In Telligence

What are the keys to succeed for Food Retailing in Greater China?

food

The COVID-19 pandemic has resulted in social distancing and home seclusion across the Asia Pacific. Increased at-home cooking and eating led to a healthy growth of 5% in APAC’s packaged food in 2020, an increase of US$38billion in sales compared to 2019.

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In China, the cashless realm in Asia, e-commerce seized traction from all other channels in food at an accelerated pace in 2020. Players and retailers have been collaborating with cash alternatives to further penetrate into the e-commerce space. Meanwhile, various store-based retailers who can fulfil consumers’ needs in this “new normal” era will be likely to secure their seats in this dynamic market of food retailing.

Food necessities thrived on home seclusion

To secure daily needs during home seclusion, Chinese consumers stockpiled more cooking ingredients, meals and staple foods for at-home eating and cooking. Hence in 2020, both staple foods as well as cooking ingredients and meals witnessed a rapid sales growth of 8% and 9% to an estimated sum of US$107.4 billion and US$48.1 billion respectively. This does not only apply to habitually-consumed big genres like rice (8% growth), noodles (11% growth) and processed meat and seafood (11% growth).

For the sake of novelty-seeking and not fatiguing themselves with home-prepared meals, many consumers also tried out new recipes and more niche categories such as breakfast cereals (12% growth) and pasta (24% growth). On the contrary, despite of the buffer of consumers’ occasional snackification (i.e. replacing core meals with snacks) for convenience at home, snacks still experienced an estimated slight decline of 1% to US$53.1 billion. The decline in confectionery (10% drop) was the most significant due to the loss of gifting occasions when consumers were distancing from each other in Chinese New Year and Valentine’s Day.

Reciprocal empowerment between e-commerce platforms and partners

China witnessed a rapid growth of packaged food e-commerce sales of 27% in 2020, which rejuvenated the gradual cooldown of packaged food e-commerce rage from a growth of 32% in 2016 to 17% in 2019. Spotting consumers’ needs in minimal human interaction and convenience during the pandemic lockdown, packaged food players and e-commerce joined forces to upgrade food offerings online. Inner Mongolia Yili Industrial Group Co Ltd, the biggest packaged food company in China, stretched to mobile e-commerce through landing on WeChat. Online group purchase and delivery of its various dairy products to local communities have helped sustain its growth to a 7% share in China’s packaged food market in 2020.

E-commerce platforms in China did not lag in initiating synergy with other retailers and players to boost consumers’ affinity. T-mall, for example, advocated players to set up digital shelves on their platform by exempting half a year service fee and offered loans at a low interest rate.

Others like Alibaba and JD.com took an even greater step by helping small individual stores digitalise and advance their retailing capabilities. Alibaba’s Ling Shou Tong (LST) system connects these mom-and-pop stores directly with FMCGs brands across the whole country, alleviating their high mark-ups, product quality and authenticity issues brought by the previous multiple layers of distributors.

JD convenience store
Source: JD.com

On the other hand, running on a large-scale franchise model, JD Convenience Store Initiative offers individual stores with supports in-store revamp, training, branding and sourcing of various products including packaged food. All of these took part in securing Alibaba Group and JD.com’s 42% and 31% share in 2020 e-commerce space, indicating the significance of the synergy between e-commerce and other players.

Successful model of agile distribution drives promising growth

The prosper of e-commerce, however, did not block all the light shed on store-based retailing. During the pandemic lockdown, Chinese supermarkets demonstrated a decent exemplar of converting high adaptability to commercial opportunities. To ease grocery purchase in times of limited travels, many supermarkets in China liaised with neighbourhood committees. After gathering purchase requests from households, these committees would make collective orders from supermarkets, who then delivered the whole big basket of groceries point-to-point to the community. This considerate community-group buying model, together with other tactics such as collaborating with food delivery platforms like Meituan.com and Ele.me, maintained the high momentum of 4% packaged food sales growth in supermarkets in 2020.

Dai Sang Groceries
Source: Dai Sang Groceries

Similarly, mini-supermarkets (defined as part of the independent small grocers under Euromonitor International’s definition) in Hong Kong continued to thrive on its agile operation model in 2020. Mini-supermarkets such as Dai Sang Groceries and People’s Market have been riding on parallel trading to source quality packaged food products at an economical price level. Entering 2020, they further sharpened this competitive edge through importing novel options to relieve consumers’ fatigue of repeated at-home eating. Their small sourcing quantity per import from foreign suppliers allows a trial-and-error procurement that they could react swiftly to Hong Kong consumers’ ever-changing food preference. This similar trial-and-error mode also applies to their broader operation – their small shop scale makes it possible for these mini-supermarkets to tap into various residential areas more adventurously, and withdraw resiliently if falling short of demand. As such, independent small grocers in 2020 experienced a boosted 21% sales growth in staple foods, a category they performed particularly well in.

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In China where a time-pressed lifestyle and on-demand consumer psychology are becoming more common, the convenience of seamless grocery ordering is foreseen to continue fuelling food e-commerce’s growth. Facing this challenge, brick and mortar stores will need to innovate and play agile in their product sourcing, operation and supply chain. And needless to say, partnering with e-commerce for online presence, digitalisation and delivery services are smart moves for store-based models to integrate into the growing cyber shelf space.

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