International retail group Metro has been operating in China for ten years but last year expanded from its stronghold around Shanghai into Beijing. In this month’s Just the Answer interview, Shouchuan Zhang, general manager of Metro China’s Business Unit North, spoke with Dominique Patton about the company’s expansion into northern China and in particular the opportunities offered by the Beijing Olympics.

just-food: Shanghai has been your stronghold in China for more than ten years but Metro is a relative latecomer to Beijing. What finally prompted you to open stores in the north, and what particular challenges does this region present?

Zhang: We entered the market in 1996 with our first store in Shanghai and quickly concentrated our business in the eastern region. But growth in this area has slowed. Business Unit North meanwhile is the fastest growth region in like-for-like sales. We had more than 20% growth in the last year. In one particular store, sales increased by 50%.

If you compare the geographical scale, this region is actually bigger than some other regions, but there’s also greater intensity of business here too. Take a city like Shenyang. There are many other companies opening up several stores there too.

There are significant differences within China regarding consumption habits and living standards. In the south, generally they’re relatively open to new ideas but in the north they’re a bit more conservative. So we’re going to need more time to build up our image here.

But if the development of the market is slower, then the potential is also higher. There’s not as much competition here, especially compared to Shanghai. And there are a lot of new customers here too. For a hotel that has had one channel for 20 years, it’s quite hard to break. But there is a big group of customers entering the market at the same time as us.

And with the Games next year, Beijing is now the focus of Metro China. Obviously the city has a key position in leading the development of the Chinese market. We see potential for two more wholesale stores there before August 2008.

Mr. Zhang Shouchuan

j-f: How significant will the Beijing Olympic Games be for your business?

Zhang: There will be a big impact on the Beijing region and other cities too. There are Olympic venues in Shenyang, Qingdao and other places where we have stores so the Olympics is one of our major focuses. Many of our key customers are directly linked to the Games and we’re also a major supplier for Olympic direct food providers. We’re used to dealing with large-scale customers but even for Metro, we don’t normally supply the quantities of food needed in such short time periods, so the pressure is really high. The volumes of fresh food required will be really challenging in terms of getting the right standard. There are also certain things we can’t forecast, such as prices for next year, and there is also the challenge from the Government which wants us to provide locally produced food. But even when we are asked to use the Government’s recommended suppliers we are going to stick to our own internal standards. Safety is our number one priority.

j-f: China’s food safety problems have been widely reported in recent months. How do you deal with this risk on a daily basis and are you seeing signs of change?

Zhang: We definitely see a growing trend, not only in Metro, but also from the Government to improve food safety. For example, a local Government bureau has just visited us with some other retailers who want to understand how HACCP [Hazard Analysis and Critical Control Points] works. It’s relatively new in China but we are implementing HACCP across all our stores in China.

But there is still a big education process needed. In most European countries hygiene and food safety is not really a topic anymore – everyone is working to this standard. But here some producers just reach the minimum requirement. For example, you might negotiate with a supplier and they will provide high-quality samples. But after the first few batches, you could start to get something else, of much lower quality.

But you can’t just kill the suppliers, or else you would lose much of your supplies! Around 90% of our products come from China. That’s why we’re working on a project with farmers to educate them about hygiene and quality.

We even meet problems with customers. We have had some complaints about the temperature in the chilled section, which they found so cold it was uncomfortable! So it’s a whole education process.

j-f: There is growing competition from both international and domestic retailers in China. What do you feel gives Metro an edge here?

Zhang: The basis of our commercial success in China is the B2B wholesale concept, which means that we do not see ourselves as competing with ordinary retailers. We specifically address business and bulk customers. These include the Horeca category and our sales to this group have increased by 35% in the last year. This clearly shows a recognition of our food quality. Most four or five-star hotels are buying from Metro and many restaurants too. We have many restaurant owners who have concerns about their purchasing channel because they know it’s not 100% clean and might cause big damage due to quality issues. They can trust Metro in this respect.