IGA STUDIES CHINA OPPORTUNITIES

CAROL EMERT

WASHINGTON (FNS) -- IGA, Chicago, is studying business opportunities in China, hoping to establish a presence in the booming economy before China's growing middle class attracts an influx of foreign competitors.

IGA is considering teaming up with a Hong Kong food manufacturer that has offered to develop a business plan for the Southern province of Guangzhou, according to Karl Sheffield, IGA's China consultant and president of Chandler, Leigh & Co., Atlanta.

After completion of the one-year study, the Hong Kong company and a Chinese partner would spend three years establishing a retail and distribution system and training personnel. "It could take another 10 to 20 years to realize the full potential," Sheffield said. IGA already has a large foreign presence, with almost one-third of its 4,000 stores outside the U.S., said company spokesman Kevin Burkum. The food wholesalers that own the IGA alliance service 160 stores in Japan, six in South Korea, two in Papua New Guinea, and several hundred each in Australia and Canada -- in addition to 2,800 in the U.S. IGA also plans to enter Singapore, New Zealand and Malaysia this year, Burkum said. Despite China's recently instituted economic liberalization plan, doing business there remains difficult, with complicated regulations, a nearly impenetrable permit system and other barriers keeping most foreign companies at bay. But the lure of 1.2 billion consumers, 13% improvement in gross national product last year and skyrocketing retail sales is motivating some adventurous firms to get in early, hoping that political and economic conditions will improve as China's middle class gains clout.

"Now's the time to seize the opportunity in China," said Joseph A. Massey, a business professor at Dartmouth's Amos Tuck School of Business and a private consultant. "The middle class is going to be gigantic." IGA's decentralized structure, in which wholesalers own parts of the company and license the IGA name to stores, has "a lot of advantages in the Chinese context," said Massey, a former chief negotiator for China in the U.S. Trade Representative's Office. "China is huge and highly diverse, with differing tastes and preferences" in its many regions, Massey said. "You'd want to look for different partners in different provinces." None of the sources interviewed knew of other U.S. supermarket companies on their way to China, although Hong Kong's Welcome chain manages two upscale supermarkets in Beijing owned by the Chinese government, according to a report by the U.S. Embassy in Beijing. Shanghai is home to more supermarkets than any other Chinese city, with about a dozen locally run stores, the report said. These supermarkets target foreigners and the wealthiest Chinese, according to the report. Sheffield contends that this market is already fully penetrated, so IGA would aim for the expanding middle class. A chief competitor is likely to be Ito Yokado, a major Japanese retailer that has announced plans to open 1,000 supermarkets and 3,000 fast food restaurants in China by 2010. The China market probably doesn't offer a bonanza for U.S. food manufacturers, as high tariffs and other limits on imports will mean that most supermarket offerings would be Chinese-made, the trade experts said. IGA believes it has found its way around a major retail barrier -- finding affordable real estate -- through its Chinese partner, a Guangzhou government entity that has "access to many sites," Sheffield said. Without such a partnership, rent levels in most urban areas are "almost prohibitive," said Richard Brecher, director of business advisory services for the U.S.-China Business Council. But other aspects of IGA's China business, such as the product offerings and the size and format of stores, are awaiting the outcome of the study. "It's got to be a wide-open approach," Sheffield said. "We're trying to avoid all preconceived notions we can. We certainly don't want to transplant Americanisms. Even the word supermarket is probably not useful." IGA's format likely will be modified as China's demographics change, Sheffield said. "Whatever the study produces as a strategic prototype for a store opening in 1996, come back four years later and it will look a whole lot different," he said. Nevertheless, Sheffield identified several potential advantages of a modern supermarket format over China's traditional markets and stalls: the convenience of one-stop shopping, better sanitation and refrigeration, prestige, novelty and Western products that aren't available elsewhere. One sticking point in this rosy scenario is the possibility that the United States will not renew China's Most Favored Nation trade status, which subjects Chinese exports to the U.S. to the lowest possible tariff rates. The Clinton administration has pledged to end MFN for China in June if the Beijing government does not improve its human rights record, although top administration officials are now saying they want to "delink" human rights and trade.