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China's Sun Art goes online to chase retail boom

Employees stand in front of the gate to a Wal-Mart Supercenter in Chongqing municipality October 24, 2011. REUTERS/Stringer
Employees stand in front of the gate to a Wal-Mart Supercenter in Chongqing municipality October 24, 2011. REUTERS/Stringer

By Donny Kwok

HONG KONG (Reuters) - China's biggest hypermarket chain Sun Art Retail Group Ltd <6808.HK> is taking on Wal-Mart Stores Inc in the booming domestic e-commerce sector as it seeks new ways to maintain its market share in the face of fierce competition.

With promises of farm-fresh produce to a nation obsessed with food safety, online retailers in China have turned grocery shopping into a business with sales valued at 11.5 billion yuan ($1.88 billion) this year. A rapidly expanding middle class has also propelled the trend.

Sun Art's push into e-commerce comes as competition in the hypermarket sector heats up, with a tie-up between Tesco and China Resources Enterprise <0291.HK> announced this month potentially posing a challenge to its lead.

Sun Art said it aims to start online shopping and home deliveries to customers in Shanghai in the fourth quarter.

"The products that will be available on our online platform will be way more than what we are selling in the stores," Executive Director Peter Huang told an earnings briefing on Thursday.

"We do not aim to compete in pricing or any cash-burning model," he said a day after the company reported a 14.8 percent rise in first-half net profit.

Sun Art, a joint venture between Taiwan conglomerate Ruentex Group and privately held French retailer Groupe Auchan SA , said it had set up Uitox E-commerce (Shanghai) Co Ltd, a joint venture with a local company called Excellent First Ltd, to develop its e-commerce business.

"We will also actively explore different business models for e-commerce so as to provide customers with convenient ways in shopping, and to develop future sources of profit for the group," Sun Art CEO Bruno Mercier said in a statement.

China's online retail market is expected to almost double in the next two years to 1.15 trillion yuan, according to data from consumer research firm Euromonitor.

Wal-Mart started selling groceries online in China after buying a stake in leading Chinese e-commerce website Yihaodian in 2011. The U.S. retail giant now holds a 51 percent stake in the website.

FUELLING GROWTH

Sun Art has gained market share in China's roughly $80 billion dollar hypermarket industry even as rivals such as Carrefour have struggled by expanding its network in cities along the more affluent east as well as the less developed interior.

Sun Art opened 11 new hypermarkets during the first half, bringing its total to 284 hypermarkets in the mainland, and this increase helped offset the effects of China's economic slowdown.

The company said it had secured 158 sites for hypermarket complexes, of which 117 were under construction, ensuring sufficient sites for its expansion in the three years till 2015.

At the end of 2012, Sun Art had 13.6 percent of the China market in terms of retail sales value, followed by roughly 11 percent each for China Resources Enterprise and Wal-Mart, according to data from Euromonitor. Carrefour had 6.9 percent, while Tesco had 2.4 percent.

China's hypermarket industry is likely to grow to 863.8 billion yuan ($141 billion) by 2015, from an estimated 659.6 billion yuan in 2013, according to Euromonitor.

(Additional reporting by Alexandra Hoegberg; Editing by Anne Marie Roantree and Miral Fahmy)

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