It had to happen sooner or later, of course. Nevertheless, news that China has overtaken the US as the world’s largest grocery market has profound implications for both food producers and retailers in the west.

According to UK research firm IGD, China’s grocery sector was worth £607bn at the end of 2011, surpassing the US market which was worth £572bn.

And while most developed food markets struggle with low single-digit growth rates, the Chinese market is forecast to grow at a CAGR of more than 10% over the next few years to reach £918bn in 2015.

Joanne Denney-Finch, chief executive of IGD, said:

China’s grocery growth story is phenomenal. Between 2006 and 2015, the Chinese grocery market is forecast to triple in value and to be worth nearly a trillion pounds. This rapid expansion has been fuelled by three main factors: rapid economic growth, population and rising food inflation.

Despite its various logistical and bureaucratic challenges, China is a crucial growth market for many of the world’s largest grocery retailers and the likes of Carrefour and Walmart realized this some time ago.

Walmart began retail operations in China in 1996 with a Supercenter and Sam’s Club in Shenzhen. In 2007, it invested in the hypermarket chain Trust-Mart, which operates more than 100 retail units.

Tesco, the UK’s largest supermarket chain, was relatively slow to wake up to the potential of the sleeping giant.

It entered China in 2004 through a JV with Hymall but did not open its first Tesco-branded store until 2007 — see this Engagingchina story.

Today, Tesco has a network of more than a hundred stores across ten provinces along the eastern seaboard.

Nevertheless, analysts say retailers may want to look beyond the increasingly crowded eastern seaboard for growth in the future.

Forecasts suggest there will be over 200 Chinese cities with a population over a million people by 2025. But given China’s size and diversity, it’s essential not to treat the country as one homogenous market, I GD argues.

email