International analysis: Auchan stands out from its foreign rivals in China

Last week Auchan and its partner, Taiwan-based Ruentex, revealed first-half turnover in China climbed 12.9% to CNY44.51bn (£4.6bn).

The French retail group also strengthened its net profits in China, up 15.6% to CNY1.67bn (£175m). Net profit margin improved slightly by 0.1% to 3.8%, compared with the first half of 2012.

The success of hypermarket operator Auchan comes as foreign rivals rethink their strategies. Tesco aims to form a joint venture agreement with local player China Resources Enterprises. Carrefour is also thought to be considering tying up with a local player, or even selling its Chinese and Taiwanese operations through a flotation on the Hong Kong Stock Exchange.

These situations reflect the difficulties faced by foreign retailers in China, a market that has been a hard nut to crack.

Challenges faced by foreign retailers in China are wide-ranging and include significant variances in shopper behaviour across regions, meaning retailers have to adopt a regional strategy.

Retailers also often need to negotiate with suppliers at a local rather than national level - something with which foreign retailers may be unfamiliar.

Add the logistical challenges of operating in a market similar in size to the US but with less well-developed infrastructure and it is clearly a difficult place in which to do business.

Auchan has been able to overcome some of the challenges by tying up with Ruentex, enabling it to utilise its partner’s local knowledge of the market. Such deals can often be beneficial to both parties, with the foreign partner providing expertise in private labels and other retailing techniques in return for market knowledge.

This ownership structure has been a major factor in the strong growth of Auchan’s key banner, RT Mart.

The format has proved successful because of a focus on fresh food and retaining the look of a wet market. That is important, because fresh food drives traffic to stores in China as shoppers go out daily to buy meat, seafood and poultry.

Auchan has a more localised management structure than its big rivals, allowing it to focus on local tastes. It also offers bus shuttles to stores, recognising China’s low car ownership.

These initiatives put Auchan in a strong position to continue achieving profit growth in China, at the expense of rivals Walmart, Carrefour and Tesco.

• David Gray, retail analyst, Planet Retail