China’s Food Retail Industry
Pre and Post-Covid
History and growth of the retail China industry:
During the past 20 years, China’s retail sales have grown by nearly 15% annually, making it the second-largest market globally by 2022. The Chinese food & grocery retail market had total revenues of $2,857.2bn in 2020, representing a compound annual growth rate (CAGR) of 10.6% between 2016 and 2020. The food segment was the market’s most lucrative in 2020, with total revenues of $2,105.1bn, equivalent to 73.7% of the market’s overall value.
Impact of the Pandemic on China retail & Consumer behavior:
COVID has affected the Chinese retail industry in various ways. The strict zero-COVID policy benefited the Chinese economy in the first 2 years after the lockdown in early 2020, while the rest of the world faced many pandemics and post-COVID recession difficulties. However, as the world entered the third year of COVID, it had the opposite situation in 2022. April 2022 had a full lockdown in Shanghai, resulting in China’s consumer goods retail sales revenue dropping. COVID has increased demand for online grocery shopping as consumers avoid physical stores due to fear of infection. Due to the lockdowns and social distancing measures, consumers have shifted their buying habits from traditional retail stores to online platforms. At the same time, the pandemic has also raised awareness of food safety and hygiene, and retailers started measures to assure consumers of the safety of their products.
In terms of sales channels, traditional retail channels like supermarkets and hypermarkets still account for the largest share of retail food sales; however, their market share has been declining in recent years due to the rise of online platforms. COVID also accelerated the growth of online food retail, especially during the lockdown period. Its penetration rate of food retail reached 15.5% in 2022 from 7.4% in 2018. Traditional food retailers have taken various measures to address the challenges posed by the COVID-19 pandemic. They invested in online platforms to cater to the increased demand for online shopping.
In addition, we found that, according to statistics, the section of the retail food industry that was influenced most severely is the fresh food industry. Chinese consumers, even those with lower incomes, remain conscious of food quality, particularly its freshness. Most hypermarkets and supermarkets in China provide their own in-store butcher and other counters to offer fresh food. But Covid has changed their purchasing habits, and people tend to buy more frozen food for extended storage. But the retail sales of fresh food stayed relatively high in 2020 and 2021. And it started to grow steadily again in 2022.
Alibaba’s Hema Fresh, for instance, launched a new online platform in 2020, allowing customers to order fresh produce and other groceries online for home delivery. And many retailers have increased sanitization measures in their stores and warehouses. In addition, some retailers have introduced online health and safety certifications for their products to assure consumers of their safety. Even before COVID in 2019, China was the largest country in online sales, and COVID also accelerated online sales in China.
The value of the Chinese food and groceries market grew by 8.5% in 2020 due to the COVID-19 pandemic, with increased demand driven by precautionary buying and a spending shift from food service channels.
Digital Retail Grocery Growth in china:
Under COVID, new kinds of sales like Group Purchasing and Live Commerce have been widely spread in addition to traditional online sales. Group purchasing was especially recognized and appreciated under full lockdown when consumers ordered by group purchasing at the residence level. And people spend more time on live commerce, which gives interactive and personalized experiences. In 2021, online sales shrunk compared to the peak of the pandemic in 2020, but online sales in China had been growing even before COVID. The share of online sales in 2021 was higher than before the pandemic because we assume consumers’ shopping behavior changed during the pandemic. We expect that online sales will gradually increase. The offline channel will remain as physical stores, but the store might transform and integrate with online media.
More and more offline retail stores will be transformed, such as Alibaba’s Hema or Amazon Go –provide services such as digitized payment, traceable information by scanning QR codes, and in-person experiences such as food sampling and super express delivery. If you buy at an offline store, the goods will be delivered within a few hours or even 30 minutes.
Group Purchasing & Livestreaming — Digital Commerce:
The epidemic has greatly boosted demand for contactless payment methods and, increasingly, new channels such as online-offline fresh food and food delivery. Online consumption grew amid the overall downward trend, with a particular surge in online sales of fresh food, which has proved to be an enormous hit with consumers. China’s fresh food retail market has grown steadily in recent years, exceeding 5 trillion yuan in 2020. With rising disposable income and consumption expenses, we believe the fresh food retail market will maintain its growth and its scale will hit 8 trillion yuan in 2025.
Offline retail channels such as supermarkets and vegetable markets are still the main retail channel of fresh food. The penetration rate of online fresh food retail is low but surging. The pandemic in 2020 further accelerated the growth of online fresh food consumption, which accounted for 14%. Influenced by Covid, China’s fresh food e-commerce market developed quickly and reached 450 trillion yuan in 2020, increasing by 64% compared to 2019. With the development of fresh food e-commerce and the maturing models, the formation of users’ online purchase habits and the increasing fresh food e-commerce users, and maturing technologies, we think that the fresh food e-commerce industry will maintain fast growth and scale exceed 1 trillion yuan in 2023.
China’s rapid urbanization and digital transformation have created a unique retail context. Chinese consumers adopt digital technology more broadly and are more willing to share personal data for benefits than users in other countries. Well-to-do consumers have increased significantly in lower-tier cities. All these shifts combine to create a challenging environment. The express-delivery model has been expanding at a fast clip. And the majority of grocery retailers in mature markets are now embracing advanced analytics and are investing in capturing its value. We believe China’s retailers should use imperatives such as building omnichannel services/investing in techs / adopting agile practices, etc, to execute all-embracing strategies.
Forecast of online and offline china retail market:
The latest Chinese grocery retail forecast issued by Research and Market report shows that the market could reach a value of $4,036 billion by the end of 2025. According to IGD Asia, analysts said the Chinese grocery market is the world’s second-largest but will overtake the US market (№1) in 2023. “By nominal GDP, China has Asia’s largest economy and is the only major economy with positive GDP growth in 2020. The country has adopted a strict zero-COVID policy since the pandemic was controlled in late February 2020. The grocery growth forecast is to remain robust but lower than historical levels. The growth peak in 2018 and 2019 was largely driven by the emergence of new retail and adoption of digital technology,” says the IGD report.
The online channel will remain as the physical starts, but stores could transform and then integrate with online media. So more and more online retail stores will be changed, like Amazon, Gore Ali, and above us, Hema, providing services. The penetration rate of my purchase of fresh food will keep increasing since consumers are forming the habit of buying fresh food online, and the fresh food return market is attaching increasing importance to online retail. Influenced by a Covid china’s, the virtual e-commerce market developed quickly and reached 400 more than 450 trading brands in 2020.
Five key trends will support this growth, according to IGD analysts.
- Ongoing urbanization: demand for convenience and efficiency continues to drive technology development, change how people shop, and influence store formats that retailers are focusing on, for example, community stores and premium supermarkets.
- Big data: e-commerce players in China can track purchase behavior from their hundreds of millions of shoppers to help play to consumer eating habits by advising farmers on what to plant and help reduce waste
- Growth in lower-tier cities: as shoppers in less developed areas have become increasingly sophisticated and used to online shopping, they want better products, higher quality, and more inspirational brands
- Emergence of wholesale: Alibaba has triggered the emergence of the wholesale sector in China with its Freshippo X store, launched in 2020. To revive the performance of big-box stores, retailers (e.g. Yonghui, Renrenle & Carrefour) are converting existing stores into wholesale-style formats
- Increased awareness of sustainability: environmental friendliness is increasingly essential in Chinese shoppers’ purchase decisions. China has boldly pledged to reach peak carbon emissions by 2030 and achieve net zero by 2060.
Summary:
China’s distinctive geographic realities, the behaviors of its consumers, and shifts in players in the marketplace combine to create a challenging environment. With online retail playing a pivotal role, the highly frequent and inelastic grocery retail category has become an essential gateway for customer traffic. The express-delivery model has been expanding quickly, fueled by convenience-driven consumer behaviors. Most grocery retailers in mature markets are now embracing advanced analytics and investing in capturing its value. China’s retailers are suggested to use imperatives such as building omnichannel services to execute their overarching business strategy. With online and offline retail food services at our disposal, we expect the industry to keep thriving in the coming decade.
