Two-speed in China FMCG continues, also in retail

Online sales continue their decade-long success, and are steadily chipping away at the offline world

Online sales in China continue their decade-long success, and are steadily chipping away at the offline world, with the notable exception of convenience stores, according to volume two of Kantar Worldpanel and Bain & Company’s fifth annual China shopper report, Dealing with Two-speed China.

“China’s two-speed scenario is having a major impact on the country’s retail industry, and our findings show that this massive explosion of online sales growth is being fueled by increasing diversification in the categories purchased online, as well as huge gains in imported products and consumers taking advantage of promotions,” said Jason Yu, general manager of Kantar Worldpanel China.

FMCG spending online rose 36.5 percent in 2015, primarily the result of 69 percent gains in volume growth, which more than compensated for decline in average selling prices, which is driven by the natural diversification of online categories purchased outside the more expensive original categories online such as babycare and beautycare.

Meanwhile, physical store retailers are awakening to a new reality. As more shoppers turn to digital options, offline channels are starting to take on an additional role: as a complement to online sales.

The growing urbanization trend is adding popularity of convenience stores, which have been growing at 13% in 2015, mostly through new store openings; they are a natural complement to online, for on-the-go and top-up purchases.

“It’s clear that we are living in a two speed world now and this is playing out clearly in China’s retail sector,” said Bruno Lannes, partner in Bain’s Greater China Consumer Products Practice and co-author of the report. “To survive and prosper, both online and offline channels need to begin the process of adapting to this new reality, which requires the transformation of their business models to remain competitive. This will have to include O2O, either done organically or through partnership”

Highlighting this new trend is 11/11 Singles’ Day promotions, arguably the undisputed high point of the online sales year. In 2016, Alibaba’s site alone registered sales of $17.8 billion during the one-day shopping spree. Research from this year’s report provides useful new insights into the sales performance of this innovative and uniquely Chinese sales promotion. Critically, the data also shows that the online gains during 11/11 are done to a large extent at the expense of offline channels.

There are three main engines of growth, all important, contributing to the total spending increase:

1. Existing shoppers of an online product category purchasing more during 11/11 (e.g.: laundry detergent, facial tissue, infant formula)

2. Shoppers withholding online purchases or simply not making purchases during the previous 4-week period to take advantage of 11/11 promotions

3. New shoppers attracted to the online category because of 11/11 promotions; for categories such as biscuits, fabric softener, and shampoo, the majority of spending increase is due to new shoppers trying the category online for the first time. For these categories, online promotions serve as an important recruitment tool.

“China’s Singles Day online sales festival continues to fascinate, attracting the attention of FMCG companies and e-retailers around the world. There’s nothing like it for propelling online sales, or for learning how to make the most of the dynamic digital marketplace,” said Lannes.