Reshaping China modern trade

Implications: 1. An important step in the modern trade consolidation, however Walmart still have to prove its capability in the China Market
2. Suppliers may have to adapt to a new retail environment with Walmart, Carrefour and Tesco competing on a new level

Analysis:  If Wal-Mart takes full control of Trustmart, it would become the largest hypermarket chain in China. Also Tesco announced to take full control of the Taiwan-based chain Hymall last year and another local one this year in South China.
This trend of acquisition will impact on the retail environment as it will add pressure on Carrefour and other local leading chains such as Lianhua in East China. The retail sector is still immature in China and this trend will put the competition up to a new level, wiping out numbers of local players but clearly improving the quality of shopping in the sector.

1. But does this acquisition mean that Wal-Mart can become a better retailer in China?

Carrefour has built a strong brand image and a successful local business model. Carrefour is the only star of western retailers. Despite their small scale, the Carrefour effect has been very significant as they have been probably the sole modern retail model that domestic retailers enthusiastically learn and copy from.
The battle is also with very strong local chains such as Lianhua or Suguo which are still representing up to 75% of the market in CPG, especially in fast developing second and third-tier cities.

In East China, Wal-Mart has struggled to expand (only 2 stores in Shanghai vs 11 Carrefour, later 12 with Trustmart). They still have to prove that they can do better at store-level performance improving penetration and increase basket size by having the correct assortment and innovative shopping experience on top of their low price image. To achieve this, they will have to rely largely on key suppliers expertise. The venture with Trustmart will also have to leverage the different strengths of both retailers. Only if they succeed on this, then Wal-Mart could become a leading player.

2. Wal-Mart acquisition presents opportunities for some suppliers, threats for others.
The opportunity is that Wal-Mart may develop a more advanced cooperation with suppliers different from the old relationship used by other retailers in China (price&promotion only model), which has just affected margins of both parties over the past few years. Suppliers that are in the Wal-Mart's global vendor network will benefit from this expansion proposing real innovations for local consumers not only new products but also in terms of valorizing categories and this will make the difference vs local retailers. In turn, those suppliers will be reinforced.

The negative effect is for other local suppliers that may not be able to adapt and compete in this advanced modern trade environment. They will have to gain in expertise at all levels (marketing, commercial, logistics...). Some manufacturers will just disappear, others will partner up with foreign companies and the consolidation will continue at manufacturers side.