Five tips for wannabes of the boutique supermarket business

The increasing demand by affluent Chinese for quality food and beverages has painted a rosy future for the boutique supermarket business that has yet to share a big pie in the market.

According to the Boston Consulting Group, the market share of boutique supermarkets now accounts for about 10 percent of the retail market in big cities such as Shanghai, Beijing and Shenzhen. That means the business, which started budding in China about two years ago, has room to make more money.

Waldemar Jap, partner and managing director at the Hong Kong office of the Boston Consulting Group, says boutique supermarkets business will continue to spring up and operators should not sit on their laurels but look for ways to improve so they will be ready for competition.

Jap, who has experience in helping consumer goods companies and retailers in branding and developing China strategies, offers five suggestions to existing boutique supermarket operators:

1. Ensure product quality, in particular food safety

As customers become more knowledgeable and concerned about food safety, the operators should ensure that what they sell strictly complies with the country's food safety laws and that they have enough staff to provide product information to customers.

When shopping at boutique supermarkets, many Chinese who are conscious of product quality bear in mind brand names, Green Certification labels, packaging and the way a store looks. Although some customers may go for expensive products on the premise that they are of higher quality, procurement needs to be based not simply on price but on quality and other information.

Also, as a boutique supermarket's stock levels will be lower than those of a traditional supermarket, the operators need to pay greater attention to what the most popular products in each category are and limit the number of choices they offer.

2. Provide customized service to target customers

In addition to product quality, customers these days are demanding better service. Boutique supermarket operators should pay more attention to after-sales service, for example, offering convenient and efficient service to customers wanting refunds or to exchange products.

The supermarkets should hire staff who can speak English to serve foreign customers. Staff should be encouraged to take the initiative in offering help to customers.

3. Set marketing strategies targeting specific kinds of customers

Most of the existing boutique supermarkets use the same model: good location, comfortable environment, attractive decor and expensive imported goods. It is easy enough to open a boutique supermarket, but every supermarket needs to have unique features targeting different customers.

The selection of products for a supermarket in a commercial area and in a residential area will be different, based on the fact that the shopping habits of those living nearby will be different. Decor needs to take into account the style of neighboring shops or buildings.

4. Prepare for increased competition from foreign rivals

Local supermarket operators, who now manage most of the boutique supermarkets in China, should prepare for competition from foreign companies.

With well-established supply networks and a wealth of management experience, it is only a matter of time before foreign supermarket chains open boutique supermarkets in China. For example, the French chain Carrefour has been modifying its traditional stores into high-end supermarkets in its home country.

Local supermarket chains can learn from the experience of foreign companies and how they develop mature business models worldwide. The local chains will need to rethink some of their ideas, and make changes in management, decor and the goods on offer.

5. Test the market in smaller cities, but do it cautiously

Boutique supermarket operators should consider expanding into smaller cities where demand for higher-priced foreign products has been increasing.

With the growing wealth of people in smaller cities, the demand for good food products such as infant formula or pork, which have been involved in food safety scandals, will continue to increase. As long as boutique supermarkets sell quality food, more and more people are likely to opt for them over traditional supermarkets.

However, boutique supermarket operators should not expand into these cities too rapidly, but should take time to test the water to see if the market is big enough for further development.

yaojing@chinadaily.com.cn