NielsenIQ released a report on the development of China's retail industry, and cost-effectiveness and high value are the keys to success

According to the 2024 China Retail Development Report released today by NielsenIQ, a global consumer research and retail monitoring company, China's retail market has gradually transitioned from a consumption upgrade model to a new era of cost-effectiveness, with the diversified needs of consumers bringing structural growth opportunities, and cost-effectiveness and high value have become the core competitiveness of the current retail market.

According to data released by the National Bureau of Statistics on April 16, the rebound in industry and the improvement in the service sector jointly drove China's economy to continue to rebound in the first quarter and achieve a good start. Specifically, the total retail sales of consumer goods in the first quarter exceeded 12 trillion yuan, a high level in the same period of the previous year, and the retail sales of goods were 10.6882 trillion yuan, an increase of 4.7% and 4% year-on-year respectively.

According to NielsenIQ monitoring data, China's FMCG retail market will be in the process of recovery in 2023, with the overall sales of all channels falling slightly by 0.04% year-on-year compared with 2022, and the sales share of online and offline channels accounting for 42% and 58% respectively. In the online channel, the sales of content e-commerce increased by 55.9% year-on-year, while in the offline channel, convenience stores achieved a 3.9% increase by virtue of their near-field advantage, and from January to February 2024, thanks to the peak consumption season of the Spring Festival, the online sales growth rate of the FMCG market reached 20.7%, of which Douyin e-commerce increased by more than 70%, the comprehensive e-commerce growth rate reached 4.4%, and the offline market growth rate was -6.4%.

From the perspective of segmented channels, content e-commerce will have a year-on-year sales growth rate of 55.9% in 2023 with strong consumer interaction capabilities and emotional value, of which the growth rate of content e-commerce represented by Douyin is the most eye-catching, and the penetration rate of Douyin regular customers has reached 39%, second only to Taobao and Pinduoduo, and it is still possible to further seize the share of traditional channels in the short term;

In the offline channel, snack discount stores have attracted young consumers with their rapid store expansion and low-price strategies, with the growth rate of the industry scale reaching 75.8% in 2023, and its penetration rate is currently only 8%, which is expected to have great room for improvement. The abundance of products is the main reason for the frequent frequencies of convenience store consumers, while snack discount stores are more attractive to price-sensitive young people.

At the same time, warehouse membership stores are ushering in a period of growth by providing a unique quality/price ratio that other channels do not have, and the number of major membership stores will increase by 37.8% in 2023. Avoid competition in high-tier cities, lay out the sinking market as soon as possible, find differentiated products based on local characteristics and regional needs, and highlight the exclusive brand value of retailers to become the winning path for domestic member stores.

Li Quncai, deputy director of retail industry analysis and insight at NielsenIQ China, said that the growth rate of the omni-channel FMCG market has slowed down under the concept of rational consumption, and the sales scale has basically remained flat due to the lack of significant new increments, showing a competitive pattern in the stock marketIterate business models based on the right price and value proposition from an omni-channel perspective to find new growth points.

According to the report, among the major FMCG categories monitored by NIQ's omni-channel, health and self-pleasing concept products have maintained a resilient growth momentum in 2023, with sales of health concept categories such as vitamins, juices, and children/adult milk powder increasing by 14.3%, 11.0%, and 3.7% year-on-year in 2023, and self-pleasing categories such as skin care products, ready-to-drink coffee, and pet food increasing by 12.3%, 8.3%, and 3.8% year-on-year, respectively. There is still room for high-end development of maternal and infant and some snacks and beverages, among which grain, oil, dairy products and other commodities that are just needed in life have returned to the mainstream price band, and consumers are more inclined to choose cost-effective products; Jahwa and alcohol have high-end demand while returning to the mainstream price band.

Wang Ling, head of NielsenIQ's retail customer success department, said that the current price strategy of China's offline FMCG market is still based on category performance improvement to drive price growth, and the overall consumption upgrade and downgrade ratio is about 6 to 4. The low-end are moving closer to the mainstream price band, and under the lipstick effect, relatively cheap mass FMCG products still retain the potential for consumption upgrades, such as preparing health and basic personal care products have recently become the representatives of product performance upgrades, and enterprises need to pay attention to consumers' demand for a balance between product performance and price.

According to the NielsenIQ Consumer Goods Growth Driver Model, 50% of the products with increased performance and price are "expensive and valuable", 11% are "good quality and low price" with improved performance and lower price, 24% are "rational return" with reduced performance and price, and 15% are "price assassins" with reduced performance and higher prices. Taking nearly 50 kinds of food FMCG products monitored by NIQ as an example, traditional beverages that lack effective innovation are facing more fierce price competition, and the average prices of carbonated drinks, ready-to-drink coffee, and room temperature yogurt have declined, with a total of 12 categories falling into the "return to rationality", while the categories of health concepts and self-pleasing attributes such as crisp snacks and adult milk powder still have a high premium level, with a total of 26 categories entering the "expensive value", accounting for more than half of the total. According to the NIQ survey, the two most important attributes for consumers when buying food are health and taste, so seeking certainty from the core needs of food has become the key to success, while in the non-food category, categories that can provide high-quality efficacy and experience often have higher premium space.

Wang Ling suggested that on the basis of identifying the current development pattern of different categories, retailers need to formulate different strategies to drive growth, do a good job in product selection and value marketing for upgraded categories, and highlight the advantages of "quality-price ratio", and for downgraded categories, they can provide a higher "cost-effective" experience by optimizing the supply chain and promotion.