China’s grocery market landscape is fascinating – and rapidly changing. In recent years, we’ve seen a surge in foreign grocery store chains entering the market (and others “falling” from grace), as well as a consolidation of grocery retailers within the supermarket industry, and this is despite the astonishing growth of online grocery shopping.
This dynamic market presents both challenges and opportunities for new entrants. In this blog post, we’ll explore what it takes to succeed as a new grocery store brand in China. Stay tuned for insights from our team of experts!
Overview of the grocery market in China
The latest forecast for China’s grocery market issued by IGD Asia shows that it can reach 2.36 billion dollars by the end of 2026. Today, China is the second in the world but it’s predicted that it will overtake the US in 2023. The expansion is estimated at 38% until 2026, with a CAGR of 6.8%.
This growth can be attributed mainly to ongoing urbanization that grows the demand for convenience and efficiency. Apart from that, the purchasing power of Chinese netizens is growing, especially in lower-tier cities.
Thanks to the COVID-19 pandemic, shoppers became more sophisticated and used to having every product they want in a matter of few hours. They demand better choices, good quality, and convenience.
Thanks to Alibaba, the wholesale sector is growing rapidly. The launch of its Freshippo X store in 2020, triggered big brands like Yonghui, Carrefour, etc. to convert into wholesale formats. Now they also have access to consumer shopping behaviors thanks to big data, so they can adapt to the needs faster than ever.
Is the supermarket business model still effective in China?
Many grocery stores in China experienced unexpected challenges as online grocery retail grew rapidly, affecting offline sales. According to Statista, China’s demand for online shopping opportunities has exploded in the last decade.
The number of Chinese online buyers has risen rapidly from under 34 million in 2006 to over 466 million users a decade later, enabling China’s online retail new business models to grow at such a rapid pace.
Chinese consumers’ preferences are shifting, and groceries should adapt to these new trends. Even with the rise of online retail, grocery, and department stores can still follow their original business model, leveraging online and offline sales. However, they will need to adapt and modify it to continue and succeed.
That’s how Chinese groceries thrive; maintaining their traditional business model for physical shoppers and adopting a business model of selling products online for Chinese online shoppers, recording greater revenue growth than ever before.
The business model for physical shoppers
Chinese supermarkets generate sales by continuing to supply goods and household products in their groceries to customers who visit their physical locations since many people still prefer to shop for groceries at a physical store.
Leading grocery stores are effective with their strategies in enticing shoppers. Investing in fresh-food areas can add value to a Chinese grocery store. According to a study conducted by McKinsey, a huge number of consumers in China still prefer to buy fresh food from wet markets, and 19% of the participants go to grocery stores because they can physically check the quality of the goods and confirm their freshness.
Online shopping business model
Similar to online retailers, a Chinese grocery store can offer its products online. They can add online shopping options for customers, such as pick-up and delivery. This will enable a grocery store to generate sales in addition to sales from customers who shop at the physical store.
What is the current state of grocery stores in China?
Despite the rise of online new retail, which is undergoing a golden age, China’s grocery stores remain one of the most profitable businesses. However, there is no denying that the grocery store industry is fraught with difficulties and will face more in the near future.
China is not only a very competitive market, but it is also distinct in terms of customer demographics, such as the middle and upper-middle classes, as well as geographic division between upper and lower-tier cities, and an abundance of online-based competitors that compete with established online retailers, making online retailing business more popular. These issues have made it difficult for Chinese grocery stores to make a profit and increase their margins and market share.
However, grocery stores remain a profitable business because it is a large retail facility that carries a wide range of products under one roof, including full grocery lines and general merchandise. It also has the option of selling products online to compete with the growing number of online retailers.
Improving the O2O integration
O2O integration is another effective strategy used by a Chinese grocery store. This is one of the reasons why, despite the rise of online retailers, grocery stores remain successful. O2O is an online-to-offline marketing technique that attracts clients from online channels to make purchases in person.
Due to the tremendous online and offline rivalry in the Chinese market, traditional grocery merchants must have a solid O2O strategy to compete. One effective O2O strategy is seeking partnerships with huge online corporations and international grocery retailers.
The rise of Chinese convenience stores
Seven-Eleven, an American convenience store chain, established its first shop in Shenzhen, China in 1992, marking the beginning of international convenience store chains’ entry into the Chinese market. Later on, China’s domestic convenience stores grew in popularity, with the Chinese government giving supportive measures to aid in the development of the convenience store market. Today, many local and international convenience stores became well-known chain names in China.
With how a Chinese convenience store adapts to online selling, Chinese customers benefit from the mix of physically choosing products at a Chinese convenience store and shopping for products online. As a result, many local and foreign convenience stores are on the rise in the China market due to the convenience and effectiveness of convenience stores.
Every street corner has a convenience store; be it Family Mart, 7/11, C-store, or a less-known one. When it’s not a well-known chain, it’s an aunty-running shop (you can still see it in first-tier cities, but the sights ain’t as common as in smaller Chinese cities and villages).
China’s top 10 supermarket brands and grocery retailers
In the last year, China’s top 100 grocery brands generated total sales of 979.2 billion yuan, up 4.1% yearly and accounting for 18.1% of overall retail food sales for the year.
The top 10 Chinese grocery stores sold 580.9 billion yuan in total, accounting for 59.3% of all sales among the top 100 brands.
Here are the top 10 Chinese convenience stores:
- China Resources Vanguard (CR Vanguard)
- Yonghui Superstores
- Lianhua Supermarket Holdings
- Sun art Retail Group
Supermarket Franchises in China: Case Studies
How did China Resources Vanguard come in first place among the top ten local supermarkets in China?
Since investing in Chinese Merchandise in 1958 and establishing Chinese Arts & Crafts in Hong Kong in 1959, China Resources has been developing the retail industry. In 2003, it adopted the new trademark China Resources Vanguard and reformed China Resources’ retail division.
China Resources Vanguard continues to expand from a single type of business to a retail group managing diversified retail enterprises and increasingly plentiful multi-type operations.
- CR Vanguard continues to pursue its growth plan of embracing hypermarkets as its primary retail format and extending its multiformat store network across all channels in Chinese markets.
- They became the industry’s market leader by improving operational balance and efficiency.
- CR Vanguard was able to improve people’s quality of life by promoting a modern, healthy lifestyle.
- They are led by customer needs, providing high-quality products and services to customers.
- CR Vanguard has expanded to 250 cities in 30 provinces, autonomous regions, municipalities, and special administrative regions after more than 30 years of development.
What do the leading grocery stores in China have in common?
Here are a few factors why China’s convenience and grocery stores are on the rise:
This is why the best grocery stores are located in strategic places where a big number of people can easily shop. This is also why grocery stores are frequently found in large plazas or densely inhabited areas. With the rise of online grocery delivery services, location is becoming even more important.
Customers can now place grocery orders online and have them delivered to their homes or apartment. The closer the store is to their home, the sooner they will receive their groceries and the less money they will pay on delivery fees and tips.
Grocery stores with a large number of items on hand are more likely to boost their sales. With many available products in a store, the majority of Chinese shoppers end up adding a few more items to their shopping bags than they intended. Customers are more inclined to make spontaneous purchases when shelves are well-stocked. Furthermore, a well-stocked display is more inviting to customers, resulting in increased sales.
The top grocery stores keep their regular prices competitive, regardless of whether they provide discounts, loyalty cards, or coupons. For most shoppers, even a tiny difference of .50 Yuan is significant.
It’s about the quality of the items and services available. Shoppers are prepared to pay a somewhat higher grocery cost in exchange for a more enjoyable and convenient shopping experience. A great grocery shopping experience includes a large selection of fresh produce and products, easy access to shopping baskets and carts around the store, excellent customer service, specialty departments, and more. Beyond cost reductions, all of these features offer value to the purchasing experience.
The importance of cleanliness, especially in grocery stores, cannot be emphasized. Clean floors, bathrooms, and surfaces, as well as large and small shopping carts and baskets, are important. The majority of customers do not utilize personal shopping carts, instead, rather use shared carts.
The finest grocery stores will also have many hands sanitizing stations strategically placed around the store, particularly in areas where bacteria or a large number of germs could be present, such as near the meat and eggs, near the checkout, and near the hot/cold food bars.
Most of these supermarket chains have a delivery service/online marketplace easily available either through Wechat and Alipay or through a partnership with an e-commerce platform (we think of Costco sam’s club for instance, that can be bought from JD).
We are your local partner in China!
Although China is a very competitive market and you will need a lot of preparation to enter the grocery sector, there is still room for new players in the market.
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We offer cost-effective solutions adapted to your brand’s needs and budget. We can take care of your brand registration in China, market research, Chinese website creation, localization, marketing strategy, and more.
Don’t hesitate to leave us a comment or contact us, so that we can schedule a free consultation with one of our experts that will learn about your brand and present you with the best solutions for your market entry. Let’s keep in touch!