Retail evolution

Second- and third-tier cities are increasingly attracting attention of retailers as incomes rise and infrastructure improves

China's elusive 1-billion-people market is finally becoming a reality.

But with rising incomes and better infrastructure links, many are now moving into China's many hundreds of cities and towns classified as third and fourth tiers to tap into new and lucrative markets.

Leading retailers such as Tesco from the UK, French supermarket chains Carrefour and Auchan, and the Germany's Metro are all intent on developing a national presence.

James A.C. Sinclair, partner and strategy practice director at InterChina Consulting, based in Shanghai, says the pace with which the third- and fourth-tier markets are opening up is extraordinary.

"We now have modern supermarkets in second- and third-tier cities. It is not something we would have seen two or three years ago.

"The market is changing very quickly. Very soon we will be talking of 1,000 to 2,000 fourth- and fifth-tier cities. That is how complex it is for the big retail chains now."

Food retail is one of the most dynamic areas. Grocery sales in China were estimated at 700 billion euros last year and 1,200 supermarkets and hypermarkets are forecast to open by 2014 .

Tesco is keen to be a major China player and aims to quadruple its sales in the country to 4.7 billion euros in just three years.

In an interview with China Daily, Ken Towle, Tesco's China chief executive, made clear his aim to make China a bigger market for Britain's No 1 retailer than the UK itself.

"I wouldn't say that it is beyond the scope of our thinking because when you think of the sheer number of people here, anything is possible in China," he says.