China has overtaken the United States to become the world’s biggest market for grocery shopping, according to the latest report to underscore the country’s growing global economic dominance.
The Chinese grocery sector will continue its fast growth over the next few years to hit almost £1tn by 2015, according to grocery industry researchers IGD. That trend brings opportunities for both Chinese and international retailers, but economists warn it will also put upward pressure on already high food prices.
Driven by a growing population, a move to more expensive foods and robust economic growth, the Chinese grocery sector was worth £607bn at the end of 2011, while the US market slipped to second place at £572bn, IGD says in a report on Wednesday . The UK was the world’s ninth largest grocery market.
The researchers forecast that China’s market will grow at twice the pace of the US to be worth £918bn by 2015.
“China’s grocery growth story is phenomenal,” said IGD’s chief executive, Joanne Denney-Finch.
“Despite its various logistical and bureaucratic challenges, China is a crucial growth market for many of the world’s largest grocery retailers. Even beyond the major cities there are huge opportunities: forecasts suggest there will be over 200 Chinese cities with a population of over a million by 2025.”
The forecasts echo predictions that China’s economy will overtake the US to become the world’s biggest within years, said Andrew Sentance, senior economic adviser at consultancy PwC.
“Over the next decade China will overtake the US on a number of indicators,” he said, noting that more than 50% of the world’s population lives in the region.
“The negative is that this is putting a lot of upward pressure on energy and commodity prices. So while consumers seem to be benefiting in some ways, they are also facing pressures they have never seen before.”
Sentance warned that growth in Chinese markets presents challenges as well as opportunities for businesses in western markets, which he sees facing a “new normal” of disappointing growth and volatile commodity markets.
IGD says all the Bric nations – Brazil, Russia, India and China – present retail opportunities for UK and other companies. It forecasts they will all be in the top five grocery markets by 2015, with India displacing Japan as the world’s third largest grocery market by value.
Chains such as Tesco have already been expanding in emerging markets. The UK-based retailer opened in China in 2004 and now runs more than 100 stores there while also pushing online sales and opening a number of shopping malls. China is its strongest performing Asian market in terms of sales growth according to its most recent results, but at 4 million customers a week Tesco’s business there is dwarfed by the more than 20 million weekly shoppers it serves in the UK.
IGD estimates that international grocery retailers could open more than 2,700 stores in China over the next four years – around 13 a week.
“The Chinese government is taking steps to steer the economy to a more consumption-led growth model with measures to boost incomes, improve the social welfare system and increase access to consumer credit,” said Denney-Finch. “And as disposable incomes grow, Chinese consumers will be increasingly willing to buy premium groceries.
“But, as with any other market, there are several challenges to doing business in China. It is not always easy to open new stores, because legal requirements can make the process slow and arduous.”
The grocery boom brings mixed blessings for China’s population, nutrition experts warn. Many rural parts suffer from malnutrition while urban areas are being increasingly served by outlets offering less healthy convenience foods.
“Obesity is already growing in the younger generation in big cities,” said Peter Ben Embarek, food safety expert at the World Health Organisation.
He pointed to further pressures from a rising demand for animal protein. “Today we don’t know how we are going to produce all the protein that is going to be demanded globally.”