The 'Great Wall of Chocolate' at Mars' M&M's store in Shanghai. Laurie Burkitt/The Wall Street Journal
SHANGHAI—Mars Inc. will unveil a flagship store in Shanghai on Friday in a move to expand its brand in China, where candy makers are heating up competition in one of the world's fastest-growing chocolate markets.
For closely held Mars, best known for its M&M's chocolates and Mars and Snickers candy bars, the 1,600 square-meter, $10 million M&M's department store, located in Shanghai's version of Times Square, is a first foray into China's retail scene.
The store straddles the worlds of retail and entertainment. People dressed in M&M's costumes will dance every hour. Products for sale include pick-and-mix chocolates and novelty items like M&M's-themed cellphone covers and T-shirts.
"Five to 10 years ago, we couldn't have done this because [M&M's] wasn't a big brand in China," said Brian Schiegg, general manager of Mars Retail Group and M&M's World. Now that it is, he said, the brand recognition is strong enough to support sales of M&M's products like backpacks and hair ties, which have been a big part of Mars's growth in the U.S. in recent years. Mr. Schiegg said up to 500,000 consumers visit its four stores in the U.S. and U.K. a month and the average customer spends $30 per visit in the U.S. outlets.

More

Chocolate companies are pouring into China, a market where chocolate consumption is still just a fraction of that in the U.S. but is growing steadily. Chocolate sales in China grew 58% from 2009-13, reaching more than 15.01 billion yuan, or about $2.43 billion in 2013, according to market-research firm Euromonitor International. In the U.S., chocolate sales reached $17.1 billion in 2013, up 4% from a year earlier, according to Euromonitor.
Mars, which also sells Dove chocolates, was among the first foreign chocolate players to move into the Chinese market in 1990. But companies including Hershey Co. and Belgian chocolate maker Godiva have been expanding here in recent years, stepping up the competition. Indeed, Mars is playing catch-up to Hershey, which opened a flagship store in Shanghai in 2008. Nestlé SA acquired Chinese candy maker Hsu Fu Chi International Ltd. in 2011, helping the Swiss food producer bring its Kit Kats and Crispy Shark chocolate wafer bars to new grocery and convenience-store partners in the country.
Mars accounted for 39.6% of China's chocolate sales last year, ahead of Italy's Ferrero SpA, with 11.5%, and Hershey. with 11.1%, according to Euromonitor. Closely held Mars doesn't disclose financial figures.
The M&M store in Times Square. Mars says 500,000 consumers visit each of its three U.S. stores a month. Getty Images
Mars hopes the Shanghai M&M's outlet, like the company's four other shops in the U.S. and U.K., will become a tourist attraction. Aside from the costumed M&M's characters, mood-detecting machines guess a shopper's favorite color before they choose candies from the "Great Wall of Chocolate." Customers can have photos taken with M&M's figurines dressed as pandas or warriors.
Mr. Schiegg said Mars plans to continue to build its brand in China by opening other retail stores and introducing new flavors for the local market, as it does in the U.S., where it sells pretzel and peanut butter M&M's.
Mars also has been expanding in the U.S. in pet food. It recently bought the Iams and other pet-food brands from Procter & Gamble Co. for $2.9 billion, a move to solidify its position as the world's biggest pet-food company.