Chinese urban consumers’ spending in fast moving consumer goods (FMCG) in the third quarter of this year grew by 3.6% from a year ago, according to Kantar Worldpanel. It is lower than 4.6% in second quarter, but still the second fastest growth since the second quarter of 2015.
By city tiers
Lower tier cities still grew faster than higher tier cities, especially county level cities (4.7%) and counties (4.2%).
Hypermarkets are especially challenged in key and provincial capitals in the third quarter, which declined 0.6% from a year ago. However, growth of hypermarkets remains strong in the lower tier cities tiers (prefecture cities/County level cities/Counties) at 3.1%. Lower tier cities offer more opportunities for brick and mortar stores whereas e-commerce businesses face more infrastructure and logistic barriers compared to higher tier cities. Kantar Worldpanel data showed that Sun-Art Group’s hypermarket sales grew by 28% in county level cities and counties in third quarter from a year ago, while that of Walmart Group jumped by 53% compared to same time last year.
By geographical regions
Both West (5.4%) and North regions (5.0%) outgrew the total market compared to same time last year. The West region has been growing ahead of other regions since the second half of 2015, driven by infrastructure improvement and faster disposable income growth, as well as by big retailers like Walmart, Yonghui and Vanguard opening new stores. The North region has caught up with the total market after under-performing for more than two years with some of this growth coming from Sun-Art’s strong performance here.
Chinese retailers keep expanding shares
The combined share of international retailers dropped to 11.6% in third quarter from 12.1% in a year ago. Walmart, the leading international retailer in China, is embracing the omni-channel strategy by increasing its shareholding of JD to 10.8% in mid-October and the opening of a global purchase flagship store on JD.com. Walmart’s offline share declined 0.1 of one percentage point to 4.7% in third quarter 2016 compared to the same time last year due to strong competition from local leaders Sun-Art Group and Yonghui.
Carrefour is looking to capitalise on the small format opportunity in China with a plan to open 40 Easy Carrefour convenience stores by the end of 2016 with a focus on high quality and private label products. Kantar Worldpanel reports convenience stores in tier 1 & 2 cities grew at 3.9% in third quarter of 2016 compared to the same time last year, while modern trade grew by just 1.8% in tier 1 & 2 cities.
Online retailers recruiting more FMCG shoppers
Leading online retailers aggressively growing their shopper base: Kantar Worldpanel reports 63% growth in FMCG spending on e-commerce platform in third quarter of 2016 versus the same period a year ago. Both JD and Tmall have increased their FMCG shopper base significantly over the same period last year. We expect both retailers will use Singles Day to step up their shopper traction and bring their penetration to a new level in the following month of the year.
Fast growing e-commerce platforms have impacted the businesses of brick and mortar retailers, but e-commerce is not the only reason for offline retailers’ poorer performance. According to Kantar Worldpanel, hypermarket FMCG spending in tier 1 cities in the whole year of 2015 declined 5% from a year ago. But only 15% of the lost business was switched to e-commerce. The remaining 85% was lost to other offline channels.
Hypermarket retailers will need to better understand why shoppers are reducing their spending in store and choosing to shop in other offline formats in order to improve performance, especially in the higher tier cities.
Source: Kantar Worldpanel