FMCG spending grows rapidly
Two distinct competitive dynamics influenced the rapid growth of Chinese e-commerce. First, leading e-commerce brands invested in other online players to expand reach and keep customers within their ecosystems. Second, leading e-commerce brands invested in offline businesses to create closer online-offline integration.
Tencent and JD.com illustrated the first dynamic with their substantial investment in online retailer Vipshop, late in 2017. The online and offline integration, a phenomenon Alibaba CEO Jack Ma named New Retail, was demonstrated by Alibaba’s association with the Bailian Group and purchase of Hema Xiansheng supermarket, and JD.com’s investment in Yonghui Superstores and collaboration with Walmart.
New Retail is evolving globally, and includes the association of Walmart and Jet.com and Amazon and Whole Foods. And it drives the rapid e-commerce growth of the fast moving consumer goods (FMCG). E-commerce still represents a relatively small percent of FMCG spending worldwide, around 5 percent, but it contributed 36 percent of FMCG growth, and is being more rapidly adopted in Asia, according to Kantar Worldpanel, in its report, The Future of E-commerce in FMCG.
The rise of FMCG e-commerce is especially relevant in China because of scale and the openness of the population to e-commerce. China’s e-commerce market reached RMB 5,156 billion ($794 billion) in 2016, according to the National Bureau of Statistics of China.
Around three quarters of Chinese grocery shoppers have purchased online, according to Kantar TNS. They use a variety of devices for purchasing, but favor mobile phones overwhelmingly. Almost 70 percent of online grocery purchasers order with a mobile phone at least some of the time, while less than half use a PC some of the time.
The grocery shoppers who have not purchased online say that better quality products and greater online selection could persuade them to try grocery e-commerce. Despite these reservations, FMCG e-commerce is growing and gaining market share and penetration in China and in other countries and regions.
Growth The value of FMCG sold through the e-commerce channel in Asia increased 44 percent for the 52 weeks ending in March 2017, outpacing the growth rate of all other regions. Multiple factors drove this growth, including the online spending of young families with children.
Market Share E-commerce accounted for 7.4 percent of FMCG spending in China, at the end of the third quarter of 2017 (it accounted for 6.2 percent at the end of March 2017). China is in a leadership group that includes South Korea, where the e-commerce portion of FMCG sales is greatest, along with the UK, Japan, France, and the US.
Penetration Major cities dominate penetration in China, as they do in much of the world. In Beijing and Shanghai, e-commerce comprises almost 10 percent of the FMCG market. However, lower tier cities are driving penetration, growth. The value of online FMCG purchasing in Tier 3 and 4 cities grew 59 percent between 2014 and 2016, around twice the growth rate of Beijing and Shanghai. Penetration is high in Asia generally, reaching over 69 percent in Korea. In contrast, online FMCG penetration in Europe averages around 30 percent.