Online market of China's FMCG industry is booming, OC&C finds

17 May 2017 6 min. read

Chinese consumers are increasingly embracing online market places for access to fast moving consumer goods (FMCGs), a new report has found. Driven by convenience and lower prices, reliance on online channels to access goods is expected to increase across all age demographics. The market place for online goods, which tends to be dominated by the big two, Tmall and Taoboa, remains relatively open for the FMCG category, with consumers engaging with more brand and type-specific platforms to buy goods of this variety.

FMCGs have seen their online sales penetration increase as consumers buy more and more product types online. In a new report from OC&C Strategy Consultants, the consulting firm explores current trends within the Chinese FMCG market, which has rapidly grown to become the largest in the world.

Online FMCG sales by country

The Chinese online FMCG market expanded rapidly between 2010 and 2015, from almost nothing to $25.3 billion. The rate of growth was a blistering 78.4% CAGR over the period, with the market taking off in 2011. More mature online markets, such as the US and UK were found to be relatively small in comparison, at around $12 billion and close to $10 billion respectively; growth over the period stood at 10.7% CAGR for the US and 7.9% CAGR for the UK. Japan has meanwhile seen its market expand relatively slowly, with CAGR running at 4.8%, to around $6 billion at the end of 2015.

Online penetration by category

The research notes that FMCG face structural challenges in moving into the online world, when compared to other categories of goods. In China for instance, FMCG make up on 5% of the total market share of online penetration in 2015, while in the US it represented 2% and in the UK 6.2%.

The differences in the categories’ penetration resulted from a number of factors according to the analysis. Electronics and consumer appliances, both categories that have seen high levels of penetration, are sought online in part due to the ease of research, the ease of delivery and due to the nature of the product involved – they tend to serious purchases into which considerable thought has been invested. FMCG on the other hand, tend to be daily use items, whose acquisition is in line with need, for which consumers continue to tend towards local stores through impulsive acquisition for goods wanted immediately.

Change in FMCG online reliance by age group

The study of Chinese consumers found that all age categories will rely more heavily on online shopping in the future. In the 18-23 year old category, 41% said that they will rely more on online channels to access FMCG products, while 4% said that they would rely less on online to shop for goods. 24-29 year olds also recorded significant increases in demand, at 40% expecting to rely more on online while 10% expect to rely less.

While young peoples’ interest in online shopping tends to follow global trends, many young people grew up with the internet as a key tool, the research, interestingly, finds that older groups are more likely to increase reliance on online shopping for the coming six months – the 36-41 years old category at 43% and the 42-50 category, also at 43%.

The main drivers for interest in online reliance for FMCG products is that Chinese consumers seek to increase their level of convenience – particularly middle class consumers have longer working hours (up to 8.3 hours more per week on the OECD average), reducing time, and money, spent on FMCG frees up time, and money, for their idea of middle class shopping activities, such as eating out and buying designer clothing.

e-commerce landscape in China

To better understand where consumers spend online when it comes to FMCG, the firm compared two key online market places, Tmall, owned by the Alibaba Group, and Taobao, also owned by the Alibaba Goup, against all competitors.

The firm found that, in 2015, around 46% of total e-commerce activity was performed on Taoboa, while Tmall saw around 24% of total e-commerce market share, while 30% of transactions involved others. Considerable differences were noted when considering the FMCG e-commerce landscape – Tmall saw its share up 5 percentage points to 29%, while others saw their market share increase by 19 percentage points to 49%. Taoboa saw significant decreases to its % of total market share, at 23%.

The report notes that the lower level of penetration from Alibaba in the FMCG e-commerce space is the result of higher numbers of specialised online propositions in the space, which has allowed for an increase in capture rates.

Top five brand awareness and shoppers’ penetration by FMCG category

When looking at the different brands that generate the most awareness among Chinese consumers, Tmall and Taoboa have relatively high levels of penetration among the five biggest online ecommerce brands, although the rate at which consumers buy from the different brands differs considerably. Across all categories Tmall and Taoboa were found to have high levels of awareness rates regarding the possibility of purchasing FMCG through them. JD consistently came third, although its conversion rate was somewhat lower than that of Tmall and Taoboa.

Passing comment on the conclusions of the study, the authors added, “Brands should partner with strategically aligned platforms to achieve their online objectives. Glengoyne, for example, exclusively sells its single malt whiskey on Womai due to the platform’s reputation for authenticity and expertise in alcohol logistics. Montes also selected PinShangHui as its strategic partner pertaining to the platform’s unrivalled knowledge on red wine. La Mer, a premium cosmetic brand, also established its own flagship store on Tmall for brand building.”