As the economy continues to development, the innovation of new technology, formats, models and species continue to rise, and the Chinese consumer market continues to sink to lower-tier cities, the new retail landscape where consumers are at the center has come. In new retail businesses, the relation among consumers, goods and fields has been re-constructed, so the priority has transformed from expansion and channel to consumer. At the same time, in the new retail era, brands and retailers need to not only accurately grasp the consumers’ demands, but also have the ability to intercept and meet the demand immediately. However, China owns a vast territory and a large number of cities. The unbalanced development between regions, which is constantly changing, has brought more severe challenges to brands and retailers.
To enable brands and retailers to understand the market in a quick manner, and help them with future business through big data to make more efficient market decisions, Nielsen launched the big data business solutions – IntelliGEO in 2018. Today, Nielsen released Unveiling High-Potential Market: Nielsen IntelliGEO Big Data Report (2019) (hereinafter referred to as “Report”). The report integrates over 30,000 sets of multi-dimensional data, such as consumer, store, location, product and sale, to achieve meter-scale data integration among consumer, good, and field. The report offers truth about China retail market and growth opportunity insights.
Find the right people – consumers are at the center in future retailing industry
Entering the new retail era, Chinese consumers’ sovereign awareness continues to rise. Those who grasp consumer demand can win the market, and consumers become the core of future retail. Faced with super consumers with diversified, rapid and contradictory needs, opportunities seem to be everywhere while challenges further increase. The Nielsen report shows that Chinese consumers have obvious double standards in terms of “services” and “products”. In terms of services, consumers have no patience to wait for daily necessities and require immediate results. Instead, they can wait for a few hours for their favorites. Consumers, savvier than ever, will rationally choose cost-effective products. But they will purchase products that match their styles and interests, regardless of cost.
In the meanwhile, Nielsen report finds that three demographics – high-end people (aged between 25-44 years old with over 8,000 yuan income), mainstream youth (aged between18-34 years old with income higher than the average), mothers (aged between 25-44 years old who have children and whose income is higher than the average) – used to be consumers with high potential, but their spending power is gradually decreasing as the urban levels sink. In particular, high-end people and mainstream youth account for 11 percent and 37 percent respectively in large-size cities. In mid-size cities, high-end consumers account for 4 percent while mainstream youth 28 percent. In small-size cites, the proportion of the two groups is 2 percent and 25 percent, respectively.
Choose good products – cities vary in their development models, and the lower-tier markets have more potential
Chinese cities are developing rapidly with different development models. Nielsen’s research finds that China’s FMCG market polarizes. Top 100 cities contribute approximately 50 percent of total FMCG sales in China, which is equivalent to that of the remaining 2086 cities. Eighty percent of China’s FMCG sales come from top 50 cities and 478 mid-size cities.
Modern level of development, high convenience, active consumer markets, population structure and balanced area development, are four common aspects of high-potential sales markets. But these markets also have their own characteristics.
The Nielsen report shows that in top 50 cities, the B-class perform better than the A-class in four key aspects: 1) better performance in urban utilization. Utilization rate of the B-class cities is 56 percent, while that of A-class cities is 43 percent; 2) the proportion of mainstream youth in B-class cities (36%) is higher than that of A-class cities (33%); 3) In B-class cities, modern channel sales account for 78 percent, slightly higher than 76 percent of A-class cities; 4) A-class cities’ per capita FMCG consumer index stands at 19, while that of B-class cities has reached 22.
Cities in mid-size also shows two major characteristics. One is that they are widely distributed nationwide, but their market potential can not be underestimated – contributing 40 percent of the national FMCG market and owning 37 percent of the country’s retail stores. The other is population density there is small, but consumption power is relatively high with per capita FMCG consumption index (22) higher than that in large-size cities (20) and small-size cities (15).
Deploy the places right – as city levels sink, channel structures differentiate
Influenced by the digital revolution that revolutionizes people’s lifestyles and consumption patterns, brands and retailers constantly change their focus of channel layout. Although online channels have driven the growth of Chinese consumption, the offline scale is huge. Dual-engine power is the norm. data updated as of July 2019, Nielsen’s research shows that the overall growth rate of FMCG is as high as 13.7 percent, of which online and offline sales channels growth rates of 36 percent and 4.9 percent respectively.
As city levels sink, channel structures differentiate. Top 50 cities have obvious advantages in convenience store channels. The Nielsen report shows that the number of convenience stores in large-size cities reached 30.2 percent, much higher than 15.6 percent in mid-sized cities. FMCG sales in the convenience stores accounted for 10.8 percent, also higher than 3.5 percent in mid-sized markets.
In mid-size cities, modern channels have become the main force, with the importance of up to 62 percent, relying more on the development of sole-production. Large supermarkets, with an annual growth rate of 6 percent, dominate the cities. There’s a trend of high sales, lower chain ratio and low brand concentration. Small channels, like small supermarkets, are gaining momentum, with an annual growth rate of 10 percent, which is faster than that of the large-size cities (7%).
In addition, there are many traditional channels in small-size cities, where the scale matters. The number of people in traditional channel stores has reached 78, far superior to large-size cities (304) and mid-sized ones (137). Although modern channels are also developing rapidly, the sales share is still limited, accounting for only 19 percent in small-size cities. Large supermarkets contribute nearly half – up to 48 percent.
“The advent of new retail formats has brought up new demands to brands and retailers, and created new opportunities. Only by capturing market demand accurately and efficiently can we truly win the market. As a link between data and business value, Nielsen will make use of advanced technology and multi-party resources. We will use big data – the golden key – to uncover the market, timely track the changes in the retail market, so as to enable brands and retailers to understand the development of the Chinese retail market from a dynamic perspective and to help them solve different business dilemma,” said Tina Ding, vice president of Nielsen China.