The consumption data for the first quarter has been released. According to the National Bureau of Statistics, total retail sales of consumer goods in Q1 this year reached 12.0327 trillion yuan, a year-on-year increase of 4.7%. Among them, retail sales of goods were 10.6882 trillion yuan, up 4.0%; catering revenue was 1.3445 trillion yuan, up 10.8%. Overall, the trend is stable and improving, with catering remaining a major consumption driver, while the battle between e-commerce and physical retail is nearing a critical point.

Catering Remains Strong Goods Retail Growth Is Weak Food is the paramount necessity of the people, and catering consumption has maintained a relatively high growth rate. Data shows that in Q1, China's catering revenue reached 1.3445 trillion yuan, up 10.8%. The growth rate is lower than the same period last year, but last year was the first year after the removal of pandemic effects, with a strong consumption rebound. This year, maintaining a growth rate above 10% is quite an achievement, and catering consumption growth is still significantly higher than that of goods consumption. However, behind the strong recovery of the catering industry, competition is intensifying. First, the growth rate of catering revenue is stabilizing, and with obvious peaks and valleys around holidays, the overall trend resembles a "roller coaster," with the highest and lowest points differing by more than six times. Second, the pace of industry survival of the fittest is accelerating. According to Qichacha data, as of December 21, 2023, the number of domestic catering enterprises that were cancelled or revoked exceeded 1.265 million, more than double the number in 2022. Yilan Commercial statistics show that in Q1 2024, more than 700 catering stores closed, with many brands suddenly disappearing or going bankrupt.

Compared with the high-growth catering industry, the growth of physical goods retail appears relatively sluggish. Data shows that in March, retail sales of goods were 3.5056 trillion yuan, up 2.7% year-on-year, the lowest growth rate since August 2023. By category, categories with better year-on-year growth include sports and entertainment goods, communication equipment, and tobacco and alcohol, while other categories performed flatly. Among them, sports and entertainment goods led goods retail with a growth rate of 14.2%. Yilan Commercial found that this category was separately listed starting in 2023, and since June 2023, its growth rate has remained high, possibly related to the booming outdoor economy in recent years. Relevant data shows that from 2022 to 2023, outdoor sports such as ice and snow, road running, cycling, off-road, and camping saw explosive growth. In the first half of 2023, orders related to outdoor sports increased by 79% compared with the same period in 2022, and by 221% compared with the same period in 2019. In addition, tobacco and alcohol products have maintained rapid growth. In Yilan Commercial's view, with the pandemic over, people's demand for tobacco and alcohol products in social and gathering settings has increased, driving retail market growth. Moreover, tobacco and alcohol are addictive consumer goods, and compared with other categories, consumers are willing to repurchase, ensuring stable consumption volumes. However, not all categories maintain rapid growth. Cultural and office supplies performed poorly, with sales falling 8% in Q1. Yilan Commercial believes that the decline in such supplies may be related to paperless offices. In September 2022, the State Council clarified that by the end of that year, paperless reimbursement, accounting, archiving, and storage of invoices would be achieved, greatly promoting the paperless process. This is also reflected in sales data: since 2022, the growth rate of cultural and office supplies sales has slowed, and since 2023, it has been declining. In addition to office supplies, daily necessities consumption growth is also clearly weak, with a year-on-year increase of less than 1% in Q1. According to Euromonitor International's Consumer Voice survey, in 2023, up to 74% of global consumers were worried about rising daily necessities costs, and nearly half hoped to save expenses.

Online and Offline Channel Battle Nears Critical Point From the perspective of sales channels, online retail sales continue to grow, making online channels a "hot potato." From January to March 2024, national online retail sales reached 3.3082 trillion yuan, up 12.4% year-on-year, accounting for 27.49% of total retail sales of consumer goods. Among them, online retail sales of physical goods were 2.8053 trillion yuan, up 11.6%, accounting for 23.3% of total retail sales of consumer goods. In fact, online retail sales data has been very impressive. On the one hand, the growth rate has been stable at around 10%, with peaks close to 30%. On the other hand, the proportion of online retail sales has stabilized at around 28%, with physical goods online retail accounting for about 24%. In Yilan Commercial's view, there are three main reasons for online channels accounting for nearly 30%.

First, consumer shopping habits have changed. One is the impact of the pandemic, which shifted purchasing channels from offline to online. Second, online shopping costs are relatively lower—merchants save on rent, utilities, and other expenses, allowing consumers to buy products of the same quality at lower prices. Third, online shopping reduces time costs, allowing consumers to find desired products quickly and compare prices across multiple stores. Under multiple factors, consumers are more willing to shop online.

Second, the process of product seeding and harvesting has formed an online closed loop. With the rise of short videos and live streaming, consumers can see products, learn about other consumers' experiences, place orders with a few clicks, and have goods delivered to their doorsteps. Consumers find it more convenient, so they are more willing to shop online.

Most importantly, the degree of product standardization continues to increase, driving the development of online shopping. "Standard products" refer to products with stable and uniform characteristics, such as clothing, shoes, and mobile phones. For merchants, standard products are easier to transport and stock, and effectively reduce losses. As the variety of standard products increases, merchants are willing to open online channels, and consumers have a wider range of choices. Liu Zhaowen, store manager of Beijing Wumart Lianxiangqiao store, once told the media that after implementing standardization, the fruit and vegetable counter reduced losses by 120,000 yuan. It is not difficult to see that in the past year or so, the growth rate of online channels has begun to slow, and the proportion has stabilized. However, even if online channels stabilize, their diversion of physical consumption should not be underestimated.

Physical Retail Still Under Pressure Yilan Commercial calculated offline retail sales and their year-on-year growth rates and compared them with online retail sales. Clearly, since Q3 2021, the growth rate of offline retail sales has been lower than that of online retail sales, and there has been a period of negative growth. Different formats show different characteristics. In Q1 2021, the growth rates of all formats were the highest in the past three years, possibly related to the pandemic. The growth rates of specialty stores and exclusive stores are very stable, with the former maintaining around 5% and the latter around 1%, with exclusive store growth almost "standing still." Among them, convenience stores lead in growth, stable at around 7%. According to the "2023 China Convenience Store Development Report" jointly released by CCFA and KPMG, the total number of convenience stores in China increased from 132,000 in 2019 to 300,000 in 2022. CCFA also mentioned that the saturation of convenience stores in most cities is in the range of 3,000-9,000 people per store, indicating there is still significant room for improvement before reaching mature market stages, and convenience store retail sales may maintain this high growth trend.

It is worth mentioning that the growth of the supermarket format and the department store format seems to show a seesaw trend. This was more obvious in 2022 and 2023: in 2022, the supermarket format grew steadily at around 6%, while department stores experienced negative growth throughout the year; in 2023, the department store format began to recover, while the supermarket format began to decline, with negative growth for most of the year.

In fact, for supermarkets and department stores, weak growth is no longer the main problem; the more important issue is how to survive. From store closure data, according to incomplete statistics from Yilan Commercial, in Q1 2024, about 1,200 stores in China announced closures, including large channel stores such as Walmart, Yonghui Superstores, RT-Mart, and Hema. By format, there were at least 140 supermarket stores and 2 department stores. From performance, among 12 supermarket companies that have published performance reports or forecasts, 7 are in a loss state, 4 are in a slight profit state, and the most notable performer, Hongqi Chain, only achieved net profit of 561 million yuan. Regarding the situation faced by the physical industry, economist Yu Fenghui told Yilan Commercial that online consumption not only brings pressure to traditional retail enterprises but also provides opportunities for transformation. He pointed out that enterprises should strengthen the integration of online and offline, improve sales performance through complementary online and offline methods, and only then can they survive. At the same time, paying attention to market changes, adjusting product and marketing strategies in a timely manner, and improving service levels are necessary to thrive. Overall, China's consumer market is steadily recovering, and consumer demand is continuously being released. In the retail industry, the competition of product strength, optimization of team management, and brand building have become key factors determining success or failure. The battle is still burning, market reshuffling is accelerating, and no enterprise can afford to rest on its laurels.

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