The lunch bunch drives convenience sales in South China - includes related article on proliferation of convenience stores in China's smaller cities

AgExporter, March, 1999 by Olivia Peng

Entrepreneurs in Guangdong aren't waiting for good times to transform food retailing in the South China province, now that they've discovered "customer service" the modern retailing concept driving discount and convenience stores worldwide.

Besides keeping customers happy, the Chinese trend has an added bonus for U.S. agricultural exporters. Both retail formats are made-to-order for U.S. food products.

As the food retailing sector in the province diversifies and competition gets tougher, consumers are changing their purchasing patterns.

More consumers, particularly younger and more affluent ones, are deserting the traditional wet markets (local street markets selling mostly fresh goods). They're shopping where there's more variety on the meat and produce shelves - in the well-lit, clean stores that cater to their customers with longer business hours and competitive pricing.

In the more affluent urban areas of the province, smaller retail outlets are feeling the pressure to modernize and upgrade their stores to discount or mini-warehouse status.

Established - and new - food retail chain stores are also keeping up with the new trend. They're opening large warehouse and discount outlets conforming to the Wal-Mart format.

"Meal Solutions" Fill the Bill

While the new, larger warehouse stores are attracting customers, the typical South China convenience store - which occupies 60-100 square meters, carries 2,000 products and has extended business hours - has managed to retain its unique spot in the retail sector.

When convenience stores (they were originally state-owned) first came on the retail scene in 1990, they offered products similar to those of neighborhood grocers. Business was good until the spreading supermarkets, with their larger inventories, attractive settings and cheaper prices, inevitably began pulling in many convenience store customers.

Clearly, the convenience stores needed a new hook to regain their customer base. In 1997, 7-Eleven found it.

When the retailer began recognizing and providing for working people who needed inexpensive meals away from home with more fast foods, beverages and snack food products, the transformation of the original convenience store was on its way.

AM/PM convenience stores went further; they introduced a greater variety, of fast foods and focused on so-called "meal solutions." Local small retailers have followed the trend.

Convenience Stores Ideal for U.S. Goods

Though cultural preferences definitely influence the items sold in these convenience stores, U.S. fast food and snack products easily mesh with traditional Chinese products.

The stores usually stock fast food alongside bakery items, dumplings, instant noodles, beverages, milk and a variety of snacks. Popular cooked meats for on-the-go consumers include chicken parts, squid, peppered beef slices and hot dogs.

The bakery products sold in the stores use a lot of ingredients from the United States, such as almonds and raisins. Many snack items also include ingredients that are bought in bulk from the United States and packaged in-country.

Though fresh dairy products usually come from domestic sources, U.S. ice creams are readily found in these stores.

Growth opportunities await suppliers of bottled water and juices, coffee, french fries, sweet corn and pizza.

The main obstacles faced by U.S. agricultural products in China are relatively high prices and the lack of distributors who can offer market support. However, the new Chinese consumer - aware of their high quality, good taste and cultural cachet - is amenable to U.S. products.

Foreign Market Entry in the Cards

Though some foreign firms - like 7-Eleven - have succeeded in entering the convenience retail sector, it's not a simple matter to gain access. Chinese government regulations currently limit their access. Also, gaining permission to open a store in one city doesn't necessarily mean access to another even if it is in surrounding areas or nearby.

Another constraint: Because of the lack of committed local partners and the absence of a sophisticated legal system, the local business atmosphere isn't yet conducive to foreign franchises. But this is expected to change as the economy matures - and as consumers continue to flex their muscle.

In the meantime, note that local convenience stores are short of capital, management expertise and long-term plans. Perfect candidates for joint ventures.

RELATED ARTICLE: Businesses Leaving Cities

Once most Guangdong residents worked near their homes and could walk home for lunch. Inexpensive were readily available from vendors on a street corner or from a state-owned cafeteria.

The recent trend away from company housing, the removal of industry from urban housing areas and the increasing mobility of the Chinese population have contributed to a need that the convenience stores have easily filled.

Now convenience stores are spreading to smaller cities. And some in the larger towns are following a trend set by their counterparts in other countries - they're installing gas pumps.