Modern trade returns to growth in China

FMCG spending in China grew in the second quarter of 2016 by 4.6% year on year. This is faster than the 2.0% growth rate reported in the first quarter of 2016.

Kantar Worldpanel, the global leader in consumer panels, reports that FMCG spending in China grew in the second quarter of 2016 by 4.6% year on year. This is faster than the 2.0% growth rate reported in the first quarter of 2016.

Modern trade (including hypermarkets, supermarkets and convenience stores) showed similar improvements. Modern trade experienced 1.4% positive growth in the second quarter of 2016, compared to a decline of -0.5% in the first quarter. The growth of modern trade was most prominent in county level cities and their surrounding urbanised counties – where growth rates were 2.0% and 3.9% respectively. From a regional perspective, modern trade performed much better in the East and West than South and North regions. The East region grew at 2.8% - helped by strong performance of Sun-Art Group and Wal-Mart Group - while the West region grew at 3.6% driven by Wal-Mart Group and Yonghui Group.

International retailers suffer from continuous share drop

The performance of Wal-Mart Group has been relatively stable in 2016, gaining 0.3 share points year on year in the latest quarter. However, other international retailers such as Carrefour, Tesco and Lotus have suffered from continued share erosion. This has resulted in the overall poor performance of international retailers.

Sun-Art Group and Yonghui lead the growth of Chinese players. Sun-Art Group managed to grow its shopper base through the continued development of its existing stores and the incremental opening of new ones . The growth of Sun-Art Group was most marked in the competitive East region market; where its share increased from 13.5% in the second quarter of 2015 to 16.0% in the latest quarter, which has widened its leadership over competitors.

Yonghui consolidates its position as a top five national retailer: Yonghui continues to perform well in 2016. It has maintained a fast pace of growth in both penetration and basket size. This has enabled Yonghui to maintain its share lead on Lianhua Group in the second quarter, after first overtaking it in the first quarter of 2016. Despite this strong performance, Yonghui still faces challenges in the East region. The strong growth of Sun-Art Group, and Wal-Mart’s gradually recovery, have meant that Yonghui’s acquisition of Lianhua has yet to see any sustained effects.

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Bricks and Mortar retailers looking for cooperation from eCommerce

The continuous FMCG slowdown combined with the growth of eCommerce in China has put pressure on physical retailers to finding new solutions to drive growth. Kantar Worldpanel’s latest data, for the 52 weeks ending June 17th, show eCommerce penetration of total FMCG reached 49%, growing 10% from last year.

The growth of the online channel is led by Tmall and JD, which have both seen spending grow over 80% in the last year . While continuing to experiment with their own e-tailing platforms; the major retail chains are now seeking to bolster performance through strategic partnerships with existing digital players. Wal-Mart’s corporation with JD.com enables Wal-Mart to reach new online shoppers while allowing JD.com to utilise YHD’s broad footprint in East region.

Vanguard’s strategic investment in the XinMeiDa (previously Meituan & Dianping) and Feiniu’s corporation with Shihui, both illustrate the new efforts of bricks and mortar chains to realize their O2O strategy.