CONSUMER: Wal-Mart, Suntory Struggle in China; Bright Shops in NZ

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Bottom line: Declining Wal-Mart China sales and Suntory’s decision to dissolve a China joint venture reflect difficulties foreign consumer names face in the fast changing market, and also challenges posed by local rivals like Bright Food.

Sales fall 6 pct at Walmart China JV stores

Two new consumer stories are shining a spotlight on the difficulties many big foreign brands are facing in China’s tough retailing market, where they compete with both homegrown giants and also smaller names that can quickly gain scale over the Internet. One story reports on falling sales at US retailing giant Wal-Mart’s (NYSE: WMT) China stores, based on rarely seen data from a local joint venture. The other reports that Japanese brewing giant Suntory (Tokyo: 2587) is putting a lid on its 3-year-old Chinese beer-making joint venture.

Meantime, a third outbound M&A story involving Shanghai-based Bright Food shines a spotlight on one of the rising local giants that is posing a growing challenge to the big western consumer names. That deal has the acquisitive Bright, which has made billion-dollar purchases in Britain and Israel, signing another smaller deal to buy half of a major New Zealand meat processor for $200 million. Bright’s agreement to buy the stake in Silver Fern Farms looks similar to WH Group’s (HKEx: 288) blockbuster deal 2 years ago that saw it purchase leading US pork producer Smithfield for nearly $5 billion.

We’ll begin this consumer round-up with Wal-Mart, which is generally quite secretive and doesn’t give out sales figures for individual overseas markets. The company is just one of several major western retailers that are struggling in China, as the nation’s shoppers migrate en masse to e-commerce. British retailer Tesco (London: TSCO) recently left the market, France’s Carrefour (Paris: CA) at one point was looking to sell its China business, and even Wal-Mart itself was recently dumped by one of its major China joint venture partners. (previous post)

Against that backdrop, it’s not surprising to learn that rarely seen Wal-Mart data shows that sales slide 6 percent last year at 21 of the company’s stores operated through a joint venture with local conglomerate China Resources. (English article) That data came in a filing by China Resources as it looks to sell its minority stake in the joint venture.

Wal-Mart actually operates more than 400 stores in China, so it’s not really clear if this data is representative of the broader market. But it’s still quite revealing that the 21 stores saw sales decline so sharply, and it’s likey the trend is being repeated in many of the company’s other China stores.

Suntory’s Dissolving JV

Next there’s Suntory, which is likely to dissolve its joint venture with leading local brewer Tsingtao Brewery (HKEx: 168; Shanghai: 600600) just 3 years after forming the partnership. (English article) Word of the move comes from media reports citing unnamed sources that can be traced back to Japanese media. A Suntory spokeswoman confirmed the company is exploring “various possibilities” for the joint venture, but declined to comment further.

The original story came from a report in the Nikkei financial daily, and said Suntory was aiming to sell its 50 percent stake in the joint venture back to Tsingtao for 10-20 billion yen ($84-$168 million). Suntory wanted to exit after the venture encountered weak sales in the face of stiff competition from local players like China Resources’ Snow Breweries and Tsingtao itself, as well as global giant Anheuser-Busch InBev (NYSE: BUD).

Finally there’s Bright, which is just one of several fast-rising Chinese names that are causing headaches for the big western consumer brands and store operators. Following its recent blockbuster deals for western brands like Britain’s Weetabix breakfast cereal maker and leading Israel dairy Tnuva, Bright is now in its latest major deal to buy half of Sliver Fern Farms for NZ$311 million ($197 million). (English article)

The purchase is actually being made by Bright’s Maling unit, one of China’s better known processed meat brands. WH Group had similar aims with its purchase of Smithfield 2 years ago, seeking to use the US company to improve its own operations and also to import more US meat products to China. I’ve previously questioned some of these purchases, as both Bright and WH Group come from state-run backgrounds and seem to be at least partly motivated by political considerations. But this latest deal shows the M&A drive will continue for now, and we can probably expect to see more big deals in the next few years.

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