Posted by: mulrickillion | December 6, 2011

Purchasing Strategies of Chain Retailers in China and Implications to Wholesale Distributors

Hong Kong Trader, 23 Nov 2011 —

image

Introduction

The rise of chain retailers has brought significant changes to China’s distribution sector in the past decade. The relentless efforts by retailers to minimize intermediaries in their supply chains, or put it simply, “cutting out of the middlemen”, through initiatives such as increase in direct-to-retail arrangements and centralized purchasing, has brought huge challenges to China’s wholesale distributors. There are growing discussions about disintermediation.

Indeed, there is a significant shift in power to retailers and consumers. While we believe the demise of distributors in China is off the mark given the huge complexity of the Chinese market, it is true that retailers’ changing purchasing strategies have far-reaching implications for China’s wholesale distributors. Hoping to shed light on the latest development in China’s distribution sector, the Li & Fung Research Centre has joined hands with the prominent China Chain Store and Franchise Association (CCFA) to conduct a survey to understand the purchasing practices and plans of grocery store chains in China in 2011. In this study, we also conducted face-to-face interviews with some of China’s largest wholesale distributors, to seek their views on the development of the sector in the years ahead.

I. Overview

1. China’s distribution sector is highly fragmented

In China’s wholesale distribution industry, there are countless number of small-sized players; most of which are with limited distribution reach. Often times, goods have to pass through multi-tiers of distribution players before reaching the hands of consumers in China. There are many different parties involved in the product supply chains, such as agents1, distributors, wholesalers2, sub-distributors, etc. Given the complexity of the Chinese market, companies in China often adopt a combination of distribution modes (see Exhibit 1). 

2. Wholesale distributors in China face increasing challenges

2.1 Fierce competition

Competition is fierce in China’s wholesale distribution sector, particularly in the lower spectrum of the market; those players who cannot offer higher value-added services to clients often have to resort to price cuts, eroding their profitability. Besides, business costs such as labor, energy, raw materials and logistics costs have also been rising rapidly over the past years. Indeed, many players just have razor-thin margin and this further hurts their ability to invest in upgrading.

1 Typically, agents are not obliged to the buyout of the products; thereby they take no inventory risks. They are paid a certain amount of commissions from business transactions.
2 Distributors and wholesalers would take ownership of the products. They make profit from merchandise mark-up. Generally speaking, distributors are perceived to play a more active role in product distribution and offer better ranges of services, whereas wholesalers are often viewed as more passive.

Click here to download full report. pdf icon

hktdc.com – Purchasing Strategies of Chain Retailers in China and Implications to Wholesale Distributors

>> Content provided byimage

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: