China FMCG up 3.9% in the first 9 months
The latest Kantar Worldpanel China data reported a 6.1% increase in fast-moving consumer goods (FMCG) in urban China uplifted in the third quarter of 2022 from a year ago, indicating a steady recovery as the take-home grocery market moved out of the severe lockdown that impacted the second quarter.
The East region shows the biggest rebound with 9.0% growth, backed by stronger underlying consumer demand. In the first three quarters, the value growth of FMCG in China went up by 3.9% year-on-year.
The latest report also found that consumers are buying more products on each trip but are shopping less frequently, suggesting continued stockpiling behaviors amid concern over lockdown and mobility restriction.
Amongst different FMCG sectors, beverages enjoyed the highest year on year growth of 19.6% as the country was impacted by a severe heatwave in the summer. Ice cream remained popular for in-home consumption, with sales up 21.5% in the latest quarter. Dairy and personal care products also started to recover and record lower single digit growth from their lower level in Q2, as the dynamic zero-COVID policy gradually became the norm.
Modern trade competition becomes more fragmented, while expansion membership store formats moved to the next level
The performance of modern trade channels (including hypermarkets, supermarkets, and convenience stores) continues to diverge. The pandemic has had an on-going impact on offline store footfalls, with hypermarkets and large supermarkets declining by 1.9% and 1.8% respectively in Q3 from a year ago.
Sales of small supermarkets and convenience stores, on the contrary, lifted by 12.7% and 8% respectively, as consumers continue to favor proximity channels. Growing baskets in those small-format stores also reveals that shoppers are purchasing more categories in those shops closer to their home, driven by convenience and improved assortment.
Escalated competition amongst offline retailers and the growth of proximity stores have also transformed the retail landscape, leading to a lower level of concentration within top players.
Although Sun Art Group maintained its leading position, its position weakened from a year ago, with 0.5 point share loss in the latest 12 weeks.
The number 2 player Yonghui managed to maintain its share. Guided by its new Omni-channel strategy, Yonghui achieved growth (based on like-for-like store growth), driven by a relentless optimization of its supply chain, operation and technological capabilities to better meet highly different consumer needs in different regions. It’s Bravo banner expanded rapidly in the West while penetration rose by 10.4% from a year ago.
Sam's Club, of Walmart Group, continued its steady growth in shopper penetration across all regions. It gained 0.4pts market share in latest 12 weeks with a strengthened position in the cities where it operates. Walmart also overtook Vanguard Group to take the third place in the modern trade ranking. The membership-store model is constantly evolving in China to meet the quality life needs of middle-class families and young shoppers.
Since this year, retailers like Sam's Club, Carrefour, Metro, etc. begun to take more central city locations in sub-urban areas to build their new membership stores. They have adapted their traditional-hypermarket format to explore a smaller format for the residents in the city. Complemented by their O2O shopping offer, they managed to adjust their merchandise and operations to better suit the changing consumer habits.
Traditional e-commerce recovering, whilst interest e-commerce booms
Supply chain and logistics were disrupted across the country due to the lockdown in Shanghai and a dozen other provinces in Q2. This severely affected the delivery experience of e-commerce platforms.
Yet all mainstream e-commerce players saw an obvious sign of recovery in the latest quarter. Building on the advantage of its self-run logistic infrastructure, JD.com kept attracting new shoppers and successfully encouraged their repurchases, with its penetration increased by 7.0% in Q3.
Offering reliable delivery experiences and a solid logistic network are still the key competitive advantages of eCommerce. In contrast, the shopper base of Alibaba and Pinduoduo in FMCG declined further in the latest quarter.
Source: Kantar Worldpanel China
Interest e-commerce such as Douyin and Kuaishou continued to attract more shoppers. FMCG penetration on Douyin has grown significantly in the latest 12 weeks. According to Kantar Worldpanel, 17.8% of urban Chinese households purchased FMCG on Douyin in Q3. At the same time, the number of consumer on Kuaishou nearly doubled year on year.
Douyin e-commerce has entered a new stage of development, offering similar interface for consumers to search and buy the products directly on the back of its high quality content marketing. Recently, the "818" and "921" shopping festivals held by Douyin responded well to consumers need for value for money offers amid the COVID-19 pandemic, and the average shopping frequency of Douyin shoppers went up by 23.9% in Q3.
O2O is here to stay and will benefit all parties in the retail ecosystem
Source: Kantar Worldpanel China
As consumers shop less in the brick-and-mortar stores, retailers will have to find new ways to retain existing shoppers and forge a connection with shoppers. O2O has become the most important engine to effectively drive the growth of offline retailers and brands. Sales of O2O in Q3 increased by 11.7% from a year ago.
The uncertainty of the pandemic has further boosted the daily consumption through home delivery, with urban Chinese households purchasing FMCG for 5.5 times on average through this channel. In terms of platform types, Aggregators (e.g. as JDDJ, Meituan, Ele.me, etc.) have seen a significant increase in the frequency of orders. Chinese consumers’ spend for each trip expanded with the Frontline Warehouse platforms, thanks to more efficient delivery promise fulfilled by those platforms.
To provide shoppers with a better experience, O2O platforms have been optimizing the supply chain with more refined operations. At the same time they also introduced omni-channel digital solutions to help retailers improve their operational efficiency, leading to the transformation of the entire retail ecosystem.
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