The FMCG market returned to growth in the first quarter
The FMCG market returned to growth in the first quarter, whilst the fragmentation of retailers intensified
The latest Kantar Worldpanel China data indicated that in the first quarter of 2023, FMCG sales in urban China returned to growth, increasing by 0.3% year-on-year, which is 4.3 percentage points higher than the growth rate in the fourth quarter of 2022.
The North and East region enjoyed a faster rebound, increasing by 1.8% and 2.3% respectively compared with the same period last year. The data recently released by the National Bureau of Statistics also showed that the total retail sales of social consumer goods in the first quarter increased by 5.8% year-on-year, mainly driven by the resurgence of service industries such as catering and tourism.
With the steady recovery of the economy, offline consumption occasions gradually increased. Consumption demand returned in the first quarter, and consumption's driving force for economic growth was also significantly strengthened.
As consumers' lives return to normal, the demand for stockpiling food at home has declined, and the sales growth of food and beverages in the first quarter was lower than that of household cleaning and personal care products. The household cleaning category continued its growth momentum in 2022, with particularly impressive performance in the sales of paper products.
Beverages returned to growth after a brief decline in the fourth quarter last year, with double-digit growth recorded in juice, functional drinks, and ready-to-drink tea. Ambient milk and nutritional supplements increased by 7% and 18% respectively in the first quarter, reflecting the sustained demand of Chinese consumers in the post-pandemic era for improving their physical fitness and immunity.
Proximity channel continues to outshine while competition intensifies in membership stores
Kantar Worldpanel’s latest report shows that hypermarkets and large supermarkets continued their weak trend in the first quarter of 2023. The continuous decline in footfall is still the biggest challenge faced by large format retailers, with a 16.4% and 10.7% decrease in hypermarkets and large supermarkets respectively compared with the same period last year.
At the same time, small supermarkets sales increased by 15.5% year-on-year, and the purchase frequency and spend per trip both increased. Convenience stores also enjoyed a growth of buyers and purchase frequency. It shows that Chinese consumers are sticking to their shopping habits in proximity channels that they developed during the pandemic.
In addition, Kantar Worldpanel also pointed out that the fragmentation trend in modern trade is becoming more obvious. The overall share of the top ten retailers fell to 34.5% in the first quarter from 37.7% a year earlier.
Among them, Suning Group's share fell by more than 1 percentage point. Carrefour, a subsidiary of Suning, is under enormous pressure of public opinion, cash flow and supply chain, which has a greater impact on sales.
In addition, BBG Group's share in the first quarter also dropped significantly compared with the same period last year. With the recovery of offline consumption and the optimization of store layout,
Yonghui Group's various business indicators showed an improvement trend, but the market share still dropped by 0.2% compared with the same period last year.
As the key growth engine of Wal-Mart Group, Sam’s Club’s market share in modern trade increased by 0.6% in the first quarter, helping Wal-Mart’s overall share to increase by 0.2%.
It is worth noting that the competition in membership stores has further intensified, and the market share of Hema X and Metro has increased in the first quarter. Different membership store brands continue to make efforts in product iteration, private label brand building, and supply chain optimization to meet consumers' needs for quality, cost-effectiveness, and multiple experiences.
Sam's Club opened 6 new stores in 2022, and Hema X launched 9 stores across the country. Sun Art Retail's first member store was open at the end of April.
Among other major retailers, Hongqi Chain, known as "China’s No. 1 stock in Convenience Supermarket", performed well, and its share in modern trade has increased.
Hongqi's "Convenience Supermarket" business format combines the "everywhere" of convenience stores and the "wide selection of categories" of supermarkets, providing consumers with a timely and convenient shopping experience. After achieving both revenue and net profit growth last year, Hongqi’s revenue in the first quarter of 2023 increased by 4.7% year-on-year.
Platform e-commerce gradually recovers, and interest e-commerce makes great strides
In 2022, the rise of interest e-commerce and the development of O2O (shop online + deliver from offline stores) significantly threatened traditional e-commerce. In the first quarter, the penetration of Alibaba, JD.com and Pinduoduo continued to decline compared with the same period last year but the loss has been decelerated since the reopening after Covid.
In addition, the purchase frequency of consumers rebounded significantly.
Among interest e-commerce platforms, Douyin and Kuaishou maintained rapid growth in the first quarter. Although the spend per trip has dropped slightly, they managed to have excellent performance in buyer recruitment and driving frequency. In the first quarter, more than 20% of Chinese urban households purchased fast-moving consumer goods on Douyin platform.
Douyin Supermarket was launched during the Spring Festival in 2023, and the entry of more mainstream brands will also help Douyin accelerate its deployment in essential categories, and cultivate consumers to develop more direct shopping habits on Douyin. Kuaishou's advantage in lower tier cities and towns poses a direct threat to Pinduoduo.
O2O continues to grow, and the competition escalates in the “final round”
O2O sales continued to grow rapidly in the first quarter. Although the spend per trip has dropped slightly compared with the same period last year, the purchase frequency continued to increase.
In the first quarter, more than 34% of Chinese urban households purchased fast-moving consumer goods through O2O.
During the pandemic, consumers had more opportunities to use O2O platforms and gradually increased their usage. This shopping habit has not disappeared with the end of Covid. As consumers continue to develop the habit of using O2O in more categories and occasions, it is expected that O2O will continue to maintain a good growth momentum.
At the same time, community group buy (CGB) saw a good year-on-year growth in buyer recruitment in the first quarter of this year. Although the economy has begun to recover, the purchasing power of consumers, especially low- and middle-income groups, still needs some time to recover, and the appeal for "low price, affordable price" will continue to exist. This is a favourable trend for CGB, which features "value for money" and continues to expand the selection of categories and services.
Benefiting from the increase in purchase frequency and spend per trip, retailers’ self-run APPs/mini-programs performed well, with sales increasing by more than 40% compared with the same period last year. As the footfalls of large formats continue to decline, home delivery services have changed from "optional" to "required" for retailers. Traditional retailers have improved their competitiveness through evolution of their business model, SKU and supply chain optimization and customer retention strategies.
Front warehouse platforms were challenged in buyer recruitment, but Pupu and Dingdong Maicai have achieved growth in sales through continuous enhancement of product superiority, control of supply chain costs, and optimization of their geographic layout.
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