is different, at least when it comes to retailing. Discount food
stores, so popular in the west, apparently hold little appeal for
Chinese consumers.

This realisation has led Shanghai-based Lianhua, a leading supermarket group, to consider ending its JV with France's Carrefour. The JV, Shanghai Dia Lianhua, operates more than 130 discounts stores in Shanghai.

JV, in which which the Chinese company holds a 45% stake, has been
losing money since operations started in 2003. A Lianhua spokesman told
The Standard:

the stake to Carrefour is one of the possible solutions, but we haven't
made any decision yet. The discount store concept, which is popular in
Europe, still needs some time for mainland consumers to accept.”

mainland retailer plans to retain its 45% stake in a separate
hypermarket joint venture with Carrefour that has nine outlets in

Carrefour wasn't the first foreign retailer to open a
hypermarket in mainland China. But since the French company opened its
first store, in 1995, it has become the largest. Today it operates 73
hypermarkets in 29 cities, as well as its Champion supermarket and Dia
convenience store formats.

The latest issue of McKinsey Quarterly offers a fascinating in-depth interview (R)
with Jean-Luc Chéreau, who has led Carrefour China since 1999. He gives
some insights into China's emerging consumer culture as well as some
examples of how Carrefour has had to adapt to Chinese tastes — and
regional differences.

A western visitor to a Chinese Carrefour
cant help but notice the tanks of live fish, eels, bullfrogs and
turtles in the fresh food section. But there are subtler differences.

example, the distances from the coast to the middle and western China
are so great that consumers do not trust dead fish to be really fresh.
So, Carrefour changed its offering for inland hypermarkets to put
greater emphasis on frozen fish, which consumers trust. The change led
to a 30% to 40% rise in fish sales.

Middle and western China is
a much less mature market for retailers, and that is obvious if you
visit the consumer electronics section.

Around 50% of the
televisions offered in a Carrefour store in Shanghai might be
flat-screen TVs. But go into the middle of China, and it is only 20%
because flat screens are too advanced and too expensive for consumers
in these areas. For mp3 players and digital cameras it's a similar

Carrefour is only the ninth largest retailer retailer in
China and Chéreau says the company has learnt a lot from its bigger
home-grown rivals.

For example, Carrefour pioneered the idea of a fresh bakery section and soon others followed.

it overlooked Chinese desserts. Domestic retailers didn't, and they
offered items like Chinese fresh-milk cake. Carrefour counter-attacked
by choosing the best suppliers of Chinese baked goods and inviting them
to set up stands inside Carrefour stores. Now sales generated by
Chinese desserts are roughly the same as those of Carrefour official

Among the challenges, Chéreau says China's difficult
logistics imposes particular problems for a food retailer. To send
merchandise from Beijing to Urumqi takes seven days by truck. So,
Carrefour has little choice but to work with local distributors.

says Carrefour is thinking about creating a distribution platform for
large cities like Shanghai, but it would only serve stores in the
vicinity. Stores that are further away would not be connected to a
central network. “I don't think a national network is the best way to
do business,” says Chéreau.

Carrefour's China strategy is
constantly evolving as the competitive forces increase and legal
restrictions ease. For example, Chéreau is excited by the “huge
potential” of the fledgling consumer credit market, especially for
appliances and consumer electronics, and it will open to foreign
companies in January 2007.

Finally, Chéreau has some down-to-earth advice for would-be foreign conquerors.

is dreaming about China. It's the new El Dorado. But it's a difficult
market and will stay a difficult market. Just because it officially
entered the World Trade Organisation, that will not change everything.
When our main competitors arrive they will learn and they will make

On the world stage, Carrefour's is
second only to Wal-Mart. But in China the US giant has not been as
successful as Carrefour, and part of the reason is that it been unable
to reproduce its super-efficient logistics system in the PRC, according
to this LA Times story.

has also been less willing to adapt the standard Wal-Mart shopping
experience to the cultural and dietary differences across China's many

For retailing junkies, McKinsey Quarterly also has an interview with B&Q, (R) the UK home improvement chain, which has grown to be number one in China's DIY market.

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