Competition becomes tougher in the Chinese slowdown economy

Official statistics also showed China’s economy grew in the first quarter at its weakest pace since early 2009.

Kantar Worldpanel, the global market leader in consumer panels, reports the spending in FMCG market increased by 4.3% for the latest 12 weeks up to March 20th, 2015. This represents a continued deceleration in comparison to the same period a year ago. Official statistics also showed China’s economy grew in the first quarter at its weakest pace since early 2009, and is expected to expand at annualised rate of 7% in 2015.

Key cities and provincial capitals have bounced back by in their FMCG spending growing 4.0% (up from 0.1% in the first quarter a year ago). Lower tier cities continue to lead the spending growth of the market growing by 4.6% in Q1. Modern trade, driven by small supermarkets and convenience stores, saw considerable development in these city tiers and grows faster than the total market at 7.1%. Kantar Worldpanel expects this trend to continue as increasing number of modern trade retailers’ opening of new stores in lower tier cities.

The gap between international and local retailers has further enlarged.

International retailers keep on losing ground to local retailers and saw their market share fall to 13.5% in 2015Q1 (down from 15.1% in 2014Q1). They are seeing erosion of share in their traditional stronghold of first and second tier cities as local retailers expand their footprint and also their development into lower tiers has been relatively slow.

Local retailers are rapidly extending their reach across all cities tiers. Sun Art Group is still in the leading position in this process and reached 7.8% of the market share in 2015Q1 at national level and RT-mart’s growth rate is accelerating in recent quarters. An ambitious expansion plan has enabled it continues to grow presence aggressively in lower cities grabbing 8.5% market share and adding an additional 0.7% points from 2014Q1.

CRV group’s (now including Tesco) market performance in the first quarter has signalled a slight recovery as the group gained 0.4 point from 2014Q4 to 6.6% nationally, despite continued weakness of Tesco business in China. The temporary recovery was found in North, South and West, but there was still weakness in the East where it shrunk by 0.3 point in comparison to 2014Q4.

Yonghui maintained its non-stop growth by gaining 0.3% from the quarter a year ago and now recorded a national market share of 2.2% in 2015Q1. Key cities became its main business driver, as the retailer hit a record share of 4% in the latest quarter. With the recent announcement of its acquisition of stake in Lianhua supermarket, Yonghui is poised to expand its weight in the affluent East region.

Offline retailers joined the e-commerce battle

E-commerce continued to grow at fast pace as it attracted new buyers to the channel and encouraged those buyers to spend more. Kantar Worldpanel reported 37% of the Chinese household make purchase via e-commerce channel over the latest 12 months. This is not only driven by e-commerce giants such as Alibaba, JD.COM and YHD, but also by the launch of e-commerce offering by brick and mortar retailers, including RT-mart, Vanguard, Carrefour and even non-grocery retail chain Suning. 2015 will be a year of significant O2O (offline to online) endeavours as all modern trade retailers realized that they have to fight back to retain their customers.

With like for like sales declining for most retailers, all major players are eager to embrace the explosive growth of e-commerce sector. RT-mart established its e-commerce arm feiniu.com officially in 2014. With more than 1.4 million registered users, Feiniu is leveraging its well-established procurement and merchandise infrastructure to expand nationally. Both Vanguard and Carrefour have recently announced their test run of e-commerce services. Those attempts are likely to further accelerate the adoption of E-commerce channel by average Chinese shoppers and make the fight for shopper more intense especially in more developed cities.