What Chinese shoppers really do - Series 4

As China’s market for fast-moving consumer goods grows, modern retailers are looking for ways to grow too —and outpace competitors.

China’s retail market for fast-moving consumer goods (FMCG) is evolving as quickly and dramatically as it is growing. Modern trade, which includes supermarkets and hypermarkets, is making vast inroads in China’s biggest cities. It now accounts for more than half of all urban sales of FMCGs and is growing at 14% —faster than China’s GDP. At the same time, another channel is gaining significant ground: e-commerce. While it’s still a small percentage of overall sales —less than 2%— e-commerce is exploding: it grew 53% last year.

We decided to dig deeper to see what lessons we could develop for consumer goods makers and retailers pursuing growth from the rising number of middleclass shoppers. Their expansion has been challenged by a lack of detailed, real-time data that would enable retailers to better understand shoppers’ behavior and fully capture the opportunities before them.

In our groundbreaking report “What Chinese Shoppers Really Do But Will Never Tell You”, published in June, we helped fill that void by sharing real-time shopper data, including the insights gained from a rare look at what shoppers actually do at the point of sale as opposed to what they say they do. This joint study by Bain & Company and Kantar Worldpanel examined the shopping behavior of 40,000 Chinese households from 373 cities in 20 provinces and four major municipalities, creating a comprehensive look at how much shoppers spend by region and by city in 26 important product categories, ranging from milk to shampoo. We followed up with a second report that explored shopper behavior in more depth across three dimensions: city tier, category nature and development stage, and shoppers’ life stages (see Figure 1). A third report examined the dynamics between foreign and domestic consumer goods makers to help both types of competitors capture their share of China’s growth.

In our fourth report, we explore the implications of our findings for retailers in modern trade. Our analysis provides several key insights:

• Modern trade shoppers make fewer trips to the store but spend more per trip, with the average price per item increasing.
• E-commerce is experiencing rapid development and explosive growth, although shoppers are increasingly using online sites to track down cheaper prices in a few higher-priced categories.
• As we detailed in our previous reports, China’s shoppers tend to be repertoire shoppers in most categories. They prefer to choose from a range of brands in a particular category for the same need or occasion instead of being loyal to a brand. The swift expansion of modern trade is helping to fuel the trend toward repertoire behavior by offering a wide variety of brands and promotional activities. It’s a trend that will favor retailers because consumer goods companies will be increasing investments in point-of-sale activation to encourage new shoppers to choose their brands over competing brands on the shelf.
• Despite the extensive choices offered by modern trade, it’s only the top brands and SKUs that contribute the majority of retail sales, according to our analysis. That means retailers that strive to increase listing fees by adding SKUs may actually be tying up shelf space and working capital with low-selling SKUs.
• Our research also confirmed that grocery retailing in China still is largely a local, city-based business, given the vast differences in consumer tastes and behavior. Leading retailers combine an extensive local footprint designed to achieve broad penetration with an effective retail model that motivates shoppers to make repeat visits and increase their basket size.