities in the country (Metro, China, 2017a). Currently, the company has over 90 stores in China and more than 12,000 employees. The Chinese market segment has shown significant potential. In the financial year 2015/2016, the sales from China were about 2.487 billion euros (Metro, China, 2017a).
Segmentation, Total Market Overall Segment
China is the largest, most innovative, and most competitive retail, and retail e-commerce market in the world. According to Pricewaterhousecoopers (2017), the country’s online retail sales are expected to grow from 17% of the total retail sales in 2017 to 25% by the year 2020. This retail sales trajectory has made the e-commerce segment among the top priority for retailers, including the Metro Cash & Carry Company. In this fiercely competitive, yet lucrative and dynamic market, only the most innovative retailers survive.
According to Deloitte (2017), the 2015 sales for China’s total retail sales of consumer goods were $4.61 trillion. Although this market’s growth rate has slowed down to just 10.7%, it is still higher than the average global growth rate of the retail market. Deloitte (2017) further notes that in 2015, the Chinese retail market accounted for 20% of the world retail market and contributed to about 37% of the growth in this market segment. Compared to other developed markets such as North America and Western Europe, the Chinese market has better growth trajectories and potential. In fact, the North America and Western European markets growth rates are less than 5 percent, which is extremely low when compared to the Chinese 10.7 percent growth rate (Deloitte, 2017).
The Metro Cash & Carry-China branch has both an online and traditional brick and mortar retail stores to maximize the potential of its retail business. Although the company was the first to arrive in China, after the country opened the retail market segment to international retailers, Metro Cash & Carry has had a slow growth rate when compared to its competitors. In particular, the company has only established 86 stores in 58 cities, which are much fewer than the 423 stores that are operated by Walmart. This performance is despite the latter having set foot in the country far later. Further, a combination of increased cost of land prices and the emergence of e-commerce as a significant aspect of the modern retail business has the company to opt to rent its shopping spaces and concentrate on its core business, which is the sale of consumables (Zhen, 2016).
The Chinese market is extremely dynamic, which makes it hard for businesses to use a “one-fits-all” market strategy. In particular, the social and economic imbalance between rural and urban areas is visible in the country’s trade and retail sector (US-China Business Council [USCBC], 2010). For example, cities are usually dominated by large retail chains while small independent businesses characterize rural areas. This situation is further complicated by the fact that in most Chinese regions, people prefer convenience stores to supermarkets. Zhen (2016) notes that in Shanghai, for example, the demand for supermarkets is less than that of convenience stores. Accordingly, the company launched its first two My Mart brands of convenience stores in Shanghai in 2016. My Mart offers Metro’s exclusive fresh fruits, private labels, imported products, and various assorted items (Zhen, 2014). Since this concept has been successful, the company plans to roll out this business in other cities by franchising the brand.
Metro Cash & Carry-China market segmentation of China considers the demographics, geographic, and behavioral characteristics of its target customers. China is a very dynamic society, and as a result, there is no a “one-fits-all” strategy that can be used to serve the country’s population successfully. Initially, the company only operated large retail supermarkets. Although this approach was successful, the business has inevitably diversified its strategy to cope with the rapidly changing Chinese market.
The Chinese market is incredibly dynamic. In particular, there is a stark difference on how the rural markets are established and those in urban centers. While there are large retail stores in urban areas, most rural areas are characterized by small independent retailers. The rapid urbanization in the country further complicates this situation, which is juxtaposed against different cultural changes. In particular, although the country is experiencing a high rate of urbanization, these developments may not result in a similar rate of adoption of western cultures. As Zhen (2014) notes, despite Shanghai being one of the most urbanized parts of the country, the ordinary population prefers local stores over hyper supermarkets. On the converse, equally urbanized communities in western countries prefer supermarkets.
Another reason for the company’s segmentation of its customers into different categories is the rapid rise of online e-commerce in the country. China has been enjoying a booming e-commerce market, which is largely driven by dominant market segments like Alibaba, Tmall, and JD.com (eMarketer, 2016). These e-commerce marketplaces took advantage of the country’s underdeveloped traditional (brick and mortar) retail infrastructure to penetrate the market. Additionally, the increasing purchasing power of the 415 Chinese millennials who prefer online shopping has necessitated the need for business to embrace online selling (Pricewaterhousecoopers, 2017). Finally, the company established its business considering its culture of operating large hypermarkets. Although not common in all parts of the country, some people still prefer to shop in supermarkets.
In this regard, the business operates under two primary platforms: physical retail stores and online shopping platforms. In physical retail stores, the company has hypermarkets to cater for customers who love to shop in these places. Additionally, it has opened the My Mart brand of convenience stores. Thes latter serve most Chinese people who prefer convenience stores, especially those in semi-urban areas, over supermarkets. The My Mart brand, which started operating in 2016, will operate as a franchise. Noteworthy, this business segmentation is based on demographic and geographic segmentation. The online platform of the business caters to the huge Chinese population of online shoppers. China has the highest population of individuals who make online purchases. Therefore, Metro Cash & Carry online business is based on the behavioral segmentation of the country’s population.
Past and Future Trend
To increase shareholders value and to be successful in the fiercely competitive Chinese market, the company must adopt modern strategies and modify some of its old one. In the past, the company had a strategy of building and owning its Metro Cash & Carry stores instead of renting. These model helped the business to avoid paying rent in the long term and developing structures that satisfied its designs. In the future, the company will still open more hypermarkets, but now on properties that are owned by landlords.
Currently, the Metro Cash & Carry business model is ineffective in making the company competitive. In particular, the rapidly changing consumer habits coupled with a surge in land prices has made it extremely expensive to build large structures. The rapid changes in consumers’ cultures have resulted in the decrease in returns that were previously occasioned by owning supermarkets.
In the future, the company will concentrate on its online shopping and in its franchise business. Nonetheless, it will still open supermarkets in other parts of the country, but at a slow rate. Chinese e-commerce market is one of the most attractive in the world. According to the Pricewaterhousecoopers (2017), the online retail business in China is expected to grow from 17% of all 2017 sales to 25% by 2020. This growth rate is further supported by the fact that Chinese have embraced e-commerce due to poor development of traditional retail business infrastructure. According to China AG (2017), Metro Cash & Chary-China started an online shop on Alibaba Group’s Tmall e-commerce platform in 2015.
Metro Cash & Chary-China will also embrace the use of convenience stores in its Chinese market. Zhen (2016) noted that the company would expand its My Mart franchise to other parts of the country. As of 2016, the company had already opened two stores in Shanghai. The franchising of the My Mart stores would enable the group to expand its market presence in most parts of the country.
Market Relevance to Metro Cash & Carry-China
The Chinese market is a lucrative and highly potential market for Metro Cash & Company. In particular, the country has a huge underserved population, especially in rural areas. The country’s high economic growth, since the early 1990’s, has resulted in an increase in income levels among a majority of the people in the country. In turn, this has resulted in increased disposable incomes and high demand for products sold by Metro Cash & Carry-China. Finally, the company has a high population of millennials who are wealthy and techno-savvy. Accordingly, there is a huge e-commerce market that can be used to target this market.
The huge underserved market provides Metro Cash & Carry with an attractive market for its country. Metro Group (2014) notes that the Chinese market is rich and dynamic. Currently, large retailers are found in urban areas while rural areas have many small independent businesses. Although the urban residence in China exceeds those in rural areas, this difference is just small. The rural population is about 48% while that of urban areas is 52% (Simpson, 2012). In light of this, the Metro Cash & Carry strategy of using My Mart franchise, will enable the company to have a reach in the underserved rural population. Indeed, in a country with about 1.4 billion people, 48% of those individuals is still a huge market.
The increased income levels in the country have resulted in most individuals having a high purchasing power due to their increased disposable incomes (US-China Business Council [USCBC], 2010). According to the eMarketer (2016), China surpassed the United States as the largest retail market in the world. It had total sales of about $4.886 trillion compared to with the United States $4.823 trillion. In light of this, the country provides a huge market for Metro Cash & Carry hypermarkets.
Finally, China has largest e-commerce market in the world. According to the eMarketer (2016), the e-commerce segment made sales of about $8999.09 billion, which was 47% of the global digital retail sales. Pricewaterhousecoopers (2017) further notes that China has 415 millennials who have a have a huge purchasing power and prefer online shopping. Accordingly, Metro Cash & Carry’s online platform has a great potential in this market.
Accessibility of the Segment
The Chinese market is extremely competitive. Accordingly, even the most resourceful companies must be innovative for them to penetrate this market. Interestingly, this market is characterized by a steady rise in household incomes. For example, the average disposable household income for urban areas in 2009 was $2,515, which was almost thrice what it was in 1999. In more developed cities, such as Beijing, the disposable income was $3,800 (US-China Business Council [USCBC], 2010). The country’s market is highly fragmented, mainly due to the large variations in the economic progress and opportunities in different parts of the country. In particular, there is a huge disparity in incomes between people in urban areas and those in rural areas, and in effect, the retail demand varies greatly due to the differences in purchasing power (US-China Business Council [USCBC], 2010).
Overall, there is a huge demand for Metro Cash & Carry products’ in the country, especially in urban areas due to the high-income levels of people in these regions. Additionally, the country is urbanizing even in rural areas, which will effectively lead to increased high-income levels and productivity in these areas.
Despite China joining the World Trade Organization in 2010, there are still some trade restrictions that may affect Metro Cash & Carry operations in the country. In particular, there still exists some trade restrictions on specific items such as agricultural chemicals, cotton, grain, oil, sugar, and tobacco. In fact, only joint ventures that have Chinese as the majority shareholders can sell different varieties of these items in more than 30 outlets. Since the joint venture of Metro Cash & Carry with Jinjiang group has Metro as the major stakeholder, the group is faced with these restrictions.
With regards to the highly lucrative Chinese e-commerce, this market is largely controlled by a few large players, which makes it have many barriers to entry. In particular, dominant market segments like Alibaba, Tmall, and JD.com control most of the market (eMarketer, 2016). The company will have to complement its online platform with third-party e-commerce platforms such as the Alibaba Group’s Tmall to have a greater reach to potential customers. Actually, as from September 2015, the company started using the Alibaba’s platform.
Finally, Metro Cash & Carry faces stiff competition on both its franchise, supermarket, and hypermarket stores from local and international players. As of 2008, the country’s hypermarket were mainly controlled by foreigners. The largest retailer was China Resources Vanguard, which had 2698 stores and controlled 13.4% of the market. Carrefour was the third largest with 134 stores, and a control of 7.2% of the market. Walmart was the sixth largest. It had 123 stores and controlled 5.8% of the market (Miller, 2008). In its convenience stores, the company will face competition from both international and local companies. Domestic retailers dominate in the convenience stores market. As of 2008, 12 leading stores controlled 60% of the market (Miller, 2008). Given that this market is controlled by few players, the company will have various barriers to entry.
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