Online shopping and inflation heats up during Q2

Kantar Worldpanel, the global market leader in consumer panels, reports that the total spending of the fast moving consumer goods (FMCG) grew by 6.9% in the 12 weeks to June 14^th, compared to the same period last year.   Stronger growth in Q2 is thanks partly to the 18 day long online discount period dubbed ‘618 mid-year shopping festival’ as well as higher inflation, especially on foods.  According to the latest official statistics China’s GDP grew by 6.2% in the second quarter of 2019, the slowest pace since 1990s, spurring the government to stimulate the economy by encouraging more domestic consumption.

 Modern trade (including hypermarkets, supermarkets, and convenience stores) showed a slight recovery and reported growth rate of 2.3%, while supermarkets was the main recovery channel. Hypermarkets struggled during Q2 experiencing a drop in penetration of 2.3ppts versus the same period last year as shoppers switched their spend to eCommerce to take advantage of the 618 festival. E-commerce growth far outstripped that of any other channels, reporting a staggering 40.3% growth in Q2.

 Leading Grocery Share of Modern Trade - National Urban China 

© 2019 CTR Market Research                           Source: Kantar Worldpanel China

 Mixed performance among top players

Sun Art and Vanguard Group maintained their leading positions, and Yonghui continued to advance their share in the latest quarter. After a series of transformational activities to divest poor performing stores in some regions, Vanguard improved its market share in latest 12 weeks and posted a small share improvement. Vanguard actively pushed its O2O service through collaboration with Ele.com, Meituan and JD.com and recently announced a strategic collaboration with Dmall to further digitalize its stores. 

 Walmart and Carrefour continued to experience share losses in front of fierce competition from their local rivals.  Despite closure of stores, Walmart pledged to to add investment in the supply chain to boost its online-and-offline businesses by building regional distribution centers to better meet demand from Chinese consumers on fresh goods and convenience services.

 Increased M&A to build scale

Local retail giants have intensified their M&A activities to expand their presence across different retail formats and areas.  At end of June, Suning announced to acquire 80% of Carrefour operation in China, which helped it to be one of the leading players in grocery sector despite its strong position in home appliances by leveraging Carrefour’s strength in supply chain & offline operation experiences.  Suning has been aggressive in opening its small format stores over the past years alongside its recent acquisition of Wanda department to expand its regional footprint. Wu-mart also made active acquisitions over the past two years, with the most recent moves to take a controlling stake of 55% in Chongqing Department, together with Bugugao.   The joint activity helped to expand their presence to the West region.

 With higher level of M&A activities, China’s retail landscape is expected to be further consolidated and dominated by local players.

 Three-cornered battle for 618

Chinese consumers snapped up more bargains in this year's June 18 retail festival, as all the e-commerce giants announcing record sales.   While urban consumers’ appetite for premium brands and imported goods continued, the consumption potential of lower tier cities remains the growth engine for e-commerce players.  In 2019, livestream video with aggressive social media activation became the new way to attract shoppers while Pingduoduo and Tmall are catching up with JD.com in this critical sales season, all of them have extended pre-sales period with promotions starting from the beginning of June.

 In the latest 12 weeks ending 14th June 2019, 55% of Chinese urban household bought FMCG online.  Alibaba led growth in this event, with a significant uplift on new buyers in the latest 12 weeks. Its penetration reached 31.4% in the past 12 weeks, up by 1.1 points versus the previous 12 weeks period to May 2019. Pingduoduo’s penetration also developed fast and reached 5.4% in Q2, 1.7% higher than Q1.  JD saw slower year on year penetration growth compared to Alibaba.