Online and convenience-store sales drive China FMCG growth

CHINA - Online retailers and convenience stores are enjoying strong momentum in China thanks to rapid urbanisation, according to the annual Chinese shopper report released by Kantar Worldpanel and Bain & Company. 

Online FMCG sales grew by 36.5 percent last year on the back of 69 percent gains in volume growth, while convenience-store FMCG sales online grew at 13 percent. The top 10 e-retailers accounted for 64 percent of total FMCG spending online last year, compared with 55 percent in 2014. Online cosmetics platform Jumei grew nearly six-fold between 2013 and 2015, while its competitor Lefeng grew by 245 percent.

In contrast, offline FMCG sales grew by only 2.6 percent in 2015 and 1.5 percent in the first half of 2016, with negative volume growth, the report stated. Meanwhile, sales for traditional grocery stores and hypermarkets fell 10.4 percent and 0.2 percent, respectively, while the growth of super/minimarket decelerated to 4 percent. 

To explain the growth of convenience stores, the report mentioned that urban shoppers are looking for quick ways to replace existing stores and a place to complement planned online purchases. 

Convenience stores function as a one-stop shop for consumers to pay bills, purchase tickets and top off purchases. Ecommerce platforms like JD and Tmall are partnering with convenience store banners for online-to-offline (O2O) activation with designated convenience stores serving as pick-up points.

“It’s clear that we are living in a two-speed world now and this is playing out clearly in China’s retail sector,” said Bruno Lannes, partner in Bain’s Greater China Consumer Products Practice and co-author of the report in a statement. “To survive and prosper, both online and offline channels need to begin the process of adapting to this new reality, which requires the transformation of their business models to remain competitive."

On the other hand, the study states that imported FMCG items are four times more likely to be purchased online than in physical stores. Almost two-thirds of online sales are imported products or products purchased on promotion, which amounts to more than double the percentage of imported and promotion items bought at physical stores. In 2015, 40 percent of online FMCG purchases were made on promotion compared to 19 percent for purchases in physical stores. 

"China’s two-speed scenario is having a major impact on the country’s retail industry, and our findings show that this massive explosion of online sales growth is being fuelled by increasing diversification in the categories purchased online, as well as huge gains in imported products and consumers taking advantage of promotions,” said Jason Yu, general manager of Kantar Worldpanel China.  

During the recent Singles’ Day sales, a higher proportion of imported products were being promoted and sold on the Alibaba site. Sales of sanitary protection and toothbrushes recorded double-digit gains in the share of imported products sold. 

A total of 82 percent of purchases on Alibaba were made on mobile devices during the festival and international transactions rose by 60 percent compared to last year. Other ecommerce platforms JD and Sunning recorded 78 percent and 193 percent increase in sales respectively compared to last year. 

Three main engines of growth were identified in the Singles' Day sales:

• Existing shoppers of an online product category who purchased more
• Shoppers who withheld purchase to take advantage of the promotions
• New shoppers attracted to the online category due to promotions especially for FMCG goods