China Retail Annual Report

Updated: Aug 31

Credit: FAS China Staff

Report Highlights:

Despite pandemic challenges China remains a prime destination for imported consumer food products. The COVID-19 pandemic changed the country's retail landscape as e-commerce companies gained ground over traditional brick-and-mortar retailers. Online platforms also extended the reach of imported products into second-and third-tier cities. While the market offers opportunities, global supply chain challenges, and arduous registration requirements for imported products can dampen enthusiasm among some exporters.

Executive Summary

China's gross domestic product in 2021 reached RMB 114.4 trillion (US$17.7 trillion), showing an increase of about RMB 13 trillion (US$3 trillion) compared to 2020, or 8.1 percent growth year-on-year, according to the National Bureau of Statistics (NBS). U.S. agricultural exports to China totaled about $33 billion in 2021, up from $26.4 billion in 2021, again making it the largest market for U.S. agricultural exports. In 2021, imports of consumer-oriented food products from the world reached $102 billion, an increase of 14.83 percent compared to 2020.

Imports of Consumer-Oriented Products

In 2021, China imported consumer-oriented agricultural products from the United States worth nearly $7.9 billion.

Food Processing Industry

In 2021, China accounted for more than half of global food and beverage revenue. Production volume increased by 6.3 percent in 2021 despite continued COVID-19 lockdowns and outbreaks. Both food processing and manufacturing remain steady, and China imports the bulk of its higher-value products while relying on domestic production for the bulk of food processing ingredients.

Food Retail Industry

In 2021, the total retail sales of consumer goods increased 12.5 percent over the previous year. By retail format, convenience stores realized the largest increase in sales at 16.9 percent.

Section I. Market Summary

In 2021, the total retail sales of consumer goods increased 12.5 percent over the previous year. The COVID-19 pandemic profoundly affected the country's retail landscape as e-commerce companies gained ground over traditional brick-and-mortar retailers. E-commerce platforms leveraged customer data, advanced logistics, and delivery services to meet the needs of consumers who were either under travel and movement restrictions or apprehensive about venturing out to public shopping areas. Food and grocery retailers sought to shorten supply chains by strengthening direct sourcing capabilities from local farms and food manufacturers.

Sales of food and grocery items on online platforms, and offline stores offering home delivery, multiplied with Hema Fresh and Sam’s Club reporting huge sales increases with these platforms. Traditional hypermarkets lost market share to e-commerce platforms and retailers offering fast delivery services. Due to COVID-19 fears, online platforms also gained significant market share among senior citizens, who had previously been relatively more hesitant to shop online. For information about COVID-19's effects on e-commerce, see the USDA GAIN report, COVID-19 Drives E-commerce in China.

Two sales formats have emerged recently: convenience stores and membership supermarkets. Convenience stores are close to the community, and consumers can purchase multiple daily purchases. Membership stores such as Sam's Club and Costco provide a diverse selection of Western-style large-packaged goods and enjoy great reputations for their high-quality sourcing. In November 2021, Sam's Club announced that the number of paid members in China had exceeded 4 million, and in the same year, Sam's Club launched another five new stores, including the Shanghai flagship store.

Food and Grocery Retail Trends

Retail digitization: The pandemic accelerated retail digitization in China. Retail digitization refers to using technology in all facets of operations, including the consumer experience, delivery, logistics and supply chains, and consumer data.

Livestreaming: E-commerce in China is highly developed, and COVID lockdowns propelled it even further. The real-time online selling phenomenon — also called "live commerce" or "livestreaming e-commerce" — took off in China after the onset of the pandemic in 2020.

Community Group Buying: Stimulated by the pandemic, community group buying increased over 100 percent in 2020, with sales reaching $10 billion. Industry forecasters expect community group buying could exceed $150 billion by 2025. Community group buying involves an e-commerce company soliciting community leaders who take orders from friends, family, and neighbors.

Private Label: Because of COVID-19, many retailers realized that the supply stability of brands, mainly imported ones, can be easily affected by forces outside their control. Global shipping disruptions and new regulations issued by the government on imported food products in response to the pandemic led to depleted inventories at Chinese retailers. As a result, retailers have increased their private label offerings, especially for beverages, tree nuts, dried fruits, and dairy products.

Plant-based Meat and Protein Products: Chinese consumers are experimenting with plant-based meat alternatives. These products are sold in high-end grocery stores and online. For more information about the plant-based meat alternative market in China, see the USDA GAIN report, Market Overview of Plant-Based Meat Alternative Products in China.

Clean labels: More and more sophisticated Chinese consumers purchase foods with more clean labels, especially in first-tier cities. A clean label is a label on a food, not listing ingredients that may be perceived by consumers as undesirable.

Immunity Boost: Food manufacturers are developing foods that purportedly boost the immune system using ingredients such as probiotics, vitamins, or other functional foods. The COVID pandemic increased interest in products that promote a more robust immune system.

Environmental guarantee: Though it might be a new concept to many Chinese consumers, some food producers have started communicating their product's carbon footprint and the recyclability of their food packaging.

Ready-to-cook dishes: Ready-to-cook dishes have gained popularity among Chinese consumers as COVID-19 outbreaks reduced dining in services. In 2021, many online retailers and grocery stores, including Meituan Maicai, Freshippo, and J.D. Super, reported a jump in their turnover of ready-to-cook meals.

Section II. Road Map for Market Entry

Entry Strategy

China is a set of complex, diverse, and fluid consumer and regional markets. Customers living in different regions have different diets and consumption habits. New-to-market exporters should conduct market research to identify target customers and distribution channels. They should take time to understand their products' relevant regulations and requirements. For general information about import procedures, please review the FAS Exporter Guide. For those seeking specific import regulations, requirements, and certificates to export products to China, please check the FAIRS Country Report - Food and Agricultural Import Regulations and Standards and the accompanying FAIRS Export Certificate Report - Food and Agricultural Import Regulations and Standards.

In April 2021, China Customs (GACC) announced the Regulations on the Registration and Administration of Overseas Producers of Imported Food, or GACC Decree 248. The regulation took effect on January 1, 2022, requiring all overseas food manufacturers, processors, and storage facilities to be registered with GACC to export to China.

For additional information, please see the USDA GAIN reports Overseas Facilities Registration -Decree 248, Decree 248 and 249 Status Update on Facilities Registration and Food Safety Measures, and Introduction to Facility Registration Under Decree 248.

The regulatory environment is dynamic, with new measures implemented sporadically and often without notification. In addition, there is a potential for inconsistent interpretation of the regulations at various ports of entry and cold chain facilities. Additional information about China's COVID-19-related import measures is available in the FAIRS Country Report – Food and Agricultural Import Regulations and Standards.

Due to the global pandemic, China implemented strict visitor and quarantine rules for international travelers making most short-term business travel impractical. Please refer to the U.S. State Department's China travel page for the most current information.

Working through a local business consultant may make sense considering continuing travel restrictions. Once restrictions are reduced or removed, exporters should consider attending retail industry trade shows, such as SIAL China, held in Shanghai each May, or China Shop, usually held each November in a different city and organized by the China Chain Store & Franchise Association.

Customs clearance procedures change frequently. When discussing potential sales, that exporters should consult with importers, distributors, and retailers to ensure that U.S. products comply with relevant Chinese rules and regulations. These contacts or their import agents should be able to explain and handle customs clearance, quarantine, labeling, and any licensing procedures. The FAIRS Country Report - Food and Agricultural Import Regulations and Standards and the accompanying FAIRS Export Certificate Report - Food and Agricultural Import Regulations and Standards are good sources for understanding customs requirements. However, in-country agents are best able to answer specific questions.

Market Structure

Food and agricultural products are sold and distributed through three main retail channels: e-commerce, offline (brick-and-mortar) retail, and traditional markets (Figure 1). Offline retail predominantly consists of hypermarkets (large urban stores combining grocery and home goods), supermarkets, department stores, warehouse clubs (e.g., Sam's Club and Costco), specialty stores, and convenience stores. Traditional markets still serve approximately 50 percent of the population daily, especially in rural and lower-tiered cities. The division between e-commerce and offline retail is quickly blurring as many e-commerce companies open offline grocery stores (the industry refers to this trend as "new retail").

Company Profiles & Top Retailers

The sales revenue of the top 100 retailers in 2021 was $134 billion, down 2.6% from 2020. Among them, 62 companies experienced negative sales growth, and the number of companies with negative growth nearly doubled from the previous year (32 companies with negative sales growth in 2020). Walmart returned to the number one position in the top 100 supermarkets ranking, rising from seventh at the end of 2020 to fourth in 2021, surpassing Yonghui Bravo stores, RT-Mart, and China Resources Vanguard.

Online retail played an essential role during the pandemic by ensuring the timely supply of daily necessities. In 2021, online retail sales reached $1.87 trillion, up 14.1 percent compared to 2020. Five major e-commerce players carry various products, including consumer-packaged foods. Alibaba is considered the largest, followed by, Pinduoduo, VIP, and Suning (Table 3). Small players such as Miss Fresh reported financial difficulties in the highly competitive online retail environment.

Section III. Competition

In 2021, China's consumer-oriented food imports reached $102 billion, an increase of 14.8 percent over the previous year. As the first major economy to rebound from the pandemic-related economic downturn, China imported significant quantities of seafood, beef, pork, poultry, tree nuts, fresh fruit, and dairy products in 2021. The United States is the third-largest supplier of consumer-oriented food products with an 8.8 percent market share, behind Thailand at 10.6 percent and New Zealand at 10.3 percent. China has signed 19 free trade agreements with 26 countries and regions. These agreements provide lower or no tariffs, giving certain imported products a competitive advantage over comparable U.S. products.

Section IV. Best Product Prospects

The Phase One Trade Agreement included a commitment by China to make purchases of U.S. agricultural goods and address non-tariff barriers to U.S. agriculture and seafood products, including meat, poultry, seafood, rice, dairy, infant formula, horticultural products, animal feed and feed additives, pet food, and products of agriculture biotechnology. Tariff exclusions may lower the cost for Chinese importers of U.S. products. A consolidated GAIN report outlines the tariff exclusion process and a consolidated tariff rate table by HS code. NOTE: Chinese importers can only undertake the tariff exclusion process. However, U.S. exporters should be aware of the exclusion process, tariff rates, and how it may affect pricing.

Snack Foods: Imported snack foods, especially those perceived as healthy, such as tree nuts and dried fruits, are expected to increase as consumers renew their focus on healthy lifestyles.

Pet Food: Pet ownership continues to grow, and consumers are increasing their purchases of imported pet food. The Phase One Trade Agreement provided U.S. exporters with expanded market access. E-commerce has become the primary pet food sales platform.

Bakery Ingredients: The rapid growth of China's baking sector is driving deman