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Wal-Mart opens stores in China's hinterlands
"I come here all the time," said Chen Yatian, a 21-year-old engineering student. "The prices aren't higher than the small shops outside, and I think the quality is better. My friends and I buy all our snacks here, things like spicy dried tofu."
The need to satisfy sharply different regional tastes is one of the challenges Wal-Mart faces in smaller markets, said Dean Xu, professor of strategy and international business at the University of Hong Kong. Wal-Mart will have to source many goods from local suppliers, potentially raising quality issues. "If there is one incident, it can ruin your company's reputation," Xu said.
Still, Wal-Mart's Cullen says the expansion is a logical step as China's middle class swells and the economy becomes driven more by consumers than exports. Major markets have their drawbacks too, he added.
"The big cities are very difficult to do business in for all the obvious reasons: They're crowded. It's difficult to find real estate. It's expensive and there's competition," said Cullen, who previously helped rival Costco Wholesale Corp. break into South Korea and Taiwan.
$3.1 billion in sales
In the United States, Wal-Mart started with a single store in Arkansas in 1962 and built up its distribution network slowly, opening stores in adjacent counties and avoiding big leaps, said Emek Basker, a University of Missouri economics professor who has done extensive research on Wal-Mart's growth. The company had a conscious policy to open outlets only within a day's drive of its distribution centers, she said.
Wal-Mart declined to comment on whether it would be scaling back its international expansion plans amid the global financial crisis.
Wal-Mart is being outmaneuvered by Carrefour because its executives have taken too long to understand the China market and add stores, said Burt P. Flickinger III, managing director of retail consulting firm Strategic Resource Group. Carrefour, with $4.3 billion in sales, ranked sixth among all retailers in China in 2007, according to the China Chain Store & Franchise Association. Its sales were up 24 percent over the previous year.
Wal-Mart was 13th, with sales of $3.1 billion, a 42 percent increase over the previous year. The American chain also owns a 35 percent stake in Trust-Mart, which operates about 100 stores in 34 Chinese cities.
At the Wal-Mart Supercenter in Loudi, homemaker Zhang Xiaoling, 32, said the store with the lowest prices would get her business.
"I always come here. I think the selection is great and the prices are fair," Zhang said, as she struggled to keep her 2-year-old son from wandering away. "There was a small supermarket just down the road. When Wal-Mart opened, it closed. It just couldn't compete."
A few blocks away, in the dark and dingy basement of a dilapidated building, most of the merchants at a traditional food market appeared blasé about the new competitor.
Shau Youming, who sells spices and soy sauce in a small stall, said Wal-Mart hasn't hurt his business.
"I've got my old customers and they all live nearby," he said. "It's convenient for them to come here. My prices aren't high and I keep an eye on Wal-Mart's prices. I'm not trying to make a lot of money. Just enough to make a living."
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