5 predictions for how FMCG will shape up in China

The Chinese retail market will see more equity investments from e-commerce and tech giants such as Alibaba.

Following recently released figures by Kantar Worldpanel, the world’s leader in consumer panels, showing that FMCG in China grew in 2017 at the highest rate of the last three years, we look ahead to what might happen in 2018.

1. Further integration between online and offline

The Chinese retail market will see more equity investments from ecommerce and tech giants such as Alibaba, Tencent and JD.  The integration is set to help accelerate the recovery of modern trade, by directing consumer traffic back to the brick and mortar stores and utilizing the distribution network to deliver to consumers in a faster and more cost-efficient manner.   The integration will also see offline stores carrying the best-selling merchandise from ecommerce platforms, as is evident from RT-mart’s recent listing of best-selling items from Tmall, as well as the optimization of assortment in grocery stores empowered by Tmall and JD.

2. Fresh food as super entry point and growth engine

Kantar Worldpanel reports that the spend in fresh food in the latest 52 weeks ending November 2017 grew by 38% in ecommerce channels, as more fresh food specialists are expanding their logistics capability and assortment to attract more online shoppers.  Given its high frequency and essential role in grocery basket, fresh food is a key destination category for both bricks and mortar retailers and e-commerce giants.  As Hema aggressively expanded its franchise nationally and JD launched its 7 Fresh format, more traditional retailers are following suit to fight for the most resilient consumer demand.  The battle will intensify in 2018, as more focus is put on fresh to fight for a bigger slice of pie.

 3. Innovative store formats to be deployed and expanded

Pure big-box format retailers in China struggled to grow amongst younger middle-class shoppers as the result of an increase in the more appealing hybrid concept formats. While the Hema model will be increasingly duplicated, unmanned stores are the new favourites with investors although scalability and profitability remain questionable. Dmall APP + physical store network will expand to more retailers, helping them to capitalize existing store assets through tech empowerment.

4. Regional players will seek more alliance

At a regional or provincial level, the FMCG market remains fragmented and this indicates more room for cross-provincial expansion and acquisition.  With its investment in Zhongbai and Hongqi, Yonghui was able to expand its presence into adjacent provinces where local market leaders dominate.  SPAR, on the other hand, developed more franchises in Hebei and Yunan over the past two years, as well continuing its organic expansion within its existing partners’ territories.  In China, the West and North regions see more opportunities for further consolidation.

5. Social commerce will drive content-based shopping

The rise of WeChat, not just as a messaging app, but as a place where people shop online, is one to watch in 2018.  In 2017, the WeChat channel achieved a staggering 52% growth, and accounted for 1.4% of FMCG spending according to Kantar Worldpanel.  Though still relatively small, it represents a promising growth engine as Tencent began a serious push to open up its platform for developers to build ecommerce stores and a wide range of online services.  As WeChat’s wallet allows users to seamlessly make in-app purchase and social networking allows users to influence each other’s buying decisions, social commerce is also expected to facilitate sales conversion for all stores. 

 These predictions show that 2018 is going to be anything but dull for FMCG in China and it will be interesting to see 12 months from now how things have evolved.