The consumption of FMCG (fast-moving consumer goods) in China has witnessed sales growth.
70% of FMCG brands are in growth in China in 2016!
FMCG in China
First and foremost it would be wise to define what exactly are fast-moving consumer goods. The most common definition states that these goods are sold quickly and at relatively low costs. FMCG supposedly have a short shelf-life as they are also consumed quite rapidly. Among the top examples of fast-moving consumer goods, we can find soft drinks, toiletries, over-the-counter drugs, processed food, and many other consumables (e.g. meat, vegetables, fruits,…). Another aspect of these FMCG is their low-profit margin as these are mainly sold in large quantities. FMCG is the most classic example of low-margin and high-volume business products.
FMCG Market in China
Reports showed that Chinese consumer spending on these goods in the second quarter went up by 4.6% from last year, from 2% in the first quarter. Even though e-commerce is growing gradually and will hit traditional channel sales such as hypermarkets, supermarkets, and convenience stores, the FMCG sales in these channels remained strong and even grew from 1.4% during the second quarter, coming from a slight decline of 0.5% in the first quarter. Modern (digital) channels tend to be more prominent in county-level cities and their urbanized counties, where the growth was higher; 2% in the counties and 3.9% in the urbanized counties.
Kantar Worldpanel China carried out in-depth research, they based their work on household purchases of over 100 product categories (incl. cosmetics, food, beverages, toiletry, and household goods) on 40,000 sample families.
Competitive landscape
The studies pointed out differences among the purchase habits within China, depending on the localization of the test sample. It would seem that the modern trade channels performed better in eastern and western China than in southern and northern regions. Eastern China went up by about 2.8%, greatly helped by Sun-Art Group and Wal-Mart group. In the west, reports show a growth of 3.6% mainly driven by Wal-Mart and Yonghui. Overall the American retail giant has recorded relatively stable performance through 2016. On the contrary, international retailers such as Carrefour, Tesco, and Lotus witnessed some sales drop.
The Chinese supermarket groups Sun-Art and Yonghui are leading the growth. Hong Kong-based Sun-Art Group developed its shopper base by upgrading existing stores while also opening new ones. Yonghui put efforts into consolidating its ranking among the top-5 national retailers. Throughout 2016, Yonghui performed well with notably significant growth in market penetration and basket size. Its shares remained above Lianhua Group’s during the second semester as it overthrew it earlier this year.
Physical retailer struggling
Over the recent years though, the overall drop in sales of fast-moving consumer goods combined with the fast-growing e-commerce on the Chinese market has forced traditional brick-and-mortar retailers to look for new strategies in order to stimulate the growth. According to Kantar Worldpanel analysis, on June 17th year-to-year, the total FMCG e-commerce penetration reached almost 50%, which is 10% higher than last year. Chinese online retail platforms Alibaba (number 1) and JD.com (number 2) obviously led the online market, they recorded a growth rate of over 80%.
Traditional physical retailers are looking for new ways to revive their hailing selling methods, and the major ones already developed partnerships with the leading online platforms. JD.com invested $ 700 million in Yonghui Group, representing a 10% stake investment.
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