The market for fast moving consumer goods (FMCG) has continued to grow at a rapid pace during the past years in china.
During Q4 2018, the spending on FMCG in China increased by 5.3% compared to the same period last year. In term of geographic distribution, much of the growth is centered in the the southwest and central provinces as the biggest wealth increases are occurring in those areas following a shift inland from the coast. Northern and western regions have, however, also continued to contribute to the FMCG sales growth, reflecting the wider economic growth distribution. With growing income levels, there is also a shift in the tastes of Chinese consumers, with a significant increase in higher-end products. Especially healthy foods have recently seen a large increases in popularity.
Online sales grew by a whopping 43.6% during the fourth quarter and now account for 10.6% of the total FMCG market. This share is expected to increase significantly over the coming years as the online economy is expected to grow by 18% annually until 2022. The predicted share for 2025 is almost triple the current percentage. The internet offers access to all kinds of goods for the population that lives outside first-tier cities, and as their wealth level increases, so does the online deliveries in their regions. In the first-tier cities (Beijing, Shanghai, Guangzhou, Shenzhen and Tianjin) 72% of all households purchase FMCG online, whereas in tier-2 cities, the share is just over 50%. In third- and fourth tier cities this percentage is yet lower, but growing rapidly.
Furthermore, there is a trend in using ecommerce ever more frequently in the daily life of consumers. This is particularly driven by the popularity of mobile shopping. The main categories in China´s online economy are apparel and accessories, as well as electronics and media products.
As e-commerce looks for new ways to drive traffic online, key players are turning to smaller traditional commerce and brick-and-mortar stores. This phenomenon is called Online to Offline (O2O), and it is transforming the retail industry by bringing both challenges and opportunities. In January 2018, Tmall announced the opening of its first Tmall convenience store in Hangzhou. The Alibaba-group owned company applied big data and modern retail management systems to develop the traditional stores, and has optimized product procurement and assortment. The competitor JD.com has also entered the game with frenzy, and has a plan to eventually open 1,000 new stores every day by the end of 2019. These stores will be operating on a franchise basis under JD.com, and will be located in lower tier-cities and in rural areas in order to extend the company´s reach into areas where e-commerce penetration is still relatively low.
This development will further integrate the online and offline economy and eventually make it harder to clearly divide these two apart. What is clear, however, is that there is a massive growth ahead for FMCG in China, and that it is important to have a clear online strategy in order to succeed both online and offline.
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