Abstract

As we described in Volume 1 of this report, China’s decelerating growth and the government’s emphasis on the service sector has introduced important changes for makers of fast-moving consumer goods (FMCG). Sales of products that are traditionally favored by blue-collar workers—such as instant noodles and value beer—are growing at a snail’s pace, or even declining, while products typically purchased by members of the rising middle class—such as yogurt and pet food—are breaking records. The first half of 2016 has shown no change in these trends; the same depressed categories continue to be depressed, while the same robust categories, buoyed by personal care, are enjoying fast growth.

This “two-speed” scenario is playing out in retailing too.

Online sales are maintaining their decade-long boom, while offline sales in most formats continue to barely grow oreven lose ground, with the notable exception of convenience stores. Convenience stores now represent a relatively small share of China’s overall retailing market, but will become increasingly important in the years ahead. 

Of course, the strongest momentum in China retailing—and the biggest story—is in the online world, which is steadily chipping away at offline sales. Consider the fact that FMCG spending online rose 36.5% in 2015, primarily the result of 69% gain in volume growth, which more than compensated for declines in average selling prices. Increasing diversification in the categories purchased online is contributing to the massive online sales growth, as are the huge gains in imported products and the number of consumers taking advantage of promotions.

As it captures more of China’s FMCG sales, the online world is also undergoing significant changes. For example, consolidation continues at a smooth pace. The top 10 e-retailers accounted for 64% of total FMCG spending online in 2015, compared with 55% in 2014. Among the top four, which represent 55% of all online spending, Taobao, Tmall and JD still dominate, although Taobao’s share has decreased and JD’s recent acquisition of Yihaodian enabled it to take on Tmall as the leader in online grocery.