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KANTAR CONSULTING: WHERE TO PLAY in a New Digital and eCommerce World

Core Content

This whitepaper explores the evolving landscape of the Chinese FMCG (Fast-Moving Consumer Goods) and consumer health products market in the context of digital and eCommerce growth. It highlights the drivers of growth and outlines potential strategies for businesses to capitalize on new opportunities.

Main Growth Drivers

01 Grow Shopper Penetration

• Age Groups: Growth is being driven by both young (18-30 years old) and elderly consumers (>50 years old).
• Gender: Both male and female shoppers are increasing in online platforms.
• City Tier: There is a notable growth in lower-tier cities, particularly among "Small Town Youngsters" (小镇青年).

02 New Business Models

• Cross Border eCommerce (CBEC): This model is growing rapidly, with China's CBEC expected to increase 4 times by 2022. Free Trade Zones and Pilot CBEC cities are expanding, indicating government support.
• Social Commerce: Platforms like Pinduoduo (PDD) are leveraging social media for growth, offering group purchases and social sharing.
• B2B: The online B2B model is transforming traditional retail and offers a new way to reach consumers through enhanced product assortment and data-driven operations.
• O2O (Online to Offline): Integration of online and offline channels is crucial, with examples like 饿了么 (Ele.me) and 淘鲜达 (Taobao Fresh) leading the way.
• Go Abroad: Chinese brands are expanding their reach beyond domestic markets, with the goal of becoming global players.

Key Market Trends

• eCommerce Penetration: As of 2017, eCommerce accounted for 18% of FMCG total sales. Growth varies by category:

  • Beverage: 2% → 10%
  • Pet Products: 15% → 30%
  • Foods: 25% → 40%
  • Beauty and Personal Care: 25% → 40%
  • House Cleansing: 40% → 50%
  • Baby & Mums: 40% → 50%

• Elderly Consumers: The elderly demographic has shown rapid growth in online shopping, with platforms like Taobao and JD.com focusing on this segment. In 2017, the number of elderly users on Taobao was nearly 30 million, and their average annual spending was 1.3 times the total average.

• Male Shoppers: There is a growing proportion of male online shoppers across platforms, indicating a shift in gender dynamics in online retail.

• Lower Tier Cities: Tier 3-5 cities are experiencing strong growth in online penetration, with "Small Town Youngsters" playing a key role in driving this expansion.

• B2B Transformation: Traditional trade stores are evolving into modern grocery stores by adopting B2B models, which offer standardized banners, modern layouts, improved product assortments, and better data management.

Competitive Landscape

• Alibaba and JD: These are the dominant players in traditional B2C eCommerce, but they are facing new competition from emerging models like CBEC and Social Commerce.
• Pinduoduo (PDD): A major player in social commerce, PDD has a low-end positioning and leverages social sharing to attract shoppers. It has a significantly lower cost to acquire new shoppers compared to JD and Taobao.
• New Retail Models: Platforms like 盒马 (Hema) and 淘鲜达 (Taobao Fresh) are leading the O2O movement, offering 1-hour delivery and integrating online and offline experiences.

Opportunities and Strategies

• Cross Border eCommerce (CBEC): International retailers and manufacturers are increasingly entering the Chinese market through CBEC, creating new competition and opportunities.
• Brand Expansion: Chinese brands are exploring the SEA (Southeast Asia) market through platforms like Lazada, with opportunities for local brands to expand.
• Digital Transformation: The integration of digital screens and platforms is essential for omni-channel success. Brands are also exploring new retail strategies, such as online-to-offline and offline-to-online models.

Conclusion

The Chinese digital and eCommerce market is highly dynamic and evolving, with growth coming from increased shopper penetration and the adoption of new business models. Businesses must adapt to these changes by leveraging social commerce, B2B, and O2O strategies, while also exploring opportunities in cross-border and international markets.