Due To Food Safety Concerns And Despite Rising Inflation, Wealthier Chinese Shell Out For High-End Groceries#
Hong Kong chain City'Super opened its first mainland China location in Shanghai last year
One trend that has picked up steam in China over the past couple of years has been the proliferation of high-end grocery stores, first in cities like Shanghai and Shenzhen and now in second-tier cities like Shenyang and Xi'an. Though supermarkets specializing in imported foreign items have been around in China for years, it's only in the last few years that these stores have progressed beyond a niche market of foreign expats, Chinese "returnees" and the ultra-wealthy. Owing to recent food safety concerns, and despite rising food prices, even the Chinese middle class is doing more of their shopping at "boutique supermarkets" (精品超市).
A possible sign of the contention we could see in the boutique grocery market in coming years is unfolding now in Shanghai. As NBD points out this week, in addition to the Hong Kong chain City'Super, which opened its first mainland China location in Shanghai a year ago, boutique chains like Olé, BLT, Taste and CityShop are looking to tap growing demand for imported products. Over the next three years, City'Super plans to open three to four stores in Shanghai, while Olé and BLT are shooting for a combined total of 30 locations throughout the city within the next five years. But cosmopolitan and international Shanghai is not the only city in which high-end supermarket chains are battling it out. Increasingly, we're seeing this competition play out in fast-growing second-tier cities, which these chains are finding to be relative blank slates.
One city that's in the Chinese-language news this week is Shenyang, the capital of northeast China's Liaoning Province. Recently, Jing Daily profiled Shenyang as part of our "Second-Tier Spotlight" series, noting that the city's proximity to Russia and North Korea has made it a regional trade hub, and its growing wealth has made it China's third-largest provincial luxury market. Writing about the pricey "Yonghu Boutique Supermarket" (雍户精品超市) at Shenyang's upscale Huafu Shopping Mall, this week the Chinese-language news site Bandao asks: who's shopping at these supermarkets, and why are they so expensive? Translation by Jing Daily team:
If you had 1,700 yuan (US$262), would you choose to buy a cow or a piece of beef? At Shenyang's Yonghu Boutique Supermarket, shoppers say the latter. Here, a frozen cut of Australian sirloin runs for a whopping 1,700 yuan per jin (500 grams). Actually, at this six-month-old supermarket, you can see sky-high prices everywhere. For instance, a dog collar selling for 18,000 yuan (US$2,777), a bottle of "Bling" bottled water for 800 yuan (US$123), a bottle of Chateau Lafite for 37,000 yuan (US$5,709), or a cup of coffee made from an espresso machine worth 300,000 yuan (US$46,000).
As Yonghu general manager Chen Xiaofeng said, when asked about the astronomical prices of some of the items on sale in his supermarket, "If someone is willing to drive a luxury car and live in a high-end neighborhood, they're also willing to spend many times the usual price for a given service. The appearance of 'boutique supermarkets' embodies the enrichment of consumption levels [in Shenyang]." Chen said that wealthy individuals and those pursuing a higher quality of life are increasingly turning their interest to new food items.
Naturally, not everyone wandering into Yonghu is an interested buyer. As the article goes on to note, many visitors simply come to gawk at the high-priced items while others balk at the idea of spending the equivalent of their monthly paycheck on bottled water and Wagyu beef.
Some customers aren't swayed by [Chen Xiaofeng's] observations, and are turned off by the sky-high prices. "If I had this kind of money, I'd just buy a cow and be done with it. In my conception of consumption, I can't accept this kind of price," shopper Li Ze said, adding that he thinks high-priced beef and dog collars are just a gimmick on the part of the business. The beef has similar nutritional value and tastes similar to normal beef, Li said, so who would spend so much to buy it?
However, in the view of the company, the higher prices at this boutique supermarket are a reflection of its more refined products and shopping environment. "Many of our customers love cheese, so we stock nearly 100 types of cheese," [Chen Xiaofeng said]. Chen added that Yonghu also educates consumers about what types of cheese work well with which dishes. "We also invite five-star hotel chefs to host live events for customers to understand different cooking methods, cheese appreciation, and other things," a staff member said. The staff member remarked on the supermarket's impressive inventory, noting that Yonghu stocks more than 70 types of soy sauce alone.
So how is the boutique supermarket industry shaping up in China? Are these supermarkets, as the shopper above contends, simply selling high-priced items for the sake of selling high-priced items? Or is the demand sufficient for them to continue popping up throughout the country? While it's difficult to speak for the entire country, professor Zhang Wanqiang (张万强) of the Liaoning Academy of Social Sciences said this week that he himself often opts for high-end supermarkets because of their less stressful and crowded environments. Said Zhang, the dynamics of consumer demand are complex and multilayered. Currently, Zhang added, Shenyang has very few boutique supermarkets, and with growing wealth, it's a high-potential space for development. However, it will take time to discern how long it will take for this market to be fully cultivated.
In our view, what is happening in Shenyang -- a mix of growing demand that hasn't yet caught up to supply and consternation (among the middle class) at the high prices at places like Yonghu Boutique Supermarket -- is happening in several other second-tier cities at the moment. However, with food prices rising even at "normal" supermarkets, and food safety scandals continuing to occur, the bets these supermarkets are making could pay off in the next several years.