October 25, 2011 / 6:23 AM / 7 years ago

Penalized in China, Wal-Mart reopens Chongqing stores

CHONGQING, China (Reuters) - Wal-Mart stores in the Chinese city of Chongqing reopened to surging crowds on Tuesday, two weeks after being shut down by local authorities for violating food and product standards.

Employees stand in front of the gate to a Wal-Mart Supercenter in Chongqing municipality October 24, 2011. REUTERS/Stringer

About 100 shoppers were waiting outside a Wal-Mart in the Nan’an district of Chongqing and rushed inside when the doors opened about 10 minutes early. Other Wal-Mart stores were jammed with shoppers in the food aisles, lured by special discounts on a range of goods.

Wal-Mart reopened its 13 stores here after being forced to shut them when Chongqing authorities discovered branches of the world’s largest retailer selling regular pork labeled and priced as organic pork.

That did not appear to deter many customers.

“So they sold some fake things,” said a 62-year-old retiree named Yang outside the store in the sprawling central Chinese city’s Jiulongpo district. “But you see fake things everywhere.”

Authorities also arrested two Wal-Mart employees as a result of the investigation. A Chongqing government spokesman said last week that another 25 remain under investigation.

Analysts played down the long-term impact on Wal-Mart’s Chinese operations.

“I expect this will have only a short-term impact (on Wal-Mart’s reputation). Customers will continue to shop at Wal-Mart due to the prime location of its stores,” said Jason Yuen, a retail analyst at UOB Kay Hian Research in Hong Kong.

FOOD SAFETY CONCERNS

The pork mislabeling was the latest in a string of 21 violations dating back to 2006 and authorities, who said they were dissatisfied with Wal-Mart’s previous responses, ordered a two-week closure of all the chain’s stores in the city.

“Wal-Mart opened its first store in Chongqing in September 2005 and the violations started in 2006,” Zhao Jia, a spokesman for the Administration of Industry and Commerce’s Chongqing Bureau, told Reuters. “Many times we sent our opinions and sent them notices. They never explained anything to us clearly.”

Many of the earlier infractions were vague, such as lemon candy, women’s jackets or washing machines that “did not meet standards,” according to the bureau.

But others, including selling dairy products and juice after expiration dates, evoked food safety worries, a keen concern in a country that has seen repeated scandals involving food tainted with toxic ingredients.

The sanction was not surprising, considering the history of violations, said Zheng Yusheng, a professor at the Cheung Kong Graduate School of Business. “And in China, food safety has become a national issue.”

The transgressions, however, “did not come from headquarters. It’s from local workers and managers, so you have to tighten local controls.”

That’s what Wal-Mart, which has 353 stores in China and recently celebrated its 15th anniversary in the country, says it did, using the two-week shutdown to strengthen its monitoring processes and training.

In a statement issued on Tuesday, Wal-Mart China also said it has created a “fast food inspection lab” in its stores.

“Wal-Mart is committed to Chinese customers, and is dedicated to compliance with all the standards and requirements,” said company spokesman Anthony Rose in the statement.

The Administration for Industry and Commerce said on Monday it would start a three-month food safety inspection program, sending inspectors to Wal-Mart and other hypermarket chains to promote a safe food environment.

Chongqing has been a fertile market for Wal-Mart.

The government is promoting migration from rural areas to the hilly Chongqing city area, and thousands of high-rise apartment buildings are sprinkled throughout densely and sparsely populated areas, creating ideal marketplaces for hypermarkets such as Wal-Mart.

Wal-Mart China has faced intense competition on the mainland in recent years. It competes with China’s Sun Art and China Resources Enterprise (0291.HK), with local brands such as Yonghui, Shinshiji and, in this city, Chongqing Baihuo Supermarket.

It also competes against French hypermarket chain Carrefour (CARR.PA), Britain’s Tesco (TSCO.L), Germany’s Metro AG (MEOG.DE). All of these are gradually expanding to inland China as interior cities become more affluent.

After entering China in 1996, Wal-Mart expanded in 2007 when it bought 35 percent of Taiwanese hypermarket chain Trust-Mart.

As a result Wal-Mart’s market share in the hypermarket space jumped to 11.2 percent in 2010, from 4.8 percent in 2005. But spending involved in the expansion has been weighing on its profitability, which Wal-Mart has acknowledged.

Wal-Mart China has also faced management turmoil inside its ranks this year. CEO Ed Chan and its head of human relations resigned last week, but the company did not link that to the store problems and said that both left for personal reasons.

LONG LINES, NO ORGANIC PORK

Wal-Mart staff at three of the reopened stores in Chongqing said the crowds on Tuesday were considerably larger than usual.

At all three, shoppers snapped up large containers of soy sauce, cooking oil and rice, which were on sale. They examined eggs, with the farm’s name stamped on each one, selected shelled peanuts one by one from a giant pile, and gutted fresh rabbits themselves at a large table.

Wang Dinghao, 66, and his wife Wang Xinfang, 61 and both retired, waded through the throng clutching toilet paper, beef jerky and rice crackers at the Wal-Mart in Chongqing’s Dadukou district. They said they also shop at Chinese competitors Yonghui and Shinshiji, but like Wal-Mart best.

“It’s the prices, the selection, the convenience of finding it all here,” said Wang Xinfang, echoing the chain’s appeal to Chinese shoppers, who often shuttle between numerous stores and confront sometimes wide price differences. “I’ll still come to Wal-Mart, but I want them to be honest.”

Two hours after the Jiulongpo store opened, 29 of the food section’s 48 checkout lines were jammed with long lines.

One lengthy queue of some 80 people snaked around displays with people lined up to buy grapefruit-like pomelos.

“They’re so cheap,” said Lu Zhongxiu, a 53-year-old retired purchasing agent who picked up half a dozen. “In my neighborhood, they’re 3 yuan per 500 grams. These are only 3.50 yuan each, and they’re at least a kilogram.”

Customers choose pieces of pork at a Wal-Mart Supercenter in Chongqing municipality October 25, 2011. REUTERS/Stringer

Lu’s cart was loaded down with more than she could carry, but she said she would take the Wal-Mart store’s free shuttle bus home.

Conspicuously absent from displays at Jiulongpo was organic pork, which triggered the latest Wal-Mart crisis.

“It’s very hard to obtain,” said a Wal-Mart worker with the name tag Taiyong. “You have to produce it up in the mountains. There isn’t a lot available.”

Additional reporting by Donny Kwok in HONG KONG; Editing by Don Durfee and Matt Driskill

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