China is set to overtake the US to become the world’s largest grocery market by 2023 in value terms, according to new forecasts.
Studies from international researcher IGD Asia have shown the country’s total market size will reach RMB11.0 trillion (US$1.8 trillion), more than Asia’s next four largest grocery markets (India, Japan, Indonesia and South Korea) combined.
“China will not only retain its position as Asia’s largest grocery market by 2023, it will also overtake the US to become the world’s largest,” said IGD head of Asia Pacific Nick Miles. “The market is expected to have a CAGR of 5.5 per cent, on par with Sri Lanka and Thailand, but slower than markets such as India, Vietnam, Indonesia and the Philippines, where the economy is growing faster.
“Less than half of grocery sales in China currently go through traditional trade and as the market continues to mature, we expect traditional trade to continue losing share to modern trade. As the total market size expands, traditional trade will still grow, but at a much slower pace over the next five years (forecast CAGR of 0.8 per cent), compared with the growth rate of modern trade (forecast CAGR of 8.5 per cent).”
Development of modern trade in China over the next few years will be largely driven by ongoing store expansion, according to IGD’s research, as well as strong performances from the online and convenience channels.
“Convenience will be the fastest-growing physical store channel, driven by Alibaba and JD transforming traditional mom-and-pop stores, retailers opening smaller format stores and both local and overseas players expanding their networks through partnerships,” said Miles. “Online and offline integration will drive online growth. As the fastest-growing channel, we forecast online to contribute up to 11 per cent of sales in 2023.”
Hypermarket share will decline
Meanwhile, IGD forecasts that hypermarkets will see their share of China’s total grocery retail market reduce from 22 per cent last year to 18 per cent in 2023, while the market share of supermarkets will remain steady, close to 20 per cent.
IGD research has also found that China’s leading grocery retailers will grow at varying rates to 2023. E-commerce giants such as JD and Alibaba are set to see significant growth from both online and offline channels and become the second- and third-largest grocery retailers in China respectively. Meanwhile, retailers with nationwide networks such as Sun Art, Yonghui, Walmart, CRV and Carrefour will benefit from ongoing expansion, partnerships with e-commerce and tech companies, improved efficiencies, and investment in small formats. Regional players such as NGS and Wumart will continue to focus on profitability.
“With such strong market growth to 2023, trading in China has vast potential, whether supplying directly to physical stores or via online marketplaces,” concluded Miles. “However, there are huge changes taking place that suppliers need to consider. Online giants are reshaping China’s retail landscape with their strong logistical and technical capabilities, so suppliers should understand this new path of purchase and design meaningful ways to reach their shoppers. Expansion through local partners will also remain a key route to market in China, so customer strategies must take into account the strong alliances forming between e-commerce players and bricks and mortar retailers.
“There’s also a huge RMB1.7 trillion ($245.57 trillion) growth opportunity in convenience and online in the next five years, which can be captured by understanding trends and retailer strategies and allocating resources accordingly. But we would also urge suppliers not to neglect traditional trade, which will still account for about one-third of FMCG sales in 2023. As the channel modernises, it will provide new ways to reach new shoppers.”