FMCG market continued its moderate recovery in Q2

China's FMCG market continued its moderate recovery in the 2nd quarter of 2023, with significant differentiation amongst channels

In the past six months, the performance of different categories varied considerably. The household cleaning category continued to maintain a good momentum, growing by 10.2% year-on-year. Beverages accelerated the pace of growth, enjoying a sales increase of 5.2% compared with the same period last year. Juice, functional drinks and ready-to-drink tea increased by more than 18%. Due to the stockpiling in the second quarter of last year, the food category fell by 3.4% in the second quarter.

In the past three months the East and North regions grew by 1.5% and 1.6% respectively, while the South region faced greater challenges, with a year-on-year decline of 3.8%. Key cities and provincial capital cities achieved 2.4% growth in the second quarter, while the lower tier cities, which were relatively less affected by the pandemic last year, saw slower growth in the second quarter of this year. The online channel sales increased by 5.6% year on year, while offline channels sales declined slightly in the past twelve weeks.

Overall, China's FMCG market has shown a steady recovery. Although there is still significant room for improvement in people’s consumption capacity and willingness, the macroeconomic policies aimed at expanding domestic demand and improving expectations are continuously strengthening the internal driving force for economic recovery in the second half of the year.

Modern Trade: Decline of large formats slows, while proximity channels continue to grow

Although the sales of hypermarkets and large supermarkets in the second quarter kept decreasing, the decline slowed down significantly. Among the proximity channels, small supermarkets continued their excellent performance and maintained double-digit growth.

Driven by its Metro brand, Wumart Group's share rose 0.3 percentage points in the second quarter, reaching a market share of 3.5% in modern channels (hypermarkets + supermarkets + convenience stores).

Benefiting from the strong recovery of the East China market compared to last year, Bailian Group experienced a 0.2 percentage point rebound in market share, returning to the same level during the same period in 2021.

Although Yonghui Group's market share slightly declined, its premium supermarket brand Bravo achieved positive sales growth in the first two quarters of this year.

Yonghui has almost completed the renovation of nearly 160 online warehouses in five core cities: Fuzhou, Beijing, Chengdu, Chongqing, and Hefei. This achievement ensures full coverage in the downtown areas. The "warehouse-store integration" model is steadily being promoted in key cities. Additionally, Yonghui has implemented measures such as proactive store optimization and upgrades to support high-quality development.

Sun Art Group's continued to face challenges, with its market share falling to 7.3% in the second quarter, down 0.5 percentage points from the same period last year. 

Sun Art Group hopes to create a "second growth curve" outside of its large-format stores by accelerating the development of multiple formats, especially the expansion of RT Super and the trial of M Membership stores, and leveraging its fresh supply chain and digital membership capabilities. Currently, in addition to the first M Membership store in Yangzhou, Sun Art has planned to upgrade existing RT-Mart stores in Nanjing and Changzhou, transforming them into warehousing-style membership stores.

With the further fragmentation of the Chinese retail market, regional retailers are becoming increasingly stronger. China's leading convenience store brand, Meiyijia, saw a 7.4% increase in sales in the second quarter compared to the same period last year, and its market share and penetration also improved. As of June 2023, the number of Meiyijia chain stores has exceeded 32,000, with over 2,000 new stores added in just six months, averaging more than 10 new stores per day.

With the rapid growth of the middle-income population and the quick rise in purchasing power in China's third- and fourth-tier cities, regional retail giants are continuously expanding their regional operational advantages and implementing flexible franchise expansion policies. They are rising against the trend in the fierce competition within the retail market.

Alibaba and JD.com struggle to grow, while interest e-commerce shows promising performance

In the first half of 2023, E-commerce continued to experience steady development, with the competitive landscape undergoing accelerated changes. In the second quarter, among the penetration of leading e-commerce platforms, Alibaba and JD.com decreased by 0.5 and 0.8 percentage points respectively compared to the same period last year. Pinduoduo, on the other hand, has consistently attracted more consumers over the past three months, resulting in a 0.6 percentage point increase in its penetration.

Interest E-commerce continued to experience rapid growth, with 22.9% of urban Chinese households purchasing FMCG through the Douyin platform in the second quarter of 2023. Douyin has also further maintained its advantage over JD.com in terms of penetration rate.

In the 618 Shopping Festival in 2023, major players unprecedentedly increased their investment, and major platforms provided historic and substantial subsidies. Douyin, which has risen to prominence, also officially launched "Super Red Packets" and commission policies targeting “Douke” during the 618 event. By leveraging “Douke”, Douyin penetrated external channels such as WeChat, Weibo, and Red to drive traffic to its e-commerce platform.

Under the trend of shopping festivals and live-streaming sales becoming more commonplace, the significance of 618 as a low-price festival is gradually being diluted. Consumers have become more rational, and cheap prices and discounts alone are no longer sufficient to drive increased purchasing demand. Factors such as product quality, consumer experience, and logistics efficiency have further amplified their influence on consumer decision-making.

For the first four weeks leading up to June 16, 2022, there was a slight increase in FMCG through E-commerce. Among them, Douyin showed the most impressive performance, with a sales growth rate of 72% compared to the same period last year.

O2O experiences steady growth, with ongoing divergence in performance across platforms

O2O sales continued to rise in the second quarter with penetration growing by 0.4 percentage points over the same period last year, and frequency also increased.

CGB (Community Group Buy), which features "low price and affordable price", experienced double-digit growth in sales in the second quarter. 26% of urban households purchased FMCG on the CGB platforms in the past three months.

Among the CGB platforms, Meituan Youxuan and Duoduo Maicai have made the greatest contribution to the sales growth. Both platforms prioritize product quality and combine online and offline channels to meet consumers' integrated needs in a comprehensive retail format.

Retailers’ self-run APPs/mini-programs, which focus on enhancing consumers’ experience and offering a wide range of product choices, witnessed a sales growth of nearly 60% in the most recent quarter.

After the pandemic, front warehouse platforms faced great challenges in terms of penetration and spend per trip, but there was still a noticeable increase in user frequency. Meituan Maicai and Dingdong Maicai experienced a significant decline in sales, while Pupu continued to maintain positive growth.