FMCG In China Grew By 0.5% In 2020
The latest data from Kantar Worldpanel shows that the sales value of fast-moving consumer goods (FMCG) in urban China grew by 0.5% in 2020 under the influence of COVID-19. Although the market has rebounded steadily since Q2, the annual growth rate is still far slower than previous years. The government also reported an annual decrease of 3.9% in retail sales in China. In 2020, the actual per capita disposable income of urban residents in China has increased by 1.2%. With spending power slowing down, the polarization trend: “premiumization & flight to value” will continue.
The household cleaning category enjoyed the fastest growth with an increase of 7.9% in 2020, thanks to the outstanding performance of disinfection and cleaning products. Food increased by 2.7% driven by the explosive growth of instant noodles and frozen foods as many consumers spent more time at home. Beauty and beverage categories were seriously disrupted by the pandemic but started to recover during the second half of 2020.
From the perspective of channels, overseas purchase and gifting suffered a significant decline in sales of 59% and 19% respectively as travelling abroad and family gatherings were restricted. At the same time, the pandemic has expedited the shift from larger offline formats (hypermarkets declined by -7% and large supermarket by -6%) to E-commerce, growth of 35%, and small formats, which grew by 9%.
Data source: Kantar Worldpanel, SuningGroup includes Carrefour and Suning CVS.
Yonghui Group has surpassed Wal-Mart Group and is now ranked third in terms of value share, reaching a high in 20Q4. Yonghui has maintained it’s strength in higher tier cities in core regions whilst expanding to other provinces and lower tier cities, which has allowed the group to rapidly grow its shopper base. Sun Art has maintained its leading position and saw a small share gain through digital transformation and new format development. Among the regional retailers, Wumart, SPAR and Bubugao have achieved share growth in 2020 due to efforts to accelerate their online business, enhance their operation systems and continue to expand into the national market.
Faced with the potential of a second wave of COVID-19 and ever-changing consumer behavior, the retail world will continue to evolve in 2021. “Home Consumption”, “Live Streaming”, “Community Commerce”, “O2O”, and “National Expansion” are becoming the key words for this year.
What is ahead for 2021?
01. In-home occasion is still the growth engine
The catering industry was severely hit by the COVID-19 pandemic. According to National Bureau of Statistics, the revenue of China’s catering sector dropped by 16.6% in 2020. Kantar Worldpanel also found that nearly 90% consumers are more willing to eat at home after the pandemic. In-home consumption is expected to continue as new cases of infection are emerging in early 2021. This year, consumers have been more accustomed to home life and are pursuing a better quality of life. Therefore, goods and services that could satisfy family members’ needs for various in-home occasions will have huge growth potential.
02. Experience is key to E-commerce
In spite of rapid growth, the E-commerce landscape has become more complicated and competitive. Top players such as Alibaba and JD.com are facing challenges from rising social commerce, which have forced them to explore innovative ways to enhance the shopping experience. For example, they have realized the importance of a more simple shopping process and are trying to optimize the promotion mechanism in order to better satisfy consumers' shopping needs.
Propelled by COVID lockdowns, the new model of “live streaming + e-commerce” which has experienced explosive growth in 2020, helping many manufacturers to improve the conversion rate of their brands in an interactive way. Short video platforms such as Douyin are also growing their e-commerce footprint through shoppable livestreams within the app. Apart from selling goods through influencers, many brands are jumping in with their own shows. In the long run, stronger commodity supply and after-sales service will enable live streaming e-commerce to develop in a more sustainable way.
03. Building up a comprehensive community ecosystem
As residents are now looking for more convenient shopping after the pandemic, community commerce is riding on this trend to meet short-distance needs for daily necessities. Thus, more near-field formats are booming, for example small supermarket, convenient store and group buying. Since 2020, many retail enterprises have invested a lot into community commerce, including top retailers whose business focus was previously focused on hypermarkets. For example, RT-Mart launched their first small supermarket "RT-Mart mini" in July last year and will expand to a larger scale in 2021.
Community group buying was undoubtedly a hot topic in 2020. The latest study from Kantar Worldpanel indicates that the monthly penetration of community group buying among users over 25 years old in China's 1-3 tier cities reached over 20% in December last year. This new model is more established in lower-tier cities, where tight neighborhood communities are prevalent and mutual trust between community leaders and residents is easier to build. Last year, many Internet giants entered this battlefield. According to Kantar Consulting, the market size of community group buying will exceed 100 billion this year. Under the control of new policies, community group buying will move towards a more standardized and orderly model.
It’s foreseeable that the future of community commerce will be a wider ecosystem that could not only meet residents’ daily shopping needs, but also provide more comprehensive community services.
04. Further Growth of O2O
O2O delivery services was another hot topic in 2020 and has achieved a larger scale than community group buying. According to Kantar Worldpanel, the penetration of O2O has reached 60% across urban China in 2020. Lots of new users were recruited amid the outbreak of the pandemic. The penetration reached a peak of more than 40% in 20Q1, and the retention rate of O2O is over 50%. Unlike community group buying, which mainly focus on lower price, O2O exists to satisfy consumers' immediate needs. The target audience is less price-sensitive but require very fast delivery.
In 2020, Internet platforms such as Tmall, Ele.me and Meituan have put more efforts in developing O2O. Meanwhile, traditional retailers like RT-Mart, Yonghui and Wal-Mart have also accelerated their online business by means of building their own platforms or cooperating with third-party delivery platforms. In 2021, O2O will keep prospering and serve consumers more efficiently with the mutual support of ample supply from physical retailers and strong logistics offered by the delivery platforms.
05. Retailers are expanding nationwide cautiously
In 2020 many brick and mortar retailers cut down the number of new store openings due to the challenges brought by the pandemic. However, some retailers have still achieved substantial growth through either opening new stores or mergers/acquisitions. Yonghui has succeeded in entering Yunnan, Jiangxi and Guangxi province since 2020 and its stores now cover a total of 29 provinces in China. Jiajiayue, a leading banner in Shandong province, also expanded its business to Hebei, Anhui, Jiangsu, and Inner Mongolia through acquisitions.
It is indispensable to have solid supply chain system and high efficiency of operations when it comes to national expansion. Besides, the players should understand the consumption habits in different regions thoroughly, and adjust the business models or store formats accordingly to better meet the local needs. Cooperating with local retailers may be a shortcut for the giants to exploit regional markets, just like the 7FRESH case.