US Insights

China's consumer spending stalls in 2018

Jason Yu

Greater China General Manager

Retail 02.12.2019 / 12:00

ChinaFMCGjomjakkapat-parrueng-460441-unsplash

Performance weakens during the fourth quarter.

Chinese consumers’ spending in fast moving consumer goods (FMCG) in 2018 grew by 4.3% year-on-year, holding steady compared to 2017 (Note 1), according to the latest data from Kantar Worldpanel. The GDP growth for China was 6.6% in 2018, the slowest rate since 1990, the National Bureau of Statistics said. Cooling manufacturing activities and slower fixed-assets investment in Q4 likely had impacted consumption, with Q4 FMCG growth noticeably weaker than the previous quarter.

Across all regions and city tiers, the West region (6.5%) and provincial capital cities (4.9%) reported a more upbeat trend. Modern trade (including hypermarkets, supermarkets, and convenience stores) grew by 2.1%, 0.5 point lower than 2017. However, the modern trade sector witnessed consolidation with the top players accounting for 37% of sales in 2018, edging 1 point up from 2017.

Mixed performance amongst top 10 players in modern trade

Six out of the 10 top retailers in China reported stronger performance in 2018, thanks to the opening of new stores, expansion of format portfolios and digital transformation. Sun Art group maintained its leading position with 8.4% of share in modern trade and, to further strengthen its performance, Sun Art recently announced the move to convert Auchan stores to the RT-Mart model. This will help the Sun Art group to gain more efficiency in their merchandising and supply chain management. The Vanguard group and the Walmart group both have increased their market share by 0.2 point in modern trade during 2018. Vanguard group enjoyed a significant uplift in its sales coming from its supermarkets and convenience stores. In 2018, Walmart opened 33 new stores, including 21 hypermarkets, 4 Sam’s Club, and 8 Huixuan. Huixuan is Walmart’s first small format supermarket sub-brand and focuses on fresh food, free home delivery, and Internet technology to enhance the shopping experience. Both Vanguard and Walmart built closer partnerships with Tencent to empower their stores with smart digital technologies.

Yonghui remained the fastest growing top players in 2018, with 0.6 point increase year on year. By the end of third quarter, Yonghui has opened 429 YH Life (neighbourhood store and O2O delivery) and 56 Super Species (supermarket and in-store dining). To strengthen its position, Yonghui recently expanded its M&A activities, forging partnerships with Parknshop and Sichuan local player Hongqi. Amongst other regional players, WSL, Bubugao Better Life, and Spar continued to outperform their peers through their aggressive regional expansion and new retail experiment.

Leading Grocery Share of Modern Trade - National Urban China (%)

 

2017

2018

17Q4

18Q4

 SUN ART GROUP 

8.4

8.4

8.4

8.2

      AUCHAN 

1.3

1.3

1.3

1.2

      RT-MART 

7.1

7.1

7.1

7.0

 VANGUARD GROUP 

6.6

6.8

6.7

6.7

 WALMART GROUP 

5.2

5.4

5.3

5.1

 YONGHUI GROUP

3.3

3.9

3.4

4.1

 CARREFOUR

3.3

3.0

3.1

2.9

 BAILIAN GROUP 

2.7

2.6

2.7

2.6

 WSL GROUP 

1.8

2.0

1.8

2.1

 WU-MART GROUP 

1.9

1.9

1.9

2.0

 SPAR GROUP 

1.4

1.5

1.5

1.6

 BUBUGAO GROUP (incl NAN CHENG)

1.2

1.4

1.3

1.5

FMCG spend by e-commerce had another strong year with a 34% year-on-year growth, Kantar Worldpanel has found. In 2018, 65% of China urban families purchased FMCG online, 4.7 points higher than the previous year. In four key cities (Beijing, Shanghai, Guangzhou and Chengdu), 72% of households purchased FMCG online, and in county level cities, there were over half families purchased FMCG online. Furthermore, higher frequency is contributing to the growth as online shopping becomes more routine in consumers’ daily life and as mobile shopping becomes more prevalent. In 2018, Chinese shoppers on average made 8.9 online purchases.

What’s ahead in 2019?

Retail formats and the convergence of channels

As retail landscape evolves, the boundaries between channels will continue to blur and converge, and top players will strive to maximize their attraction by fulfilling shoppers’ desire for choice, convenience and pleasure. For example, Walmart and RT-mart are transforming their traditional hypermarket to compact format, offering O2O express delivery home to reach more shoppers and at the same time are building more in-store experiences with specialist boutiques and smart devices. This allows them to complete in the traditional territory of supermarkets and convenience stores. At the same time, convenience stores are expected to satisfy more shoppers’ needs for home delivery through third-party platforms, such as Meituan or ele.me, as well as moving into the space of neighbourhood supermarkets to offer more fresh foods and community services.

Battle intensifies between Alibaba and Tencent

As pure growth through the online market becomes more difficult to sustain in China, e-commerce giants continue to acquire and build partnerships with offline players. By the end of 2018, the Tencent/JD camp (including Vanguard, Walmart, Yonghui, Carrefour, WSL and Bubugao Better life) reported 22.5% share among top 10 retailers in modern trade, noticeably higher than 11.0% recorded by Alibaba camp (Sun Art and Bailian). In 2019, offline retailers will further leverage data and technology to grow efficiency and experiences, therefore attracting even more regional players to side with either one of the two giants.

Shopping in brick-and-mortar becomes more experiential

Consumer experience will play an increasingly important role in retail sector. The success of Hema proves that shoppers are not only willing to pay extra for premium products but also for a dining experience within the store. In Shanghai, 18% of families visited a Hema to buy fresh grocery in 2018 and we will continue to see this number rise. According to Kantar Consulting, 184 “new retail” model stores were opened in 2018 and they have substantially transformed how consumers buy and consume fresh foods from brick-and-mortar stores. A superior shopping experience is the way that offline retailers will find growth during 2019.

Smart technology will help to win shoppers

A high number of smart retail technologies were introduced in 2018, and 2019 will be the year that we see technology playing a bigger role in driving in-store activation and enhancing the shopping experience. Technologies such as augmented reality (AR), robot, facial recognition payment, as well as smart vending solution and mini-programmes are gradually reshaping how consumers shop in China. For example, Carrefour Le Marche allows shoppers to scan QR code during the trip and use facial recognition payment at the check-out to enhance convenience. We expect to see selected new technologies as a key enabler to direct traffic from online to offline and help retailers to win more new shoppers as well as increasing their trip spend.

E-commerce in lower tier cities is a good way for brands to reach more shoppers

The ownership of mobile devices and the adoption of e-commerce in the lower tier cities is catching up with the top tier cities. Over the past three years, the gap in e-commerce penetration between upper and lower tier cities has narrowed, with 62% of shoppers in lower tier cities using e-commerce to buy FMCG products. The rise of Pinduoduo indicates the strong interest shoppers have for group buy deals, and Kantar Worldpanel data shows a higher level of shopper engagement in counties compared to the national average. The rapid adoption of e-commerce in lower tier cities means more opportunities for brands to use it as an effective channel to reach and convert more shoppers.

EN 2018 FMCG E -c Penetration

Source: Kantar Worldpanel

Editor's Notes

Note 1: Kantar Worldpanel began to remove all sales value of tobacco products in its FMCG statistics in Q1, 2017. Year-on-year growth calculations had also excluded tobacco sales value from previous year since Q1, 2017;

* Key cities: Beijing, Shanghai, Guangzhou, Chengdu; Tier 2 cities: Provincial capitals; Tier 3, 4 cities: prefecture-level and county-level cities as well as counties. International retailers refer to retailers originated outside China’s Mainland, Taiwan, Macau, and Hong Kong.

EAST: Shanghai, Jiangsu, Zhejiang , Anhui, Henan

SOUTH: Guangdong, Fujian, Hubei, Hunan, Jiangxi

WEST: Chongqing, Shaanxi, Sichuan, Guangxi, Guizhou, Yunnan

NORTH: Heilongjiang, Jilin, Liaoning , Beijing, Tianjin, Hebei, Shandong, Shanxi

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