China online spending to nudge 50 per cent of total retail market

China online spending is set to account for almost 50 per cent of the country’s total retail market this year.

According to fresh data from Mintel, this year’s figure will be 45.7 per cent of “total per capita retail spend”. In many categories, already more is spent on goods online than in physical stores in the world’s largest digital economy.

“China is experiencing a fundamental shift in the way consumers shop, and in how the shopping experience fits into the wider environment of customer service, delivered both online and in-store,” said Matthew Crabbe, research director, APAC, with Mintel.

The research shows China’s online retail market has reached a critical mass. Business-to-consumer (B2C) online retail is expected to reach more than 60 per cent of total e-commerce sales this year, with mobile online retail expected to make up more than 80 per cent of the B2C retail category.

However, while Mintel estimates per capita online retail spend will reach 45.7 per cent of total per capita retail spend by the end of this year it predicts that share will hold steady between until the end of 2019.

Crabbe said there are several reasons for the projected peak.

“One issue is that consumers are increasingly buying experiences and services online, rather than products. The other issue is that consumers are already adapting to ‘new retail’; they are embracing greater integration between online and in-store shopping. This will mean much tougher competition between retailers. It will also likely mean more pressure for further consolidation in the market, resulting in more mergers, acquisitions and strategic partnerships,” he said.

China’s ‘new retail’ experience has consumers purchasing different products from different channels. Mintel research shows that 72 per cent of in-home food shoppers prefer to shop in-store, compared with 60 per cent of consumers who prefer to shop online for toys, games, clothing, and accessories. Apart from alcoholic drinks (61 per cent shop in-store) and pharmaceuticals and healthcare products (57 per cent shop in-store), in all other sectors the combined total of those who shop online via a mobile device or lap/desktop is greater than the proportion who shop in-store.

While in-store grocery shopping still dominates, 66 per cent of consumers buy in-home food and drinks in-store, the average number of consumers who shop online (mobile or desk/laptop) for in-home food and drinks grew three percentage points since 2016, with 49 per cent buying in-home food online using a mobile device.

“The growth in mobile online shopping across all sectors this year illustrates how mobile is driving the convergence of online and offline shopping into ‘new retail’,” said Crabbe. “Meanwhile, online shopping penetration is high across most sectors. There may be room to expand fresh and luxury food product sales online, thus increasing the number of high-income consumers who shop online, but the room for expansion of share of pocket among China’s consumers is running out.”  

Arise the ‘grocernauts’

In fact, urban Chinese consumers are keen to get the immediate experience that only shopping in-store can offer. Mintel research reveals that 62 per cent of urban Chinese consumers say the ability to try, see, and experience products in-person before buying encourages them to shop in-store; the same proportion (62 per cent) shop in-store to ensure the freshness of produce, and 55 per cent say in-store shopping means they can get what they want faster.

“Supermarkets and hypermarkets are moving away from just selling in-home foods towards  providing catering services (so called ‘groceraunts’), as well as offering online food ordering and in-store pick up services. And convenience stores are morphing into unmanned, checkout-free, cashless, elaborate vending machines. We’ve also seen shopping malls evolve away from retail spots into theme park-like leisure developments. This is all leading to a very diverse potential retail environment that includes retail as part of a wider range of consumer services. Store functions will increasingly incorporate online-enabled, front-of-store consumer touch points for selling goods and providing other customer services – even ones not related to the retailer’s core business,” Crabbe added.

Probably the main driver of online retail’s success, 65 per cent of urban Chinese consumers say they find products cheaper online, while 63 per cent say that online offers more choice. More than half (52 per cent) of consumers say they find what they were looking for faster when shopping online.

“Despite the instant sensual and entertainment experiences that consumers enjoy when shopping in-store, low cost, high convenience and more choices are the key ingredients that drive consumers to do more of their shopping online. As online retail platforms invest in and collaborate with physical retailers, who in turn look to increase their online exposure, these new business models will create the ideal ‘new retail’ experience for shoppers. However, companies and brands will be challenged to find their own, unique combination of online and in-store features in order to create their own bespoke experience,” concluded Crabbe.

Total B2C and consumer-to-consumer (C2C) online retail sales in China are expected to reach RMB 6.4 trillion by year-end, having grown at a compound annual growth rate of 37.9 per cent since 2012 – that represents nearly fivefold value growth in just five years.

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