Convenience Chains, Big Oil Commit to China

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Convenience Chains, Big Oil Commit to China

BEIJING - Shell will spend $100 million over the next three years to build 500 gas stations in eastern China's Jiangsu province through a joint venture with China Petroleum and Chemical Corp. [Sinopec] said Nick Wood, Shell China's spokesman this week. The joint-venture company should be formed by the end of June.

BP last week also announced plans to steadily increase investment in China - spending an additional $300 to $500 million per year on top of the $4 billion the company had previously committed. The company in 2000 bought $1 billion of shares in China's two largest oil companies, PetroChina and Sinopec, which will allow the company to ultimately build 500 service stations each in China's Guangdong and Zhejiang provinces.

BP, Shell and ExxonMobil have bet heavily on the potential of China's massive energy sector, while traditional convenience store operators are banking on explosive growth in retail trade in coming years as the country progressively loosens governmental restrictions on retail and normalizes relations with the United States.

"The state-owned enterprises are starting to be sold off or used more effectively and efficiently," Bob Jenkins, vice president of international development for Dallas-based 7-Eleven Inc. told CSNews in a recent interview. "All of that is driving the GDP and GNP in China at the highest rates in the world. And along with that is disposable income growing at higher rates than anywhere in the world."

He continued: "So at what point do they reach the level where a large chain store operation can be successful? Well, frankly, they're already there because, you know, they've still got to buy things. They still are consumers. They still have retail operations, but you've got to have a system that delivers it more effectively, more efficiently."

7-Eleven franchiser Uni-President Enterprises Corp. last week signed a partnership agreement with the state-run Chinese Petroleum Corp., and plans to enter the China market this year. Although the company's area franchisees and licensees already operate more than 2,900 stores in Taiwan and 516 in China - mostly in Hong Kong - the mainland market presents significant challenges, particularly with regard to distribution. Jenkins said that about 40 percent of the country's GDP is currently tied up in inventory.

China's potential has spurred even smaller companies, such as Pittsburgh-based CoGo's Co., to navigate those difficulties and gain an early foothold in the market. Almost a quarter of the chain's 120 stores are now operated by franchisers in China.