According to the latest data from Kantar Worldpanel, China's FMCG market sales grew by only 1.7% year-on-year in the first quarter of 2017. In the first three months of 2017, China's GDP grew 6.9% year-on-year, slightly exceeding expectations, driven by government infrastructure investment and a booming property market. Despite a certain recovery in the overall economy, China's FMCG market still faces huge challenges.

The modern trade channel (including hypermarkets, supermarkets, and convenience stores) saw slight growth of 0.3% in Q1, with many large stores still failing to attract consumers back to physical stores. By city tier, provincial capitals and prefecture-level cities saw higher growth, with an overall increase of 2.5%. Among all regions, the western and northern regions showed relatively optimistic growth, with increases of 2.9% and 3%, respectively.

Followers are challenging the leading retailers

Among the top five retailers in China in Q1, Sun Art Retail Group, China Resources Vanguard, and Walmart maintained their market shares. Carrefour's market share fell by 0.1 percentage points year-on-year in Q1. Local retailer Yonghui Group grew strongly, with its market share increasing from 2.6% in 2016 to 3%. The opening of 33 new stores by Yonghui in the past three months further helped expand its market share. Yonghui announced plans to open more than 200 new stores, covering different formats to meet the needs of various customer groups and shopping demands. Meanwhile, Yonghui is piloting membership stores and Yonghui Super Species (a new format combining future supermarket and dining) to attract middle-class consumers seeking enjoyment and shopping experience. In April this year, Yonghui also established a joint venture with Zhongbai to further develop premium supermarkets and strengthen supply chain cooperation in Hubei Province.

In Q1 2017, other local retailers also delivered impressive results. Better Life, a regional retail giant headquartered in Hunan, grew 16% in Q1, opened 12 new stores, and made a major acquisition of Macy's (a comprehensive retailer in Sichuan and Chongqing). This indicates Better Life's ambition to expand its 'Greater Southwest' strategy based in Hunan, while there is still huge room for consolidation in the modern retail channel across the southwest region. In 2016, Wumart, a leading regional retailer, opened 18 new stores in the northern region and actively expanded its business in East China. The latest data shows Wumart's market share rose from 1.5% to 1.7%. SPAR China, which is committed to the voluntary retail chain model, saw its share increase from 1.3% to 1.5%, driven by members such as Sichuan Dehui and Guangdong Jiarong. With the addition of Yunnan Jinfang Group, SPAR will further expand in Yunnan and Guizhou. Under the aggressive offensive of local retailers, the market share of international retailers declined further from 10.8% last year to 10.1% this year.

E-commerce growth remains remarkable, with major e-commerce giants actively promoting online-offline integration

According to the latest data from Kantar Worldpanel, in Q1 2017, e-commerce channel FMCG sales growth still reached 35%. In B2C e-commerce, Tmall maintained its leading position, followed by JD.com, while Yihaodian (now under JD Group) continued to lose customers. In the same period, Yihaodian's penetration rate dropped from 1.7% last year to 1.5%.

E-commerce platforms still maintain high growth in the FMCG market, but major e-commerce players also face pressure to sustain high growth in gross merchandise volume (GMV). Therefore, they are also making efforts offline, integrating the offline retail landscape through acquisitions of physical retailers or entering the wholesale distribution chain. In April, JD.com announced plans to integrate 1 million traditional convenience stores in lower-tier cities and rural areas, providing supply and brand support to these stores that still rely on the traditional wholesale system. If this bold move succeeds, it could change the landscape of the traditional retail format.

Source: Kantar Worldpanel