Q3 FMCG Market Saw a Slight Dip

Q3 FMCG Market Saw a Slight Dip, Retail Channels Remained Divergent

The fast-moving consumer goods (FMCG) market in China experienced a slight 2% year-on-year decrease in sales for the 12 weeks ending on September 8th, influenced by factors such as the delayed Mid-Autumn Festival holiday compared to the previous year and the recovery of out-of-home consumption. 

According to the latest report from the National Bureau of Statistics, the total retail sales of consumer goods continued to recover in the first three quarters of the year, playing a crucial role in supporting economic growth. 

In terms of categories, beverages and house cleaning products continued to see sales growth in the third quarter, with year-on-year increases of 2.9% and 5.5% respectively. Food sales experienced a slight 1.0% decline this year, due to consumer stockpiling during home isolation in 2022, but the decline was notably smaller compared to the previous quarter. 

In terms of regions and city levels, the West regions showed the most impressive sales performance, with a 0.7% increase, while provincial capital cities and county-level cities demonstrated relatively steady performance.

Continued differentiation in performance among leading retail brands

Small supermarkets maintained double-digit sales growth in the third quarter and convenience store sales increased by 3.3% year-on-year. Large supermarkets, which are no longer benefiting from the pandemic-induced supply security advantage, still experienced declining sales but at a slower rate compared to the previous two quarters.

Among major retailers, Wumart Group and Walmart increased their market share in modern channels by 0.3 and 0.1 percentage points, respectively, driven by strong growth in their subsidiaries Metro and Sam's Club. However, Costco's aggressive expansion in 2023 and price challenges at Hema X led to increasing competition among membership stores. It has also raised the bar for retailers in terms of digital capabilities, product differentiation, and supply chain development.

Suning Group experienced a significant decline in market share in the third quarter, decreasing by 1.3 percentage points, mainly due to the impact of the closure of numerous Carrefour stores. Suning’s semi-annual financial report shows that by the end of the first half of the year Carrefour had a total of 41 stores, with 106 stores closed in the first half of the year. In the first half of 2023, Carrefour sales plummeted by more than 60% year-on-year. 

Similarly, Bubugao also faced a decrease of 0.7 percentage points in market share due to widespread store closures. Bubugao recently announced the reopening of some of its supermarkets in Hunan. 

Compared to the same period last year the market share of the top ten retailers in modern channels collectively declined by 4 percentage points, indicating further fragmentation of the Chinese market. Major retailers are exploring new strategies such as premiumization, digitalization, and localization to break through in this competitive landscape.

Regional retail leaders make a comeback, while convenience stores expand through new models

In local retail markets across China, domestic retail giants such as Chaoshifa, Tianhong, Joymart, Wangzhongwang, and Ouya have managed to grow against the challenging market backdrop. Chaoshifa, focusing on Beijing, has continued to grow by tailoring its stores to meet the diverse needs of consumers through in-depth research and customer understanding. Joymart, focusing on the Anhui market, has seen substantial growth with a growth rate of over 20% for fast-moving consumer goods in the third quarter.

In the small-format retail channel, international retailers such as 7-Eleven, FamilyMart, and Lawson all saw increased sales in the third quarter. Local small supermarket and convenience store brands, including Hongqi, Wudongfeng, and Meiyijia, have also maintained growth over the past four quarters. The trend of the development of Chinese convenience stores continues to expand, reaching fourth- and fifth-tier cities and county-level markets.

From a national perspective, convenience stores in various cities still primarily focus on deepening their presence in regional markets. Due to factors such as geographical distance, supply chain, and management efficiency, the development of chain brands across regions is still relatively limited and is in its early stages. Competition in the convenience store market is gradually intensifying in some cities. Regional consolidation among various chain brands is expected to be the next trend.

Among international convenience store brands, the speed of Lawson's store expansion is remarkable. Lawson's sales and penetration have continued to grow this year, with higher growth rates in lower-tier cities compared to upper-tier cities. Through regional licensing and large-scale cooperation with local enterprises, such as Zhongbai Group and Chaoshifa, Lawson has rapidly expanded into new markets, with the goal of reaching 10,000 stores by 2025.

Douyin catches up from behind, Meituan accelerates its entry

In the third quarter, the penetration of E-commerce decreased by 3.2 percentage points compared to the same period last year. Alibaba, JD.com, and Pinduoduo all experienced varying degrees of decline, while interest EC platforms Douyin and Kuaishou continued to grow.  

Over the past 12 weeks, more than 23% of Chinese urban households purchased fast-moving consumer goods on Douyin. Despite a slight slowdown in penetration growth on Douyin in the third quarter, there was still a 5.7 percentage point increase compared to the same period last year, and this growth was most pronounced in key cities and provincial capitals. Whether in top-tier cities or lower-tier cities, Empty Nester households are the life stage with the fastest-growing penetration on Douyin. 

In terms of categories, personal care products still had a higher penetration on Douyin than food and beverages, but the latter categories experienced faster growth.

With 100 million daily active users, Xiaohongshu is continuously exploring a comprehensive commercialization chain from product recommendation to purchase. They have closed their self-run E-commerce platform and are focusing on developing a curator E-commerce model with personalized content to build trust with users. The data from Kantar Worldpanel shows that Xiaohongshu achieved double-digit sales growth in the third quarter.

In terms of O2O, Community group buy (CGB) and KA self-run apps and mini-programs continue to lead growth. In the third quarter, their sales increased by 5.8% and 38.6% year-on-year, respectively. The former primarily benefits from an increase in purchase frequency, while the latter is driven by growth in both purchase frequency and spend per trip. 

Meituan's O2O platforms, Meituan Youxuan and Meituan Maicai, both achieved growth in the third quarter. While the penetration of Meituan Maicai has slightly declined, there was a significant increase in purchase frequency. It is worth noting that "Hourly Delivery" on Douyin Mall now has its own independent entrance, on par with "Douyin Supermarket," indicating that competition in O2O is heating up.

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