WHAT IS THE STATE OF GROCERY STORES IN CHINA?
China’s food retail landscape is fascinating and evolving fast. In recent years we have seen a surge of foreign grocery chains entering the market while others “fall” from grace, as well as consolidation among local grocery retailers in the supermarket sector, all despite the striking growth of online shopping. The latest forecast for the Chinese grocery market from IGD Asia shows it could reach 2.36 billion dollars by the end of 2026. Expansion is estimated at 38% through 2026, with a CAGR (compound annual growth rate) of 6.8%. This growth is mainly due to ongoing urbanisation, which increases demand for convenient and efficient grocery stores. Beyond that, the purchasing power of Chinese netizens is rising, especially in lower-tier cities. With the COVID-19 pandemic, shoppers have become more sophisticated and used to getting everything they want within a few hours.
Many grocery stores in China have faced unexpected challenges as online grocery retail has grown rapidly, hitting offline sales. According to Statista, the number of Chinese online shoppers rose quickly from fewer than 34 million in 2006 to more than 466 million a decade later, allowing new online retail business models in China to grow at a very fast pace. Chinese consumer preferences are changing, and grocers must constantly adapt to these new trends. Even with the rise of online retail, grocery and department stores can still follow their original business model, leveraging both online and offline sales. Chinese supermarkets generate sales by continuing to supply household goods and products to customers who visit their physical locations, since many people still prefer to shop in a physical store. The leading grocery stores have effective strategies to attract shoppers. Investing in fresh food areas can add value compared with a standard Chinese grocery store. According to a McKinsey study, a large number of consumers in China still prefer to buy fresh food from “wet markets”, and 19% of participants go to grocery stores because they can physically check the quality of the goods and confirm their freshness.
What is the current state of grocery stores in China?
Despite the rise of online retail, which is going through a golden age, Chinese grocery stores remain one of the most profitable businesses in the country. However, there is no denying that the grocery industry is struggling and will face numerous challenges in the near future. China is not only a highly competitive market but also a fragmented one in terms of customer demographics, such as the middle and upper-middle classes, as well as the geographic split between first/second-tier and third/fourth-tier cities, with plenty of online-based competitors vying with established online retailers and making online retail ever more popular. These issues have made it hard for Chinese grocery stores to make a profit and grow their margins and market share. Nevertheless, grocery stores remain a profitable business because they are an advanced market structured to meet consumer demand, offering a wide range of products under one roof, including full grocery lines and general merchandise.
