Kantar Worldpanel - www.kantarworldpanel.com

Hypermarkets seeing strong growth in the lower city tiers

27/10/2016

Kantar Worldpanel, the global market leader in consumer panels, reports the spending in fast moving consumer goods (FMCG) in the 3rd quarter of 2016 grew by 3.6% year on year.

Lower tier cities still grew faster than higher tier cities, especially county level cities and counties which grew by 4.7% and 4.2% respectively. Modern trade (including hypermarkets, supermarkets, and convenience stores) grew by 2.2%, which is slower than the total trade. Hypermarkets are now seeing negative growth in key and provincial capitals with -0.6% in the 3rd quarter 2016 compared to same time last year. However, growth remains strong in the lower tier cities (Prefecture cities/County level cities/Counties) at 3.1%. Lower tier cities offer more opportunities for brick and mortar stores whereas eCommerce businesses face more infrastructure and logistic barriers compared to higher tier cities. Hypermarket growth in county level cities and counties are driven by Sun-Art Group and Walmart Group, who grew by 28% and 53% respectively in 3rd quarter of 2016 compared to same time last year.

Both West and North regions outgrew the total market with 5.4% and 5.0% respectively for the latest quarter compared to same time last year. The West region has been growing ahead of other regions since the second half of 2015, driven by infrastructure improvement and faster disposable income growth, as well as by big retailers like Wal-Mart, Yonghui and Vanguard opening new stores. The North region has caught up with the total market after under-performing for more than 2 years with some of this growth coming from Sun-Art’s strong performance here.

Further expansion from local players encroaches on the share of international retailers

Total international retailers share drop from 12.1% to 11.6% in 3rd quarter 2016 compare to 3rd quarter 2015. Walmart, the leading international retailer in China, is embracing the omni channel strategy by increasing its shareholding of JD to 10.8% in mid-October and the opening of a global purchase flagship store on JD.com. Walmart’s offline share declined 10bps to 4.7% in 3rd quarter 2016 compared to the same time last year due to strong competition from local leaders Sun-Art Group and Yonghui. Carrefour is looking to capitalise on the small format opportunity in China with a plan to open 40 Easy Carrefour convenience stores by the end of 2016 with a focus on high quality and private label products. Kantar Worldpanel reports convenience stores in tier 1&2 cities grew at 3.9% in 3rd quarter of 2016 compared to the same time last year, while modern trade grew by just 1.8% in tier 1&2 cities.

Leading online retailers aggressively growing their shopper base: Kantar Worldpanel reports 63% growth in FMCG spending on eCommerce platform in 3rd quarter of 2016 versus the same period a year ago. Both JD and Tmall have increased their FMCG shopper base significantly over the same period last year. We expect both retailers will use Singles Day to step up their shopper traction and bring their penetration to a new level in the following month of the year.

Fast growing eCommerce platforms have impacted the brick and mortar retailers, but eCommerce is not the only reason for their poorer performance. According to Kantar Worldpanel, hypermarket FMCG spending in tier 1 cities declined 5% in 2015 compare to year ago, however, only 15% of the lost business was switched to eCommerce. The remaining 85% was lost to other offline channels and as a result of consumers reducing their FMCG spending in hypermarkets. Therefore, hypermarket retailers will need to better understand why shoppers are reducing their spend in store and choosing to shop in other offline formats in order to improve performance, especially in the higher tier cities.

Hypermarkets seeing strong growth in the lower city tiers

Hypermarkets seeing strong growth in the lower city tiers

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Jason Yu
General Manager in China

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