Huarun'S "Barbaric" Competition

It has been suggested that

He wants his employees to have "wolf like ambition"; he uses different forms to encirclement foreign competitors; he understands the demands of local governments; he actively expands market share to enhance the ability of resource integration.

He is determined to turn his business into the largest consumer company in China.

He is Chen Lang, managing director of China China Resources Enterprise Ltd.

The company is China's largest supermarket operator and largest brewer.

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As a state-owned enterprise, the main shareholder of Huarun's venture is China Huarun Corp., which owns 51.43% of Huarun's venture.

A total of about 150 thousand employees, of whom 95% are mainland Chinese employees.

This is a rare and honest interview.

In view of the fierce and rapidly changing Chinese business environment, Chen Lang has his unique view that only the most powerful business groups can survive in this environment.

He explained why he valued market share, and expounded his views on local government, employee wages, mergers and acquisitions, and consumer tastes.

The following is a clip version of the interview.

Huarun's main business is supermarkets and beer.

How strong is your beer business?

Chen Lang: last year, China's total beer sales were about 49 million tons, and our snowflake beer sales were less than 9 million tons.

However, we maintain a leading position with 20% market share.

Over the past five years, China's beer market has grown by an average of nearly 8% per year.

We expect growth rate to remain at 8% in the next five years.

Our goal is to double our average growth rate to 15%.

As a market leader, we hope that our growth rate will exceed the average level of the industry. This means that we must compete for the market share from our competitors while we are achieving organic growth.

What is the development of your supermarket business?

Chen Lang: the supermarket, or rather the modern retail channel, is still in the market separation situation in China.

The road of development is still long.

According to some ranking, China's supermarket leading enterprises are Suning and Gome, but the two supermarkets mainly sell electronic products and household appliances.

We rank third, but we rank first among supermarkets selling comprehensive goods.

However, in my opinion, it is meaningless to pay attention to China's overall market share if there is no comparison between provinces and provinces.

Why should we compare the provinces and the provinces?

Chen Lang: a province in China is like a European country. It has its own market rules and huge population size.

The development of retail enterprises mainly depends on the effectiveness of supply chain management.

From the perspective of supply chain, our main suppliers are operated in provinces.

Taxation in all provinces is another important consideration.

When we enter any province, the local government always wants us to set up a local legal entity to ensure local taxes.

The cost of setting up such a legal entity is very high. We are very clear about that.

But if we have to set up a new company to enter the new market, we will surely do so.

Some of our foreign competitors insist on their corporate governance structure rather than layout.

However, many foreign enterprises now realize that they have to adapt to the local environment in order to develop.

We also earnestly hope that the government can adjust itself.

The same is true in the beer industry.

For example, we have two factories in two cities of 70 kilometers apart from the same province.

The annual output of one plant can reach 1 million tons, while the other one has only 100 thousand tons.

In theory, with good logistics, we can shut down smaller factories and allow big factories to supply products to two cities.

But in fact, we must keep small factories and adjust production plans so as to maintain local taxes.

But from the point of view of internal management, we usually carry out the profit assessment based on the province.

In the provinces and autonomous regions, the production arrangements of different factories are comprehensively planned. The assessment of factories mainly depends on their internal management, operation and production efficiency, as well as the stability of their quality.

Why do you pay so much attention to market share?

Chen Lang: we are operating in a developing market, so we must emphasize the first development mode of market share.

In the beer market, we hope to gain more high-quality market share in the next five years, but the focus is still to gain market share.

Because the higher the share of beer in the market, the stronger your ability to integrate in the supply chain and resources. The higher the efficiency, the less profit growth.

Our market share in Sichuan is 70%, and the market share in Anhui is 50-60%.

In terms of retail business, we are more focused on gaining market share.

In the next five years, we will devote most of our resources to driving sales growth, not profit growth.

In the next five years, the growth rate of the supermarket industry is about 10%, and our goal is to increase 13-15% annually.

To achieve this goal, we still need to grab market share from our rivals to seek faster development speed.

What are your development strategies for the market that Huarun has not yet entered, such as Henan and Shanxi?

Chen Lang: we want to infiltrate every market in China.

We also made a careful analysis of market conditions and competitors.

Our plan includes green investment and some big M & A opportunities.

In the provinces where we have not yet entered the market leader, we have been observing the possibility of takeover.

For provinces without market leaders, we will accelerate the pace and further integrate the market.

At the same time, we must realize that the market share of every province is not static.

On the contrary, competition is changing rapidly, and we can't sit back and relax.

We must attack at any time.

So I ask my team to always keep the wolf's ambition and keep attacking.

In the Chinese market, you do not advance or retreat.

In the past five years, how did you grow faster in the retail and beer market than in the whole industry?

Chen Lang: the beer industry has all the excitement in the past few years in mergers and acquisitions.

We are no exception.

Of the 72 breweries of Huarun, 70 were acquired.

After the acquisition, we may update our technology and expand our capacity.

In the past, there were more than 4000 breweries in China, and the relatively scattered market situation promoted M & A pactions.

But we feel that the opportunities for M & A in the future may be reduced.

Now the beer market has been integrated into several large manufacturers.

The growth in the future will mainly come from endogenous development, which relies on improving management and efficiency, as well as controlling terminal channels.

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The same is true for supermarket businesses.

Over the past few years, our average sales growth rate has reached 35%, and last year's sales volume was 68 billion yuan.

Mainly through mergers and acquisitions to promote development, such as the acquisition of Suguo supermarket in Jiangsu province.

We will continue to pay close attention to M & A opportunities in the future, but we will focus on improving the management of shopping malls and stores.

We are particularly concerned about the promotion of single store turnover.

Last year, the single store turnover increased by an average of 8.4%, which proves that our growth depends not only on opening more shopping malls or completing more mergers and acquisitions, but on the organic growth of each single store.

In addition, competitiveness is also reflected in per capita turnover.

At this point, we still lag behind foreign capital and Taiwan funded supermarket chains.

Whether they are human resource management or employee performance appraisal system, they have a lot of experience that we should learn.

From this point of view, there is room for improvement in our internal mining.

What is the current competitive situation in the retail industry?

Chen Lang: the development mode of Huarun's super business is, first of all, to take root in the region and strive for the country's leading vision. The second is to get rid of the attitude of the followers and seek the expansion of market share through differential competition.

In some areas, if we compete with well-known competitors in a single format, such as hypermarkets, we will always be the follower.

Therefore, we must adopt the policy of "saving the country through curves", and enhance the overall market share through the way of community supermarkets and convenience stores, and compete with foreign competitors.

For example, we once opened 10 convenience stores around a foreign capital store, which we call "city fortress warfare".

In these convenience stores, we sell unconventional commodities which are usually sold only in large stores, such as 5 kilograms of rice and barrels of cooking oil.

Although these stores are operating at a loss, through this harassment strategy, they can guarantee that they will not lose their market share to foreign stores.

What are your main competitive strategies?

Chen Lang: compared with the simple management hypermarket, it is much more difficult to manage the retail business of many formats.

Convenience stores usually have high unit prices, customers are mainly white-collar workers, and have higher requirements for the supply chain coordination and logistics support capabilities, so the requirements for the operation team are also different.

But to get rid of the follower's strategy, we must insist on differentiated competition. We must make greater efforts to adjust to the market in tactics and win through flexible play.

It has been suggested that enterprises should do well in internal work before seeking development.

I disagree with this view.

China is now a fully competitive market, full of the most advanced competitors.

We have no time to reform ourselves before competition.

In the Chinese market, followers must compete through unscrupulous competition and must not wait until they are strong enough to compete.

From a strategic point of view, we must develop according to local conditions.

Whether we can succeed in replicating our market share in other regions depends on whether we have regional resource integration capability.

I expect that the competition in the future supermarket industry will be more severe and the speed of industry consolidation will further intensify, and the pace of survival of the fittest will be faster.

We always take foreign supermarket chains as our main competitors, and still need to work hard to learn from them.

Apart from competition, what challenges do Huarun super businesses face?

Chen Lang: the top three of our cost structure are rents, wages and utilities.

Therefore, our challenge in the next five years is to control these three cost elements.

At present, the government's macro regulation of the property market is good for us, because we can better manage the expectation of rents.

At present, we are more concerned about the increase in staff costs.

I have always believed that staff cost management should be achieved through improving productivity and organizational change, rather than relying solely on low wages.

In fact, last year, we formulated the strategy of orderly salary increase.

But in the long run, rising wage costs remain an important challenge.

Utilities such as water and electricity are also a major challenge.

If the country decides to raise the price of water and electricity, our cost will increase substantially.

Besides, we need to train our team.

The annual growth rate of 15% depends on whether we can quickly replicate our team.

Now, my request to promote subordinates is whether he has the ability to train 10 people. Are there suitable candidates to fill the vacancies after his promotion? We have found in some fast growing areas that the level and experience of new store managers are worse than that of the old ones.

What changes do you think will be made in the domestic consumption market?

Chen Lang: in the past few years, the tastes of consumers have changed a lot, especially in coastal cities, such as Beijing and Shanghai.

We have seen that the rise of the middle class in the coastal market is accompanied by new changes in demand.

In the beer industry, our beer used to be aimed at the general public.

But we found that people began to buy high-end beer because of increased incomes.

The same is true in supermarkets.

In July this year, we opened the first Ole high-end supermarket store in Xujiahui, Shanghai. The target group is Shanghai's wealthy middle class.

Compared with the community supermarket, the new store doubled its sales in the first month of operation.

In addition, the commodity mix of supermarkets is different from that of second-tier cities such as Beijing and Shanghai.

In addition, the integration of supply chains will also accelerate.

At present, we have only 50 large national suppliers.

Many suppliers are still regional suppliers.

In the future, we expect that the supplier will develop more and the supply chain integration capability will also increase significantly, and the market efficiency will also increase.

What new trends will you focus on in the field of consumption?

Chen Lang: the first is food safety.

The second is the low carbon economy.

Food safety has become more and more important.

We are currently in the process of docking with upstream suppliers in the countryside, purchasing locally and directly from fresh bases.

At present, there are too many intermediary links in the field of agricultural products, but with the rapid rise and integration of large-scale farms, their efficiency will also significantly improve, and the quality of agricultural products will also be more assured.

In terms of low carbon economy, we have built 100 green demonstration shops, and used green technology to reduce energy consumption in supermarkets.

Because the cost of water and electricity is the third largest cost of our operation, we have great incentive to adopt environmental protection technology to reduce costs.