China Re­tail In­dus­try Search­ing for Growth

China's Foreign Trade (English) - - Contents - By Lynn Yu

Ac­cord­ing to Kan­tar World panel, spe­cial­ized in con­sumer pan­els, re­ports the spend­ing in fast mov­ing con­sumer goods (FMCG) in 2015 grew by 3.5% year on year, as China econ­omy grows at its slow­est pace in 25 years re­cently.

Mod­ern trade (in­clud­ing hy­per­mar­kets, su­per­mar­kets, and con­ve­nience stores) con­tin­ued to ex­pe­ri­ence slug­gish growth in line with to­tal mar­ket, only grow­ing by 3.3% from 2014. Within this fig­ure there were sig­nif­i­cant dif­fer­ences by geog­ra­phy and for­mat. Key cities and pro­vin­cial cap­i­tals were adding only 1.4% in value year on year, but county level cities and coun­ties grew 4.4%. Hy­per­mar­kets de­clined in key cities and pro­vin­cial cap­i­tals by 1.5%, but it man­aged to grow at 4.1% at na­tional level as a re­sult of more store open­ings in the lower tier cities. Kan­tar World panel ex­pects to see con­tin­ued de­vel­op­ment in the Hyper­mar­ket for­mat in lower tier cities in the com­ing years. Smaller formats fared much bet­ter with con­ve­nience store formats en­joy­ing healthy growth of 13.1% na­tion­ally.

In­ter­na­tional re­tail­ers strug­gle to “tip the scales”

The gap be­tween in­ter­na­tional and do­mes­tic re­tail­ers has fur­ther widened as in­ter­na­tional re­tail­ers con­tinue to lose mar­ket share, down 1.1% to 13.4% in 2015. In­ter­na­tional re­tail­ers strug­gled to keep up with the rapidly chang­ing trad­ing en­vi­ron­ment where growth in their strong­hold (key cities and pro­vin­cial capita ls) was slugg ish, whi le they ex­pe­ri­enced stronger com­pe­ti­tion from lo­cal play­ers in lower tier cities as well as­com­pe­ti­tion from the e-com­merce giants.

What is in store for 2016?

Growth will con­tinue to ac­cel­er­ate for con­ve­nience formats: con­ve­nience stores have be­come one of the fastest grow­ing sec­tors in China’s re­tail mar­ket. Com­pe­ti­tion has al­ready been ex­tremely

Growth will con­tinue to ac­cel­er­ate for con­ve­nience formats: con­ve­nience stores have be­come one of the fastest grow­ing sec­tors in China’s re­tail mar­ket.

in­tense in the South while there is still pretty of room to strike dou­bledigit growth in the North and West. Con­ve­nience stores are also try­ing to in­no­vate to cre­ate a dif­fer­en­ti­ated shop­ping ex­pe­ri­ence and typ­i­cally of­fer the last mile de­liver y for e- com­merce. The re­cent am­bi­tious fran­chise agree­ment be­tween Law­son and Zhong­bai clearly paves the way for even more rapid ex­pan­sion in the in­land prov­inces.

Cau­tious ex­pan­sion and tai­lored adap­ta­tion in lower tier cities: As mod­ern trade has ex­hib­ited lack­lus­tre growth in higher tier cities, all re­tail­ers are seek­ing growth op­por­tu­ni­ties in the lower tier cities where there will be in­tense com­pe­ti­tion for share of wal­let. New store open­ings are still the fastest way to grow. For ex­am­ple, Rt-mart’s out­stand­ing per­for­mance was largely con­trib­uted by pen­e­tra­tion in­crease in lower cities where the re­tailer opened 31 new stores with more than 85% of them based in lower tier cities. With the ab­so­lute growth in lower tier cities also ex­pe­ri­enc­ing a slow­down, it is crit­i­cal for re­tail­ers to be more shop­per cen­tric and de­velop their “right to win” through op­ti­miz­ing mer­chan­dise and in-store ex­e­cu­tion based on lo­cal needs.

Size mat­ters in China so more merg­ers and al­liances are ex­pected: As com­pe­ti­tion in­ten­si­fies and the to­tal mar­ket con­tin­ues to de­cel­er­ate, re­tail­ers have to build scale to op­ti­mize their cost base and strengthen their ne­go­ti­a­tion power. In 2015, Yonghui’s ac­qui­si­tion of a stake in Lian­hua su­per­mar­ket al­lowed it to ex­pand into the af­flu­ent East China re­gion, while Hongqi’s takeover of Huhui su­per­mar­ket en­abling the group to reach share of 1.5% of the West mar­ket. Fur­ther re­gional mar­ket con­sol­i­da­tion is ex­pected in 2016 as China’s re­tail land­scape is still frag­mented, with top 10 re­tail group only ac­count­ing for less than one third of the mod­ern trade sales.

Real Omni-chan­nel ex­pe­ri­ence is yet to emerge: E- com­merce con­tin­ues to surge in China’s FMCG mar­ket, with an­nual growth of 37%, as the likes of JD. com and Tmall in­vested heav­ily in fes­tive pro­mo­tion and shop­per con­ver­sion. More and more brick- and- mor­tar re­tail­ers have started to in­tro­duce their own e-com­merce plat­form on the back of the boom of cross-border e-com­merce and mobile com­merce to win their shop­pers back. How­ever most of them are yet to cre­ate a dif­fer­en­ti­ated shop­ping ex­pe­ri­ence be­tween the on­line and off line world, as the current Omni- chan­nel shop­ping ex­pe­ri­ence is not strong enough to stand­out against the com­pe­ti­tion.

Source: Kan­tar World panel China

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