Rural retail chain planned

China Post Group and the US-based China Horizon Investments Group signed a cooperative joint venture on Friday to create a chain of Post Mart retail stores across rural China.

Under the deal, China Horizon will invest 1 billion yuan ($162.8 million) in a 25-year lease of 10,000 China Post retail stores.

China Post is a State-owned enterprise specializing in postal finance, delivery and logistics services.

"It is a good partnership," said Alan Clingman, CEO of China Horizon.

"Everyone wants to show their products to rural residents, but no one has the ability to reach them.

"In cooperation with a Chinese partner that really touches everybody in China, we can make that happen."

The contract comes after a three-year pilot program during which more than 6,000 franchised stores and 98 directly owned rural supermarkets were set up, under the Post Mart brand, in towns and villages in Shandong, Jiangxi and Henan provinces.

Zhang Ronglin, vice-president of China Post, said that the cooperation to expand retail distribution in rural areas is a win-win situation for businesses and farmers.

"With the retail expertise of foreign investors, more rural residents will have the same availability and services of groceries and supermarkets as people living in the cities."

With an average shopping area ranging from 200 to 360 sq m, the rural Post Mart supermarkets will stock more than 1,000 separate items including fruit, cooking oils and other necessities.

Wang Xiuli, a professor at the Business School of the University of International Business and Economics in Beijing, said the deal represented a good business opportunity, as foreign retail companies tap into a "neglected" market with about 200 million rural households consisting of 800 million rural residents.

"The rural market is vast with a huge potential for increased consumer spending, as more migrants workers send their money home," Wang said.

But she also warned of the risks of expanding business into the countryside, such as ensuring efficient distribution channels and recruiting enough high-quality staff.

"Many local people have farmed for most of their lives, and have little technological experience," she said.

"In fact many have never even used a calculator before. So it can be a problem for retailers, to maintain the same standard of service in every store."

In 2012, the Chinese supermarket sector was worth $131 billion, after growing at a rate of 15 percent in the previous five years, according to a report by research firm, IBISWorld.