2016 marks the third year since Kantar Retail started the annual China FMCG Digital Power Study. More than 200 professionals from FMCG manufacturers participated this year’s research, which helps us to identify e-commerce leaders from the manufacturers’ point of view. Based on their answers, we attempt to capture the latest snapshot of China’s e-commerce landscape in the FMCG market and provide industry benchmarks for both manufacturers and e-commerce platforms.
Caption: Some of participating manufacturers
In 2016, though the growth brought by sheer new users has levelled off, e-commerce is still the brightest spot in China’s retail market and plays a pivotal role in the upgrading of China’s economy and retail sector. According to our analysis of sales data of all online categories, the next wave of China’s e-commerce growth will come from FMCG. Baby product category is considered to be more mature, but most FMCG categories have relatively smaller sizes and shown strong growth throughout 2016. They are definitely the future stars of e-commerce in China.
Caption: Categories' online maturity
Some categories’ performances in e-commerce channel
Personal care category’s sales in 12 months by July 2016 is 43% higher than a year ago, among which men’s grooming is the fastest sub-category (+119% y-o-y). Men’s skin care category is also taking off and premium men’s skin care products will be a key battleground in the future.
As Chinese people’s awareness on oral health increases, oral care products with specific functions have become popular online, especially so for extra-premium toothpaste brands, many of which are imported and sold at higher prices. Consumers have been convinced that they’re more professional and effective. At the same time, some lower-priced toothpastes also have had good results thanks to their unique product positioning and appeal to younger generations.
Within baby product category, the order of the top 10 diaper and infant formula brands remain relatively stable. On the e-commerce platforms side, Tmall and JD take up a large market share in diapers B2C value sale, while vip.com is growing dramatically in this category.
The concentration of laundry liquid’s online market is very high, brands which appear in top 10 in both moving annual total (MAT, equivalent to 12 months ending) July 2015 and MAT July 2016 account for 85% of market shares. In the top three brands, Walch is the only brand with share growth. Weixin and Mamayixuan, the other two brands under Weilai Ltd. with Walch, are also in top 10 -- the total share of this manufacturer is 32%.
Snack category is highly fragmented where the combined market share of top 10 brands in the past two years added up to only 29% of the market total. It is worth noting that “Tao brands” (local brands which originated from Tmall and Taobao, such as Three Squirrels) accounted for 83% of sales share of top 10 snack brands online in MAT July 2016. It is 6 percentage points higher than a year ago. Tao brands are posing obvious threats to traditional brands, which is unique in the snack category.
Caption: Top 10 Snack Brands in Online Sales (brands in boxes are 'Tao brands')
Under beverage, dairy is most mature category with the largest size and below average growth rate. Chinese milk brands, such as Yili and Mengniu, are gradually expanding their market share, while the UHT imported milk brands, such as Oldenburger, Devondale and Meadow Fresh, are facing declining growth now.
JD.com contributes 62% of online beer sales and is the largest distribution channel. The majority of JD’s beer sales come from imported brands which are less well known in offline channels, such as Wurenbacher, Eichbaum and Oettinger.
Trend of FMCG manufacturers’ e-commerce play
First, mobile is the largest e-commerce platform for the majority of manufacturers. Content that is not mobile friendly is no longer acceptable;
Second, manufacturers are expanding their cross-border e-commerce operations;
Thirdly, we see many manufacturers now launching products sold exclusively online, in order to differentiate from offline. In fact, our study indicates that three-quarters of manufacturers now have exclusive online offers in their portfolio.
Caption: Research of 'Online Exclusive' Products
2016 Best E-commerce Retailer Ranking
As always, Kantar Retail evaluates e-commerce platforms’ ranking based on comments from more than 200 participants from FMCG manufacturers to identify e-commerce leaders from the manufacturers’ point of view.
JD and Tmall remain the top e-commerce retailer this year and the gap has been narrowed between each other. Over 90% of respondents commend JD and Tmall on account of their market share and quality of the team and services.
YHD remains in third position this year. Its mature supply chain system and FMCG expertise are always highly spoken of.
Vip.com, whose corporate strategy and impressive communication skills are highly acclaimed by manufacturers, ranks 4th this year.
Xiaohongshu, the specialist in cross-border business became 8th in the ranking — its unique business model and community operation are highly recognized by its business partners.
Feiniu made the list for the first time, marking a success of the offline retailer’s online expansion.
Amazon and Suning have dropped one place each.
Caption: 2016 Ranking of Best FMCG E-commerce Retailers
Evolution of e-commerce positioning within FMCG’s Business
Creating additional sales volume is still the No. 1 reason that motivates manufacturers to turn to the e-commerce channel. E-commerce in China grew over 30% in the past years while offline retailers are struggling with growth and instore traffic. Moving online to produce a new revenue stream has become one of the most obvious trends in the industry.
Besides, e-commerce plays a crucial role for building brand image, awareness and equity in a much faster and more efficient way, especially in the lower tier cities, where modern trade is not well developed.
While dealing with severe competition, especially in face of the price war launched by different e-commerce platforms across categories, margin and profitability has not been satisfactory to most of our FMCG clients.
Stronger consumer/shopper communication, a new option added this year, turns out to be the third most important objective of e-commerce, which has been regarded as an ideal channel to communicate with consumers and shoppers in a more direct, engaging and innovative way. In 2016, we have seen different innovative marketing campaigns being launched by different FMCG manufacturers by leveraging new media like Livestreaming, etc.
Caption: Role of E-commerce in Your Business (percent of manufacturers ranking 3 of 3 in importance)
Source: Kantar Retail