Slowdown in Chinese FMCG growth halted in Q4

Kantar Worldpanel China, the global market leader in consumer panels, reports 11% value growth for the Chinese FMCG (Fast Moving Consumer Goods) market for the latest quarter up to December 28th 2012 compared to the same period a year ago. The figure is slightly higher than the 10% growth reported in Q3 2012 showing that the FMCG market growth has not continued to slowdown, so positive news for manufacturers and retailers operating in this industry. The FMCG market grew by 14% over full year in 2012 compared to 2011 which is higher than the 7.8% GDP growth for China. Urbanisation and the move to more premium products have been the two key factors which drove this trend. Hypermarkets continued to fuel much of the growth during 2012 but emerging channels such as personal care stores, cosmetic stores and e-commerce have grown faster through new store openings and more homes with access to the internet.

Only local retailers gaining share within Top 10 during 2012

Over 2012 many of the top 10 retail groups or banners struggled to grow share with only Zhongbai, Yonghui and BuBu Gao seeing share growth, all of which are local Chinese retailers. This increased competition from the local retailers has meant the share of modern trade that international retailers account for has decreased from 29% to 27% across all city tiers including the top 4 cities where the international retailers have historically been more dominant.

The Q4 share movements do show a more positive story particularly for the Sun Art Group and Carrefour. However, the Wal-Mart group sees a similar picture to the annual movement with a 0.8ppt drop. Yonghui success story continued in the fourth quarter reaching a share high of 4.3% in the West region as well as further traction gained in the North as a result of new store openings in Beijing.

Local retailers will continue to put the international players under pressure in 2013

Many local retailers have had a successful 2012 gaining share from the more dominant international players within modern trade. Bu Bu Gao (or to use its English name: Better Life) is one such case. Starting from Xiangtan, Hunan province in 1995 the retailer expanded its operations within the Hunan and Jiangxi provinces and now has approximately 241 stores. Bu Bu Gao has a multi-format approach offering hypermarket, supermarket and convenience store formats as well as electronic and apparel specialist stores. This sets it apart from many of the key players who tend to focus more on hypermarket or supermarket formats. Kantar Worldpanel reports a value share of 28% in Hunan province for Bu Bu Gao and the retailer attracted 56% of shoppers in this province during 2012. As local retailers such as Bu Bu Gao and Yonghui continue to grow their footprint within China we will expect to see them become even more competitive with the international players during 2013.

What trends can we expect to see during 2013?

Aside from the continued expansion from the local retailers there are a number of other key trends Kantar Worldpanel predicts for 2013.

• Firstly, e-commerce will continue to grow well ahead of total trade as more individuals have internet access through multiple devices as well as internet suppliers widening their supply chain network. During 2012 this channel saw an increase penetration, from 18% to 25%, as well as shoppers adding more categories to their repertoire. In 2011 shoppers purchased on average 3.2 different categories on-line and this increased to 3.7 in 2012. Traditionally this channel has mainly be used by younger more affluent households but this profile will shift as more older less affluent households start to use e-commerce. During 2012 the value growth of e-commerce amongst older singles/couples was faster than amongst all households at 68%.
• Lower tier cities will continue to fuel growth within FMCG as both local and international retailers expand their operations. During 2012 the value of modern trade in China’s county level cities grew at 15% compared to 10% in the top 4 cities. Also, China’s Tier 3, 4 and 5 cities combined contributed 66% of the total value growth in National Urban China.
• Shoppers will have a wider channel repertoire sourcing their FMCG products from a number of different channels. This is driven by the growing importance of chained specialist stores which sell a limited number of categories such as cosmetics, baby products or personal care items. These stores offer a wider range of products along with more specialised customer service compared to the hypermarkets.
• A shift of focus from expansion to store productivity. Many of the top hypermarket chains have continued to open many new stores in 2012 but without the reward of market share gain. In many cases low store productivity has been the cause of this so in 2013 we can expect to see the big players focus more on maximising the efficiency of their existing stores rather than rapid expansion into new cities.
• Premiumisation within many FMCG categories will continue as manufacturers expand their portfolio offering new products with unique benefits or multiple benefits. Modern trade retailers should use premium categories and products to increase basket value and offer shoppers a more extensive range. This will also allow them to remain competitive with department and specialist stores where premium products take a greater share of shelf.