Editor’s Note
NielsenIQ (NIQ) has released its “Trend Evolution of China’s Retail Channels in 2025” report today. Starting from the current status of retail channels in 2024, it provides a deep interpretation of three major characteristics of offline channels, as well as the key development trends in China’s FMCG (Fast-Moving Consumer Goods) market for the year 2025. It aims to offer retailers profound market insights and to identify keys to unlocking growth.
The following article is from NielsenIQ Author NIQ
Consumption is a significant engine for China’s economic growth. As the rise of all-channel consumption is unstoppable, the trend of channel fragmentation in the FMCG industry has become more prominent. In 2025, what strategies can realize the overall growth of both online and offline markets? NielsenIQ’s (NIQ) newly published report from the “China Retail Channel Series of Studies,” entitled “Trend Evolution of China’s Retail Channels in 2025” (hereinafter referred to as “the report”), points out that, with changes in population structure, economic cycles, and technological advancement, China’s offline retail channels are rapidly evolving toward “miniaturization, fresh product orientation, and discounting.”
This report starts from the retail channel status in 2024, interpreting in-depth the three significant features of offline channels and the key development trends of China’s FMCG market for 2025, intending to provide retailers with in-depth market insights and find keys to unlock growth.
NielsenIQ’s General Manager of Retail in China, Wu Yihua, states: “In 2024, China’s economy progresses with resilience. Final consumption expenditure accounted for nearly 50% of economic growth in the first three quarters, contributing 2.4 percentage points to the GDP growth. ‘Vigorously boosting consumption’ has become the primary task for the 2025 economic work agenda, which will bring a new wave of growth opportunities for the FMCG market. Currently, the retail market share is approximately 30% online to 70% offline. Whether or not businesses can seize the opportunities in offline channels is crucial for their growth, and amidst the rapid evolution of consumer stratification and channel differentiation, businesses must more accurately perceive channel development trends and potential opportunities, make precise regional arrangements, and flexibly adjust strategies to meet the ever-changing consumer demands.”
The FMCG market exchanges volume for price, and consumer demand stratification accelerates
According to data from the National Bureau of Statistics, from January to November 2024, the total retail sales of consumer goods exceeded 44.27 trillion yuan, a year-on-year increase of 3.5%, wherein the national online retail sales grew by 7.4%, continuing to exceed the growth rate of offline channels. NielsenIQ’s cross-category retail monitoring data also indicates this trend, with omnichannel key FMCG sales increasing by 3.8% year-on-year during January to November, outpacing the same period in 2023, where online channels grew by 10.8%, while offline channels somewhat declined by 0.7%, narrowing the decrease.
NielsenIQ’s head of Retailer Client Success, Wang Ling, commented that since the pandemic, online retail channels such as content commerce and discount e-commerce have grown rapidly, while traditional channels such as hypermarkets and supermarkets have entered a longer period of recovery. “Volume for price” has become the leading sales motif across channels in 2024, gradually warming up the Chinese FMCG market. The fundamental reason lies in Chinese consumers’ intensified stratification under financial prudence, opting for extremely cost-effective basic needs while also showing strong consumer demands for emotional value satisfaction.
The report notes that Chinese consumers are transitioning toward purpose-driven purchases, with consumption stratification not only prompting product price differentiation—coexistence of practical and self-pleasure consumption—but also shifting consumer preferences. 47% of surveyed respondents in China stated that they purchased only necessities in the past year to avoid waste, while 68% said they would spend more on goods and services that help them relax or alleviate stress.
In terms of channels, the stratification of consumer demands also speeds up the differentiation of complex and diverse retail formats. In 2024, the number of stores in urban areas has rebounded, and although hypermarket outlets continued to shrink, the total number of modern channel stores increased, driven by robust growth in small supermarkets and convenience stores. The rise in urban areas reached 8.7%. With changes in population structure, variations in consumer demand, and technological upgrades, China’s offline retail channels are rapidly transforming toward “miniaturization, fresh orientation, and discounting.”
Miniaturization becomes the mainstream of modern channels; large formats urgently need transformation
NIQ data shows that after the first decline in large hypermarket stores in 2016, offline retail stores have gradually moved towards miniaturization. After the pandemic, community stores (like small supermarkets and convenience stores) have become the mainstream of modern channels.
Nationwide, community stores accounted for 52% of modern channels in 2024, a 6% increase compared to the same period in 2020.
NielsenIQ’s Deputy Director of Retail Industry Analysis and Insights in China, Li Quncai, analyzes that store miniaturization is a natural choice under China’s demographic changes and economic development. In 2023, China’s urbanization rate exceeded 66%, with the increase in high-density residential numbers bringing sufficient foot traffic; meanwhile, the aging population has entered an intermediate stage, with the population over 60 years old exceeding 21%. These are all favorable for convenient community-based consumption. In addition, factors such as faster lifestyle, smaller household sizes, and shrinking shopping baskets are pushing China’s retail channels towards community-based retail. Currently, 74% of community convenience store spaces are below 50 square meters, and 52% of small community supermarkets are below 100 square meters.
Li Quncai suggests that businesses need to strategize dynamically to deploy community stores, tailoring to demographic structures, economic levels, and the current development status of small formats in regional markets. Identifying key areas for market growth and finding the most efficient entry points for store expansion are keys to seizing the blue ocean. Taking convenience stores as an example, in regions like Jilin and Liaoning, due to industrial upgrades leading to population inflow, provincial capitals are experiencing positive convenience store development, while in central and western regions, rising income levels solidify the foundation for convenience store growth. Coastal provinces like Guangdong have to dig deeper into mature convenience store markets for potential growth opportunities.
The report points out that large formats face a significant challenge from small community stores. To confront the impact of community stores, large formats urgently need to embrace change and transform actively, either by reducing inefficiencies and driving efficiency or by restructuring values, such as downsizing unproductive areas, optimizing product structures, and creating a differentiated value through store redesign and curated product selection. In 2024, about 8% of hypermarkets downsized significantly to standard supermarkets, 12% stopped selling clothing and major electronics, and 14 supermarket chains adapted to Fat East’s ‘adjustment and change’ format.
Shifting Towards Freshness: Continuous Improvement in Attracting Customers
According to a report by NielsenIQ, even though Chinese consumers are becoming increasingly cautious, this attitude mainly affects non-essential food and beverages, while their willingness to purchase necessary fresh goods remains strong. In supermarkets, the expenditure on fresh products by consumers now accounts for more than 55% of their daily grocery spending. A tendency towards fresh products has become one of the directions for the evolution of offline retail channels.
Wang Ling stated due to the high price and promotional sensitivity of fresh goods, compared to standard products, they can more easily lure customers into stores thanks to discounts. Fresh products have thus become an important category for attracting traffic in supermarkets and hypermarkets, with their actual importance in modern channels increasing day by day. NIQ data reveals that fresh fruits and vegetables, and fresh meats and poultry have the top two penetration rates in hypermarket supermarkets, at 61% and 48% respectively. The number of fresh product supermarkets has also grown rapidly, with fresh stores accounting for 11.8% of total modern supermarkets and hypermarkets nationwide in 2023, an increase of 32%, far outstripping the growth of other types of stores during the same period.
The report points out that while the emphasis on fresh products requires differentiation in operations to address different consumer needs, thereby maximizing the value of attracting and retaining customers for high-demand staple goods. Specifically, in large formats, hypermarkets can stimulate shoppers’ purchasing desires by offering advanced fresh product selections. For example, small-pack organic vegetables can sell for 2-10 times the price of regular vegetables. By enhancing the perceived value through high-quality goods, offering convenience with pre-prepared food, providing better quality protein sources, and a more convenient meal prep experience, stores can elevate the customer experience. Linking fresh products with food service, and even home cooking essentials, optimizing shopping flow and designing themed experiences, can improve the overall experience and drive associated sales.
For small formats, small supermarkets can maintain a high cost-performance ratio and achieve standardization of fresh products by selective merchandising and uniform packaging, thus improving the store environment and reducing in-store wastage. Convenience stores, on the other hand, can focus on made-to-order services, driving sales through the demand for instant food and beverage options. For instance, they can offer high-value instant meal combos, coffee with frozen fruits or nutrient supplement cups to satisfy diverse consumer needs.
Discounting Becomes the New Normal: Balancing Low Price with High Value
NIQ data shows that in 2024, sensitivity to prices in Chinese FMCG primary channels, including online shopping, O2O, supermarkets, hypermarkets, and convenience stores, has increased, with respective sensitivities of 80%, 72%, 72%, 77%, and 45%. This indicates that discounting has become a new standard in consumption, with consumers getting used to straightforward discounts and regularly completing purchases at discount stores.
However, customers are not willing to sacrifice the value of products for the sake of low-priced discounts; only 17% of the survey respondents would choose lower-priced products to save money. The report notes that traditional offline retail channels are cooling down on short-term promotions, with long-term concessions becoming the new norm for operations. Yet, amidst the wave of discounting, simply reducing the prices of established products is limited in driving sales volume growth. The focus of discounting lies in finding a new balance between price concessions and upgrading value.
On one hand, the report points out that from January to October 2024, only 9% of active FMCG sales in hypermarkets were due to effective price reductions, emphasizing that selective and targeted discounting can achieve purposes such as defense, repurchasing, and attracting new customers. On the other hand, upgrading the quality of product categories in large formats is key to increasing sales volume. For instance, hypermarkets need to continue strengthening product transformation and upgrades, focusing on elevating the quality of frequently consumed food and beverages and reversing inefficient price cuts.
While offering low prices, retail businesses should move beyond mere price competition and genuinely meet consumers’ core needs with higher-value goods and services. This includes selecting products based on practical values like health and convenience, offering advanced usability for a higher premium, and stimulating consumption through higher level needs—from utilitarian to emotional value—upgrading the content of consumption.
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