BCG - Wholesale Distribution Changes for a Winning China Strategy.pdfVIP

Opportunities for Action in Consumer Markets Wholesale Distribution Changes for a Winning China Strategy Wholesale Distribution Changes for a Winning China Strategy Hypermarkets, supermarkets, and convenience stores are blanketing China—or so it seems. Global players Carrefour and Wal-Mart are opening new stores at an aggressive pace. Local retailer Lianhua has amassed some 2,000 new outlets in 16 provinces. And regional chain Hongqi has more than 200 supermarkets in Sichuan province alone. During the past few years, sales in the new retail formats have grown more than 50 percent a year. Nevertheless, this modern trade accounts for less than 30 percent of retail sales in China, and it serves only one-quarter of the 500 mil- lion consumers who live in or near China’s more than 3,000 cities and 20,000 towns. These consumers, who are reaching threshold spending levels for many products, represent a market with huge growth poten- tial. And because most of them still shop at mom-and- pop markets and small, local department stores, tradi- tional trade channels will remain a significant part of the economy for at least the next decade. Yet only a small fraction of Western consumer-goods companies in China have fully explored traditional trade beyond the largest cities. Despite the great potential for profits, most global players have been discouraged by the difficulty of controlling distribu- tion in those channels. Companies that are able to clear this hurdle will find that traditional trade offers an important source of growth, with superior eco- nomics and decisive competitive advantage. Of the various methods for dealing with the distribution challenge, active management of the wholesale chan- nel—an approach that has been underleveraged by global consumer-goods companies—presents an opportunity well worth considering. Approaches to Sales and Distribution in China Most Western consumer-goods companies have em- braced China’s m