China’s retail FMCG market is changing at a rapid pace and 2014 will be no different.

Kantar Worldpanel has identified five key trends which will impact manufactures and retailers over the next 12 months and beyond:

1. More Consolidation
   2013 saw yet more mergers and acquisitions with the latest being the joint venture between Tesco and the CR Vanguard Group which will make this retail group the largest in China reaching 22 per cent of the national urban population. This is less than Walmart but the number of trips made will be higher due to the smaller store formats the group operates.The top 10 retailers now account for 56 per cent of modern trade within the key cities. However, the market is still very fragmented within the lower tier cities, with these same retailers only accounting for 16 per cent in the counties. Consolidation is a natural part of retail evolution as markets develop and as these retailers expand their footprint and acquire smaller players we will start to see more consolidation in the lower cities tiers. This means we will see the balance of power shift more towards the retailers as it has in the West.
2. Growth in Multi-Format
   As shopper needs evolve so will the retail formats offered to cater for these needs. Successful retailers in China in the future will likely be those that can offer a range of different stores formats to cater for different shopper needs. Neighbourhood stores, premium supermarkets and e-commerce are just some of the store formats that will grow in 2014 and Kantar Worldpanel says they will see more of these formats offered by the retail groups either through acquisition or opening new store formats under their existing banners. A recent example is the announcement that RT-Mart, currently just a hypermarket chain, launched an e-commerce portal to tap into the huge growth this channel is experiencing.
3. From Regional to National
   2013 saw some local retailers expand their footprint and quickly established themselves as regional or even national players. Yonghui is an obvious example but there are others too and more will follow in 2014, Kantar says. The impact has already been felt by many of the key players, some of whom have seen store closures as they look to focus more on store productivity. The key implication for manufacturers is to ensure they partner quickly with the local retailers who have a viable growth strategy so that they can benefit from the greater reach the retailer will offer.
4. E-commerce will Continue to Accelerate
   Although still relatively small in the world of FMCG in terms of value share this channel continued to see huge growth in 2013 and helped to add incremental growth to the FMCG market as shoppers brought more expensive products on-line. The national penetration of this channel is now 29 per cent, up from 19 per cent two years ago and is thriving in the key cities where penetration now stands at 46 per cent. The success of Yihaodian has had a clear impact on these numbers but there are many smaller players entering as well to try and ride the wave of this growing trend. Lower tier cities are expected to catch-up to this number over the next few years as e-commerce retailers expand their network and reach. The challenge for e-commerce retailers is how to encourage shoppers to make larger trips online rather than cherry pick certain items based on price. Currently the number of items purchased on-line is five items compared to eight items in hypermarkets highlighting a clear opportunity to increase the e-commerce basket size.
5. Chinese Shopper will be Even Smarter
   During 2013, Kantar has seen shoppers change their behaviours. They shopped across more channels looking for the best deals, upgraded to larger pack sizes to take advantage of the better value and brought more premium products. It says the trend will carry on in 2014 as access to information and ease of word of mouth is enhanced through improvements and increased usage of digital platforms and apps. For example, shoppers can now more easily compare the price of products and even pay for items through their mobile phone. The challenge for modern trade retailers is how to grow or even retain their shoppers’ spend as their demands for wide ranges, price and interactions increases. This makes shopper insights more critical than ever and successful modern trade retailers will be those that work with manufacturers to really understand their shoppers and grow business in partnership.