China: Supermarket penetration in rural China: the Suguo model and its impacts on smallholders and SMEs

By Naiquan Sang

Suguo supermarket is a Nanjing-based local supermarket under China Resources Enterprises - Vanguard Stores (CRE). It has successfully penetrated into the rural areas of the six provinces nearest its headquarters. Consistently ranked in the top ten supermarkets in China over the past ten years, its annual sales in 2006 were Y22.8
billion from all its 1,612 stores. Some 50 per cent of total sales were from rural stores, a feat accomplished mainly by persuading rural cooperatives to become franchises of the supermarket. Using this rural-oriented business strategy, Suguo successfully expanded its market share in the region. It is the main supermarket in Nanjing, with
50 per cent of market share, mainly from more than 400 owner-operated Suguo chain stores in the city. Suguo plans to open 100 of these owner-operated stores in 100 counties around Nanjing, while their rural franchise stores spread into town and villages gradually during the next five years.
This case study of Suguo supermarket is one of 32 case studies of innovative practice in connecting small-scale producers and SMEs with dynamic markets as part of IIED's Regoverning Markets Programme. The case study focused on Suguo's supermarket business model and its impacts on smallholders and SMEs. The innovations in this case are twofold: the supermarket penetrated the rural market by extending its network of stores gradually from metropolitan cities into the countryside, and it expanded its market share by offering franchises to cooperatives.
This rural-oriented business strategy had a positive impacts on both production and consumption for smallholders in the region. Chinese Premier Wen Jiabao recommended Suguo supermarket as a successful model and the Chinese television station CCTV broadcast a five-programme series about Suguo model in August, 2005. Inspired by the Suguo model, the Ministry of Commerce has created a project
called ‘Markets for 1,000 towns and 10,000 villages'. This project aims to open 250,000 chain stores at village level in next three years.