China: FMCG in Q3 up by 5.6% amid economic uncertainty

The total spending of fast-moving consumer goods (FMCG) grew by 5.6% in the 12 weeks to September 6^th, compared to the same period last year, according to Kantar Worldpanel, a CTR service in China. Stronger growth in lower-tier cities, e-commerce channels and higher inflation driven by food remained the key drivers. The real growth in FMCG is shadowed by the downward pressure of the macro-economy and lingering China-US trade uncertainties.

The non-food category continues to be the main growth engine, with personal care products reporting a strong increase of 12.4% in sales value, driven primarily by younger families and evolving lifestyles. Packaged food saw a mixed performance but categories with health and wellbeing benefits continued to do well. Also, urban Chinese households spent 8.8% more on fresh food, especially fruit (+7.8%) and pork (+21%) respectively.

Modern trade (including hypermarkets, supermarkets and convenience stores) slowed down, posting a growth rate of 1.7%, although all four regions except the western region are seeing a stronger recovery momentum. Hypermarkets continued to struggle during Q3, experiencing a penetration decrease of 3.3ppts versus the same period last year. E-commerce remained a bright spot with high-speed growth of 36.2%.

Leading Grocery Share of Modern Trade - National Urban China 

*Suning Group includes Carrefour

© 2019 CTR Market Research    Source: Kantar Worldpanel China

Local retailers embrace O2O services

Sun Art Group maintained its leading position and stopped declining in Q3. The retail group represented 8.3% of FMCG modern trade’s value share in the latest 12 weeks and has been investing heavily in digitalization, which is starting to pay off. The one-hour delivery service “Taoxianda” improved both frequency and customer loyalty. During the “6/18” promotional event, RT-mart reported over 1,000 daily orders per store. Sun Art also restructured their hypermarket stores by increasing the number of fresh food stock keeping units (SKUs) and developing ready-to-cook and ready-to-eat products to enhance their competitiveness as shoppers’ lifestyle evolve.

In Q3, Carrefour slowed its decline to -5.3%. During the last quarter, Suning has announced the completion of its acquisition of Carrefour and moved swiftly to consolidate its operation first by opening 200 Carrefour stores to sell home appliances and electronic products. Suning also plans to export its supply chain and digital operations capability to Carrefour to help it compete more effectively in lower-tier cities. On the back of the physical presence of Carrefour and Suning’s smart-retailing infrastructure, the enlarged group now holds 3.2% value share of China’s modern trade.

Metro AG retreats from China while Costco/Aldi still in expansion mode

Among the top 10 leading competitors within modern trade, Walmart remains the only global player. On October 11^th, German wholesaler Metro AG also agreed to sell a majority stake in its Chinese operation including 97 stores to local giant Wumart as well as its technology partner Dmall. The move will help Wumart further expand its presence at a national level and leverage Metro’s excellent sourcing capabilities. 

Despite severe pressure facing global retailers, US warehouse club operation Costco and German discounter Aldi remained cautiously bullish about their expansion in China. When Aldi opened its first store in August, many shoppers in Shanghai flocked to the store to benefit from the deep-discount promotions and Aldi saw more than 200,000 shoppers sign up to their membership program. Aldi’s opening day actually made the headlines as the store had to be closed for four hours due to overcrowding. Costco just announced it will open a second store in early 2021, also in Shanghai. Aldi however, is taking a different approach to adapt to the Chinese market, opting for smaller stores that are equipped with a WeChat-based CRM scheme and delivery options. Aldi will open two more stores in Shanghai in October.

Both Aldi and Costco used Tmall Global as a launchpad to test the water and gain more insights on Chinese consumers. They focus on private label products which can sell at a lower price but superior quality. With their distinctive value proposition and imports as main draws, both players are yet to secure long-term success in China where shoppers are less loyal to particular stores and have plenty of choices both offline and online.

Alibaba went from strength to strength

Despite a tough overall trading environment, the online channel experienced a 36% growth in sales, far outstripping other channels. Over half (58%) of Chinese shoppers bought FMCG online in the last 12 weeks with an average frequency of 4.6 times and average spending 115RMB per trip.

Alibaba maintained the leading edge with a third of the Chinese urban population making an FMCG purchase through its platform. It recently acquired cross-border e-commerce platform Kaola from NetEase for approximately US$2 billion to further enhance its market position in imported products. Driven by its lower-tier city success and content-driven live-streaming platform, Alibaba is well positioned to further grow in the Chinese retail space. At its latest investors’ conference, Alibaba unveiled their five-year goals for the Chinese consumer business which is aiming to serve over 1 billion consumers and top 10 trillion RMB Gross Merchandise Value (GMV) by 2024.