---
title: "2019 China Shopper Report | Three Trends Leading the Future: Premiumization, Small Brands, and New Retail"
description: "Despite an economic slowdown, China's FMCG market continues to grow strongly. The 2019 China Shopper Report Series 1, released today by Kantar Worldpanel and Bain & Company, shows that total FMCG spending grew 5.2% in 2018, slightly above 2017's 4.7%, driven by premiumization as average selling prices rose 4.6%."
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published: "2019-06-25"
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# 2019 China Shopper Report | Three Trends Leading the Future: Premiumization, Small Brands, and New Retail

> Despite an economic slowdown, China's FMCG market continues to grow strongly. The 2019 China Shopper Report Series 1, released today by Kantar Worldpanel and Bain & Company, shows that total FMCG spending grew 5.2% in 2018, slightly above 2017's 4.7%, driven by premiumization as average selling prices rose 4.6%.

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Despite an economic slowdown, China's FMCG market continues to grow strongly.
**The 2019 China Shopper Report Series 1, "Three Trends Leading the Future: Premiumization, Small Brands, and New Retail," released today by Kantar Worldpanel and Bain & Company**, shows that in 2018, total FMCG spending continued its rebound from the previous year, growing 5.2%, slightly above 2017's 4.7%. As Chinese consumers' willingness to spend increases, premiumization has contributed significantly to the industry's recovery, with average selling prices rising 4.6%.
This is the eighth consecutive year that Kantar Worldpanel and Bain & Company have tracked the actual shopping behavior of Chinese consumers. This ongoing research has given us a long-term understanding of 106 FMCG categories purchased by urban Chinese households.
The study shows that the "dual-speed growth" phenomenon described in our 2016 China Shopper Report, "How to Navigate the Two-Speed Chinese Shopper," still exists, with home care and personal care categories growing rapidly, while food and beverage sectors grow more slowly.
"As the FMCG market recovers, we see premiumization continuing to play an important role, with Chinese consumers increasingly favoring products that improve health and lifestyle," said Bruno Lannes, Bain & Company's global partner, senior leader of the consumer products and retail practice in Greater China, and co-author of the report. "**While penetration and purchase frequency may have peaked in some categories, there is still ample room for average selling prices to rise.** Shopper behavior data from the past two years shows that brands can still take action to further stimulate consumer purchase intent, thereby driving growth in categories that are flat or declining."
**Channel Trends**
The report also finds that **e-commerce penetration growth has hit a ceiling for the first time.** Overall, e-commerce channel growth has slowed slightly, with 30.6% growth in 2017-2018, down from an average annual growth of 35.1% between 2014 and 2018. In first-tier cities, e-commerce penetration has stabilized at around 80%. **In lower-tier cities, e-commerce penetration is expected to continue growing for at least three to four more years, becoming the engine for future online channel expansion.**
Although 2018 may not be a turning point, the study shows that offline retail is indeed beginning to see a turnaround. Previously, with the rapid rise of e-commerce, most physical store formats had been gradually losing market share. But now, **offline retailers have the opportunity to break through the downturn and regain growth momentum through smaller, more flexible store formats.**
For example, based on the 10 food and beverage categories analyzed in the study, we found that since 2016, sales of food and beverages consumed away from home in traditional channels (grocery stores) have grown at a compound annual growth rate of 14%, accounting for 80% of total traditional channel sales in 2018. Similarly, for these same 10 categories, away-from-home consumption has also driven sales growth in convenience stores, with sales of away-from-home consumption goods growing at a compound annual growth rate of 17% over the past two years, accounting for 88% of total convenience store sales.
The report believes that **large physical store formats still have growth potential, but transformation is imperative.** In 2018, hypermarkets began to play the role of forward warehouses, partnering with leading delivery platforms to provide 30-minute delivery for online orders, somewhat restoring growth momentum. Another opportunity for large chains is to increase investment in fresh food to drive transformation and growth.
**The Significant Impact of Rapidly Growing Small Brands on Large Brands**
In the 2018 China Shopper Report Series 2, "China's New Force Brands Shake Up the Two-Speed Growth Market," we described how China's new force brands have made significant contributions to FMCG growth. As this trend continues, this report will address a fundamental question facing most companies: Can large brands continue to scale and achieve sustained success?
**"Many mature brands find that small brands are better at meeting consumers' specific needs in certain areas, and from product development to digital marketing, small brands demonstrate a high degree of agility and flexibility,"** said Jason Yu, General Manager of Kantar Worldpanel Greater China and co-author of the report. "Focusing on developing large brands, or building a portfolio of different brands to serve different segments, is a headache for every FMCG executive. Such decisions sometimes require major strategic transformations, and the difference between a brand with tens of billions in scale and one with just over a hundred million is significant."
**The Rise of China's Unique New Retail Formats**
**Another emerging trend is new retail.** In whatever form it takes, new retail blurs the lines between online and offline, changing the way FMCG products are sold. For example, new retail contributes most to the growth of food service, mainly due to continuously improving delivery speeds. Currently, new retail stores are mainly located in first- and second-tier cities, with penetration comparable to regional supermarkets, and future new retail stores will continue to expand.
The report points out that **the accelerated development of new retail formats brings new opportunities for retailers**, shifting from today's mass-market, offline-focused approach to a seamless, multi-channel future shopping experience. We believe that physical stores still have a bright future, but offline retailers must improve their strategies to adapt to this new environment.
**Specifically, retailers can take the following three actions:**
1. Redesign store portfolios under new retail formats
2. Use new technologies such as augmented reality to make store experiences more attractive
3. Implement digital operations to provide consumers with a seamless online-offline shopping experience, and begin monetizing consumer data to better collaborate with brands

The three methods we proposed in last year's report for companies and brands to win in a changing market still apply. This year, **we add a fourth method based on the success of new force brands:**
1. Fully understand channel dynamics, grow with winning channels, and predict future retail consolidation
2. Develop high-value, personalized products to fully leverage the premiumization trend
3. Transform into data-driven, consumer-centric enterprises, cooperate with platforms, and develop internal proprietary consumer databases
4. Build a portfolio of different brands to increase overall share in individual categories, meeting personalized consumer needs and desire for new products

"**As Chinese consumers become more sophisticated, the channels available to them are also becoming more advanced. Companies that want to win in this new era must fully understand what it takes to win in the market,**" said Deng Min, Bain & Company's global partner, senior leader of the consumer products and retail practice in Greater China, and co-author of this report. "By understanding and integrating new retail models, while focusing on a consumer-centric mindset, companies can become winners in the emerging new retail battlefield."
Source: Kantar Worldpanel (ID: KantarWorldpanel)


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