China's FMCG market got off to a good start in Q1
China's FMCG market got off to a good start in Q1, Retailers Focus on Segmented Consumer Needs to Find Growth
The latest report released by Kantar Worldpanel shows that the fast-moving consumer goods (FMCG) market in urban China had a positive start in the first quarter of 2025, with sales increasing by 4.2% year-on-year.
In terms of different city levels, driven by the festive holidays and the return of family visits, consumption in lower-tier cities grew by 5.9%, with the town-level market growing by over 10%. The North region experienced the most significant consumption growth, increasing by more than 7% compared to the same period last year.
The Spring Festival effect also drove growth in various categories. Affected by the homecoming and family gatherings, the sales of beverages and seasonings increased significantly in the past 12 weeks. Meanwhile, homecare categories also showed a remarkable growth trend, with sales up by 7.3%, as consumers' understanding of homecare products deepened and demand gradually increased. The dairy category remained relatively weak in the first quarter, but the decline narrowed compared to the same period last year.
In the first quarter of 2025 the sales of imported products decreased by 1.7% year-on-year, with both the average household spending and average purchase price declining. Regarding various markets, the United States, France, and Japan remained the top three markets for consumers to purchase imported products. However, compared to the same period last year, the sales growth of these markets slowed to varying degrees.
Personalized and diversified consumption occasions injected more vitality into the out-of-home consumption market. Kantar Worldpanel's out-of-home data shows that at the beginning of 2025 the out-of-home consumption market continued to flourish, with a 10% year-on-year increase in tier 1-5 cities, with notable growth in consumption occasions such as sports and amusement places.
Offline Channels: Community Grocery Stores Shine, Leading and Regional Retailers Differentiate Strategies
1. Modern trade witnessed divergent growth, with community grocery stores standing out
Data from Kantar Worldpanel shows that in the first quarter of 2025 the sales of modern trade (hypermarkets, supermarkets, convenience stores) increased by 2.4% compared to the same period last year, driven by small supermarkets. During the Spring Festival population mobility and the gifting occasion drove the growth of small supermarkets in lower-tier cities, with significant increases in both sales volume and penetration. The decline of hypermarkets narrowed, and the sales of large supermarkets decreased by 0.9% year-on-year. The purchase frequency and spend per trip of convenience stores increased, but due to a 1.6 percentage point drop in penetration, the overall trend was downward.
The community grocery stores demonstrated strong growth momentum. With high-frequency consumption occasions and proximity to residential areas, they performed exceptionally well in lower-tier markets, especially in provincial capital cities and county-level cities. Grocery stores grew 8.1% year-on-year in the first quarter, driven by core categories like food and fresh produce, which combine social interaction with essential needs. Neighborhood engagement strengthened customer loyalty and met instant household demands, driving significant growth in purchase frequency and spend per trip.
2. Leading and regional retailers pursue differentiation
Among the top 10 retailers, Walmart Group, SPAR Group, and Hema increased their market share in modern trade.
The market share of Jiajiayue increased by 0.2 percentage point in the first quarter. Among them, Jiajiayue discount stores, which actively responded to the discount trend and focused on lower-tier cities in the North region, achieved significant growth in purchase frequency and spend per trip.
According to publicly available data from Hema, during 2024 up until the Year of the Snake, Hema maintained an average pace of opening a new store every five days. Through an active store expansion strategy, Freshippo rapidly replicated its mature model, while Hema NB focused on community-based discount business. Kantar Worldpanel’s latest data indicates that Freshippo’s penetration grew 1.3 percentage points year-on-year in the first quarter. Meanwhile, Hema NB, with its extreme cost-performance advantage, demonstrated strong competitiveness in eastern China, increasing penetration by 1.6 percentage points.
Regional retailer Huangshang Group in Hubei Province achieved double-digit sales growth in the first quarter. The Huangshang Group actively formulated its sales strategy according to local consumers' demands: it strengthened festival commodity preparation, ensured stable fresh-product supply through its central kitchen, actively responded to the National Healthy Lifestyle Initiative, and attracted customers via innovative experiential services. Additionally, it upgraded stores by benchmarking against Pangdonglai, optimizing product lines and in-store layouts to enhance the shopping experience.
Facing the complex and volatile external environment, Chinese retailers actively implemented the national strategy of expanding domestic demand and promoting consumption. They explored the domestic market, integrated high-quality foreign trade resources, transformed foreign trade capacity into domestic production quality and cost advantages, and strengthened the stability of the large domestic cycle to cope with the challenges of external risks.
3. Discount Retailing Continued to Prevail and Differentiation Remained the Key Weapon
In the first quarter of 2025 discount snack stores had a penetration of 18%. Regionally, the South region remained a crucial area for discount snack store development. With the continuous increase in the number of stores in lower-tier cities, discount snack stores saw the fastest growth in town-level markets.
In the 2025 Retail Press released in February, we proposed that anchoring different competitive strategies is essential for maintaining and expanding market share. Different manufacturers have different answers on how to break down and achieve differentiation.
In quarter 1 of 2025 HotMaxx’s sales increased by over 25% year-on-year, with its penetration in upper-tier cities rising by 1 percentage point. While stabilizing its discount snack business, HotMaxx recently ventured into clothing outlets and anime merchandise sectors, further consolidating and attracting young consumer groups.
Data shows that in the first quarter of 2025, 20% of Shanghai households purchased FMCG products at Aldi, with sales growing by 56.2%. In April 2025, Aldi expanded beyond Shanghai, with two stores opening simultaneously in Suzhou and Wuxi, further expanding their territory. With years of accumulation in Shanghai, Aldi has established brand recognition and supply chain advantages in the Yangtze River Delta. The expansion includes a new warehouse in Jiangsu to improve operational efficiency by integrating with local suppliers. With rising demand for fresh products as temperatures warm, Aldi’s entry offers consumers in new markets more diverse and affordable choices. The opening day in Wuxi set a new sales record in China.
Online Channels: JD Seizes Instant Retail, and Interest-Based E-commerce Continues to Grow
In the first quarter the online channels demonstrated strong performance. According to the National Bureau of Statistics, online retail sales of physical goods increased by 5.7%. Kantar Worldpanel's data indicates that the penetration rates of major e-commerce platforms all improved, with the Douyin platform showing the most significant growth, increasing by 6.3 percentage points year-on-year.
Traditional e-commerce giant JD Group is enhancing its market share through its cost-effective Jingxi self-operated platform and a stronger focus on the O2O sector.
Relying on JD Group’s logistics network, Jingxi ensures fast delivery and shopping experience. By focusing on high-frequency consumer categories such as daily necessities and fresh produce, and closely collaborating with source suppliers, Jingxi offers a dual guarantee of "low prices + quality." In the first quarter, it achieved high-speed sales growth, with its penetration increasing by 1.5 percentage points year-on-year. In the O2O sector JD group is capturing consumer attention with its "second delivery" service. With the launch of multiple categories and brand flagship stores, it is further meeting consumers' diverse and high-quality instant needs.
In the first quarter interest EC platforms continued to grow with the model of “content recommendation+instant conversion” Xiaohongshu has enhanced its platform influence with global traffic and external cooperation, and its penetration increased by 0.5 percentage points. While accelerating its e-commerce business sector, it fully relied on content ecosystem innovation to break the traditional e-commerce model of "centralized traffic distribution" and innovated the function of attaching product links in the comment sections. This not only improved the convenience of users' shopping but also promoted product sales conversion. Through this model, Xiaohongshu achieved a closed loop of users, goods, and occasions, creating a more complete and convenient shopping environment for consumers.
Conclusion
In the first quarter of 2025, the Chinese FMCG market was off to a good start. However, the industry still faces multiple challenges, including intensified competition, insufficient demand, and a complex external environment. Brands and retailers need to start from consumer needs, fully recognize the characteristics of "fragmented consumption occasions and pursuit of cost-performance," and adopt omnichannel strategies to respond to market changes.
In offline channels, community grocery stores continue to deeply explore the lower-tier cities market; Aldi steadily expands in the Yangtze River Delta region with its cost-effective products, mature supply chain system, and precise market positioning. Hema's business model shifted from "multi-format development" to a dual-core drive of "large fresh produce stores + discount stores", focusing on mature formats.
In online channels, JD Group integrates supply chain resources, targets consumer groups precisely, and relies on its long-established efficient logistics as its core competitiveness of "speed". Xiaohongshu leverages content ecosystem innovation to break the traditional e-commerce "centralized traffic distribution" model, achieving a closed loop of users, goods, and occasions, and delivering a more complete shopping experience for consumers.
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