IGA TO ENTER CHINA IN LICENSING DEAL

ELLIOT ZWIEBACH

CHICAGO -- IGA here plans to make its first entry into China with the licensing of a group of five stores early next year.

Depending on how those five units perform, IGA could have as many as 10 or 20 stores in China by the end of 1995, Karl Sheffield, IGA's international counsel, told SN. Sheffield is president of Compass 21, a consulting company based in Atlanta. IGA is the world's largest voluntary alliance of supermarkets, with 3,600 retailers served by 21 distribution companies in 10 countries. To facilitate its entry into China, IGA has authorized a new company called Pearl River Distribution Co., Hong Kong, to help develop a core of stores in the southern China city of Guangzhou (Canton). IGA's agreement with Pearl River was disclosed earlier this month at the IGA Merchandising, Advertising and Promotions Conference in Fort Lauderdale, Fla. Thomas S. Haggai, chairman and chief executive officer of IGA, made the announcement.

Pearl River intends to model its operations on IGA's food marketing and distribution system, which, Sheffield said, should make it "more efficient, more sanitary and more consumer-friendly than anything else in Guangzhou."

Pearl River is working initially with a group of five existing retail stores there in an attempt to upgrade their merchandising and pricing and provide training for store personnel so the stores can reopen under the IGA banner early next year, Sheffield said. The five stores, while large by Chinese standards, are small by U.S. standards, running 3,000 to 6,000 square feet.

"Our objective is to make them the best they can be, but it will take us some time to get there. "The stores are very primitive, and they are likely to remain somewhat primitive for a while as IGA continues to focus on the Chinese consumer, his habits, wants and needs. "IGA's goal is to try and stay one step ahead of the Chinese consumer and to help bring in superior products and better prices. But we're not trying to jump from where they are now to a modern American supermarket." He said he expects the IGA stores in China to continue to evolve over the course of 1995. "There will be some experimentation and testing to develop improved marketing channels and improved retail outlets," Sheffield said.

IGA has not yet completed its ultimate store-design plans for the five-store group, he noted. "We don't expect those to be complete and up to our ultimate standard for another year," he said. "In fact, our goal is to have the design plans ready to display at Food Marketing Institute's Asia convention in Hong Kong in November 1995," Sheffield said.

Pearl River was formed under IGA's auspices by Hop Hing Group, a Hong Kong-based processor and distributor of edible oils, and Guangdong Municipal Cereals and Oils Bureau, a Chinese government agency that owns over 200 pieces of real estate in the city of Guangzhou and employs 15,000 people. According to Sheffield, "Hop Hing contributes capital, marketing knowhow and modern distribution systems and technology, while GMCO contributes real estate and human resources, including experienced management people. Although IGA is working initially with a five-store group, it will not confine itself to those stores or to real estate owned by GMCO, Sheffield said. "IGA is viewing all of southern China as a market of opportunity for a while," he added.

As IGA expands in Guangzhou, it may branch out to stores not connected with the first group of stores or develop new sites through Pearl River, Sheffield noted. "The eventual outcome is still uncertain," he said. "China is a very underdeveloped country, and it would be foolish for us to develop one plan of expansion."