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How to ride the wave in Chinas rapidly changing retail market

Justin Cook

AGENDA
How are shoppers changing their behviour as growth slows down? What is the impact of these trends on modern trade retailers? What can be done to maximize growth in this changing environment?

HOW ARE SHOPPERS CHANGING THEIR BEHVIOUR AS GROWTH SLOWS DOWN?

The last 12 months has seen slower growth due to lower inflation rate and shoppers reducing their basket size.
Jun 2011 vs Jun 2012
Jun 2012 vs Jun 2013

+ 15%
Value growth of total FMCG market
MAT Jun 2012 vs 2013 - Shopper KPIs Total FMCG

+ 9%
Value growth of total FMCG market

No. of Shoppers

No. of Trips
+3% +4%

Items per Trip


+13%

Price per Pack

2012

-5%

2013

-1% -2% +3%

+9%

Source: Kantar Worldpanel, National Urban China, Data to 14 th June 2013

Shoppers are becoming smarter

Fewer items but more volume Visiting Different Channels to seek better value

and choice

Most FMCG categories are seeing shoppers upsizing and this is delivering volume growth for many categories.
+20% 13% of categories
Average Volume Per Buyer Change 44% of categories

-10%

+20%

18% of categories -15% Average Pack Size Change


Source: Kantar Worldpanel, National Urban China, Data to 14 th June 2013

28% of categories

Some categories are more expandable than others so this needs to be considered before pushing larger packs.

UK Example- but principle true in China

Expandibility (%)

Shoppers are changing the way they shop especially in key cities

Fewer Trips
Hypermarkets Supermarkets Traditional Grocery

More Trips
eCommerce Personal Care Stores Department Stores TV Shopping Overseas Purchase Drugstores

Shoppers in the higher tier cities shop across more channels so it is important to ensure good availability of products outside of modern trade.

Average Number of Channels Shopped MAT June 2013 7.73 6.95

7.21

7.10

6.87

6.23

National

Key Cities

A Cities

B Cities

C Cities

D Cities

Channels Covered: Hypermarkets, Supermarkets/Mini/CVS, Grocery, Department Stores, Free Mart, Whole Sales, Work Unit, Gift, Direct Sales, Specialist Stores, Shopping On-Line, TV Shopping, Overseas Purchase, Drugstores, Beauty Salon and Milk Store.

Source: Kantar Worldpanel, National Urban China, Data to 28th Dec 2012

eCommerce growth shows no sign of slowing and will soon reach 50% in key cities. Still very personal care focused in lower tier cities.
Rolling MAT National China Penetration of eCommerce (% HHs)
UK 22% South Korea 55%

27

16

eCommerce Penetration by City Tier

eCommerce Share of FMCG Sector (% value) FOOD HOUSEHOLD PERSONAL CARE 62 2 36 C CITIES 67 2 31 D CITIES

42 29 27 26 19

42 5 54

51
3 46 A CITIES

57 2 40 B CITIES

4 KEY CITIES

A CITIES

B CITIES

C CITIES

D CITIES

4 KEY CITIES

Source: Kantar Worldpanel, National Urban China, Data to 14 th June 2013

Chinese shoppers like to visit different stores but why?


The average household in Shanghai buys Shampoo around 5 times a year and will visit more than 3 stores to buy shampoo in the year.

Lian Hua

Carrefour

Watsons

YiHaoDian

Channel Type Number of Shampoo SKUs Prices (High/Medium/Low)

Small Supermarket 81

Hypermarket 387

Personal Care Store 200

eCommerce 1023 Medium (but heavy discounts on large trips) Huge range, convenience of delivery, attractive promotions

Medium

Low

High

Benefits

Close to home

Low Price & Good range

Specialist products including PL, Expert Advice, Loyalty Card

WHAT IS THE IMPACT OF THESE TRENDS ON MODERN TRADE RETAILERS?

Penetration is a key driver of value share for retailers but retailers are seeing less and less penetration as shoppers visit other channels.
Value Share (%) vs Penetration of Key Retailers in Beijing 30 Wu-Mart Group

Share (% value)

25 20 15 10 5 0 Carrefour Lotte Mart Yonghui Auchan Lotus Shuntianfu ChaoshifaWal-Mart Group Jinkelong

R = 0.9328

10
Year on Year Penetration 82 83 66 64

20

30

40

50 60 Penetration (% HHs)

70

80

90

52 w/e 2012/06/15 52 w/e 2013/06/14


46 45 23 32 34 31 24 24 25 23 25 23 21 21 25 19 21 19 18 15 12 12
LOTUS

WU-MART GROUP

CARREFOUR JINGKELONG

YONGHUI

WAL-MART LOTTE MART GROUP

AUCHAN

CHAOSHIFA SHUNTIANFU BEIJING HUA TIANKELONG JIAN MART LIAN

Source: Kantar Worldpanel, Beijing, Data to 14th June 2013

Loyalty also plays a key role in driving retailers share and similarly to penetration is declining across key modern trade retailers in Beijing.
Value Share (%) vs Loyalty of Key Retailers in Beijing 30 Wu-Mart Group

Share (% value)

25 20 15 10 5 0 Carrefour

R = 0.8792

Yonghui Beijing Wal-Mart Group Hua Lian Lotte MartLotus Auchan Shuntianfu Chaoshifa

Jinkelong

Year on Year Loyalty within All Channels 17 17

10 12 Loyalty (% Value)

14

16

18

52 w/e 2012/06/15 52 w/e 2013/06/14


12 11
9 10 11 9 9 9 6 9 9 8

7 7

8 7 5

7 7

7 6

5 4

WU-MART JINGKELONG CARREFOUR GROUP

AUCHAN

CHAOSHIFA

YONGHUI

SHUNTIANFU WAL-MART LOTTE MART GROUP

LOTUS

JIAN MART TIANKELONG BEIJING HUA LIAN

Source: Kantar Worldpanel, Beijing, Data to 14th June 2013

Retailers in China see very low levels of loyalty due to the fragmentation of the retail market. Key challenge is how to grow shopper loyalty.
Carrefour Shoppers Spend in Other Channels 52 w/e Jun 2013 - Beijing

11 3 4 5 25

Others Grocery eCommerce

Work Unit
42

Gift Other MT Retailers

Carrefour shoppers in Beijing will visit 5 other modern trade retailers and 6 other channels for FMCG products over the year.

10

Carrefour

WHAT CAN BE DONE TO MAXIMIZE GROWTH IN THIS CHANGING ENVIRONMENT?

How can retailers drive

How can retailers drive

Penetration
Open new stores Have the right store locations

Loyalty
Improve category management Improve shopping experience

Above the line communication

Offer incentive for repeat visits

Becoming more difficult in current environment

Requires deeper understanding of shopper behaviour

Kantar Worldpanel can identify missed opportunity shoppers who visit the retailer but do not purchase certain categories in the retailer.

3.6million
Carrefour Shoppers

3.2million
Carrefour Shoppers who Buy Liquid Anywhere

Only 29% of Carrefour shoppers who purchase laundry liquid make their purchase in Carrefour. The remaining 71% purchase from other modern trade retailers and is lost spend for Carrefour.

904k
Carrefour Shoppers who Buy Liquid in Carrefour

Compared to other retailers Carrefours closure rate is quite low so there is a need to convert more of their shoppers to buy laundry liquid in store.
% Retailer Closed vs Missed Opportunity Laundry Liquid Shoppers Beijing 52 w/e Jun 2013

Missed Opportunity Shoppers Closed Shoppers

54

69

70

71

7 million
+10%

RMB size of prize

46

31
JINGKELONG

30
AUCHAN

29
CARREFOUR

WU-MART GROUP

Summary
Insight
Shoppers are becoming smarter visiting a wide range of channels and retailers

Implication
Maximise your distribution in emerging channels such as eCommerce in order to grow your brand

Penetration is a key driver of retailers value share but this measure is becoming more challenging to grow

Retaining shoppers and growing their trip spend will be key to share growth for modern trade retailers

Shoppers will visit different stores for the same category meaning there are missed opportunities for retailers

Use real shopper behaviour insights to target missed opportunity shoppers and grow the retailers business

CatMan On-Line can help you to identify and quantify opportunities for your brands across different retailers in China.

Justin Cook justin.cook@ctrchina.cn