In China, Walmart is launching compact hypermarkets as it aims to profitably penetrate the market, reaching more consumers in both rural and urban environments.
In China, Walmart is launching compact hypermarkets as it aims to profitably penetrate the market, reaching more consumers in both rural and urban environments. Measuring 37,000 sq ft, the first store opened under the Smart Choice banner last month in Zhangshu, a town of 500,000 people.
Walmart has about 300 stores in China, with Walmart Supercenters accounting for the bulk of the business. However, two years ago, the retailer launched its hybrid discount convenience format under the Smart Choice banner.
There are only two of these smaller stores, hindered in part by China’s poor infrastructure, which makes it difficult to cost effectively distribute goods. Equally, this will be a major challenge with the compact hypermarket format that will need to be replenished on a more frequent basis than the larger Supercenters. It’s no coincidence that the first compact hypermarket is close to six Walmart Supercenters in nearby cities.
The new format in China was inspired by Walmart’s bodega-style chains in Latin America with which the retailer has experienced great success. As emerging regions, Asia and Latin America share commonalities that large retailers such as Walmart need to address. Firstly, a strong value proposition is needed to serve lower income shoppers. In Mexico, Walmart’s Bodega Aurrera concept primarily caters to consumers in the D and E socioeconomic group, which accounts for more than half of the Mexican population.
Low purchasing power can be made up for in volume, provided the price is right. Operating costs are lower, which enables Walmart to pass the savings on to shoppers in the form of competitive prices. The return on investment in the compact hyper format is equal to larger Supercenters, despite being half the size.
Proximity is also key in a number of emerging markets. In many cases, modern retailers are competing with informal trade that continues to play a significant role throughout Latin America and Asia. Therefore, in order for Walmart and others to grow in emerging markets, they need to bear in mind that the competition doesn’t always have four walls and a parking lot. They need to differentiate and get closer to the shopper. If compact hypermarkets turn out to be a success in China, then we could see them rolled out in India as well as potential new market entries such as sub-Saharan Africa, Russia and Turkey, marking a whole new wave of international expansion.
Natalie Berg, Global Research
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