In December 2004, China fully opened its retail market. This market has grown rapidly and witnessed the rise of many competitive retail brands and companies since then. According to the National Bureau of Statistics, China’s total retail sales of consumer goods reached 39.1981 trillion yuan in 2020. It is a fantastic result though the figure drops by 3.9% because of the pandemic. 1
The rise of e-commerce gave a fresh look to the whole industry in the past ten years. At first, this new commerce form did pose a threat to the traditional offline retail business. However, accelerated by COVID-19, the integration of the online and offline channel leads to the appearance and development of multiple new businesses, and is expected to take the industry to a more promising stage.
Offline Retail Channels
In China, traditional offline retail channels are usually divided into five primary types:
Supermarket: offering a wide variety of food, beverages, and household products, organized into sections.
Department Store: operating several major categories of goods in the same larger place where companies implement unified management.
Specialty Store: only providing certain types of goods, including hardware stores and building materials stores.
Specialty Brand Store: only providing a major brand or manufacturer products.
Convenience Store (CVS): Convenience store is designed to meet customers’ needs for emergencies and convenience. It is generally located in areas near the neighborhood, but its product variety is limited.
Besides these five main types, some new retail forms are also emerging in recent years, including the boutique supermarket and new retail.
Boutique supermarkets, usually nurtured by the existing retail company, position themselves as high-end supermarkets targeting consumers who have higher incomes or have high life standards. These supermarkets usually sell high-end consumer goods, including packaged food, fresh food, cosmetics, etc. The percentage of imported products in these supermarkets is usually over 30% and even reached 80% in some of them, such as Ole and G-Super. 2
Internet companies also enter the competition by promoting a new concept, new retail. New retail refers to a new retail model that applies cutting-edge technologies, such as big data and AI, to upgrade the production, circulation, and sales process of goods. Hema Fresh, a retail brand developed by Alibaba Group, is one of the representatives.
Some top retailers’ performance are shown in Table 1 as follows 3:
Retailer | Type | Number of Stores （2019） | Sales (2019， billion yuan) | Growth Rate |
Vanguard | Supermarket | 3240 | 95.1 | -6.1% |
Yonghui | Supermarket | 1440 | 93.13 | 21.3% |
Walmart | Supermarket | 442 | 82.28 | 3.8% |
Wangfujing | Department store | 66 | 35.21 | 2.1% |
Inzone | Department store | 382 | 34.28 | 14.6% |
InTime | Department store | 62 | 33.23 | -11.2% |
EASY Joy | CVS | 27600 | 70.00 | 12.9% |
uSmile | CVS | 20000 | 20.70 | 21.8% |
Family Mart | CVS | 2801 | 10.03 | 5.7% |
Hema Fresh | New retail | 250 | 40.00 | 185.7% |
Ole | Boutique supermarket | 52(2021) | / | / |
Sam’s club | Boutique supermarket | 27(2021) | / | / |
G-super | Boutique supermarket | 60(2021) | / | / |
Data source: Brand official website, CCFA | ||||
Table 1: Top Retailers’ Performance in 2019
Hema Fresh’s growth rate is undoubtedly shining. Also, boutique supermarkets are accelerating their pace to expand, making them a good choice for imported brands as their retailers.
Hema Fresh
Online Retail Channels
As online shopping gradually becomes a common part of people’s daily lives, online retail channels play an increasingly important role in the retail industry. In 2020, the total online retail sales of consumer goods reached 11.7601 trillion yuan, increasing by 10.9%, while the figure of the total retail sales was a drop of 3.9%. 1
Tmall and Taobao from the Alibaba group, Pinduoduo, and JD.com are the leading three e-commerce platforms in China. They are strong competitors, but their focuses are slightly different.
Retailer | Active User of the Year (2020) | Traits |
Taobao&Tmall | 779 million | Full categories, focusing on food, cosmetics, clothing, accessories, etc. |
Pinduoduo | 788.4 million | Full categories, focusing on affordable products, popular in lower-tier cities. |
JD.com | 471.9 million | Full categories, focusing on household appliances and electronic devices. Its advantage is owning its own logistics team. |
Table 2: A Comparison of the Traits of Tmall/Taobao, Pinduoduo, and JD.com
New trends
CBEC
For foreign brands that have intention to enter China, cross-border e-commerce (CBEC) is a good choice. CBEC refers to the business that consumers buy online from merchants located in other countries or jurisdictions. It has been an essential part of e-commerce in China. According to the China E-commerce Development Report 2019-2020, China’s CBEC imports and exports totaled 186.21 billion yuan, a year-on-year increase of 38.3%, exceeding the growth rate of the general e-commerce. 4 CBEC has many advantages, including fewer regulation limits, lower entry standards, more quick processing time, etc.
Tmall Global, Kaola, and Jingdong Worldwide were the TOP3 cross-border import e-commerce retailers. Table 3 shows their business mode and 2020 popular categories (More details on ChemLinked):
CBEC retailer | Parent company | Business mode | 2020 popular categories |
Tmall Global | Alibaba Group | 1. Flagship store 2. Tmall direct purchase | Beauty makeup, mother and baby, health food, personal care, pets, fresh food, wine. |
Koala | Alibaba Group | Based on the B2C self-operation and bonded zone model, Koala provides a complete set of services such as logistics and warehousing, cross-border payment, supply chain finance, online operations, and brand promotion. | Beauty makeup, mother and baby |
JD Worldwide | JD.com | 1. Flagship stores 2. Self-operation | Mother and baby, health food, beauty makeup, fresh food, wine |
Table 3: Top CBEC Retailers’ Business Mode and Popular Categories in 2020
Community Group Buying
Community Group Buying, a location-based approach, has gained growing popularity among consumers, especially in 2020 because of home quarantine during COVID-19 pandemic. It typically sees a self-appointed leader who creates a social media account to post product links for family, friends, or neighbors, to place their orders together for a bulk delivery of goods to one location. And usually, consumers can get pretty good deals when they group buy products. Convenience and deals make this new retail mode sweep across almost every city in China. Alibaba, Pinduoduo, JD, Meituan, and other tech giants have seen its enormous potential and invested heavily in this concept.
Products distributed through this new retail channel are usually fresh food and daily groceries. The success of community group buying has been built on Chinese consumers’ adoption of buying groceries online. At this stage, it remains a pricing game and won’t be appropriate for many foreign brands whose strategies are less focused on dropping prices.
However, it can still teach lessons for all brands. This new method capitalizes on supporting infrastructure surrounding online groceries, such as seamless mobile payments and fast delivery, making it even more efficient. And it gives deals, bringing cheaper products to consumers. On top of that, it adds an element of entertainment to shopping, which Chinese consumers crave. It takes advantage of the significant engagement of China’s social networks and willingness to share.
