From Wal-Mart to Mum and Pap Shop Essay Example

the United States target retail channels like Safeway, Kroger, and Wal-Mart to expand their reach. However, in China only 62% of the population has access to similar retail channels.

Despite modern retailers in China dominating the market with a 62% share, equating to an impressive US$ 310bn yearly, mom-and-pop stores still hold a substantial portion of the remaining 38%, worth US$190bn annually. The extent of modern retailing varies significantly across different regions in China, with Beijing, Guangzhou, and Shanghai experiencing over three-quarters of sales through modern retailing. However, middle and western cities consistently have rates below 50%. This poses a significant challenge for marketers of Chinese consumer goods companies as they strive to identify methods to collaborate with traditional retailers and maximize their products' reach among consumers throughout China.

According to Bill Johnson, CEO of Heinz, it is important to sell products in relevant channels to the local population in emerging markets. Traditional retailers have advantages that modern and online retailers lack, allowing them to withstand pressure and continue attracting customers. These advantages include being located in the same neighborhoods as their target customers, who may not have access to cars or may have limited computer skills. Additionally, shop owners often have close relationships with their regular customers due to living in the same area. The small scale of traditional shops also allows them to serve areas with low population densities or limited purchasing power, where modern and online retailers may not be economically viable.

One of the reasons for the decline in importance of traditional retailers in China is that some small shops are operating illegally, avoiding taxes and reducing costs. Despite this, China's consumer goods

companies have recognized the importance of traditional retailers in boosting sales. They have established strong relationships with these retailers by providing them with support and benefits, as well as setting up distribution channels to ensure even the most remote retailers have inventory. However, this model is being challenged as modern retailers become more prevalent in the market.

Cooperating with e-commerce giants to tap into the online trading market, many consumer goods companies have further damaged their relationship with traditional retailers. This is made worse by the use of one-size-fits-all and expensive incentive schemes and promotion activities. In China, consumer goods marketers generally use prestigious consulting firms to segment their market geographically into several tiers. First-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen are the most economically developed with the biggest populations. Second-tier cities are usually capitals or large cities in coastal provinces of east China, third-tier cities are inland province capitals, while all remaining cities are grouped into fourth-tier and deemed less attractive for companies.

The company may continue to segment fourth-tier cities into fifth or even sixth tiers, as required. When designing a channel strategy for traditional retailers, marketers generally consider factors like average disposal income, total population, average aging, and purchasing preference to create multiple marketing plans. These plans are then applied to all cities within a specific tier. For each traditional retailer (including private groceries, corner shops, mom-and-pop stores, etc.) in a city, the same supportive, incentive, and promotional program is provided based on the city's tier. Subsequently, sales forces approach shop owners with information about incentives and promotional materials, guide shelf layout and product displays, and provide long-lived assets like refrigerators or

coolers to some companies. Agreements are signed with shop owners to ensure certain sales volumes or to guarantee superior shelf space. The ownership of these assets can be transferred to shops if the conditions for doing so are met.

Although successful, the prevailing model of traditional retailers in China is proving to be costly due to their massive quantity. Modern retailers are now opening big-box stores in first-tier cities and branching out to the suburbs and downtown areas. This expansion has even reached second and third-tier cities, resulting in competition with once-profitable small stores. Additionally, e-commerce has eliminated traditional retailers' spatial convenience advantage, with shoppers preferring to shop from home by clicking their mouse. These factors have caused a sharp decline in revenue and profits for traditional retailers.

Investing in promotional material is largely wasteful, resulting in the impairment of long-term company assets on its balance sheet and a continuous erosion of profits.