China’s grocery market will grow by 65% to $456 billion (£240 billion) in the next five years according to a new report from food and drink think tank the IGD.

The report, ‘Retailing in China,’ says growth will be fuelled by the development of modern retailing, in particular growth in hypermarket and convenience formats and consumer demand for value-added, processed and ready-to-eat products. 

China is one country – but with 32 markets, each with its own tastes and shopping habits, and IGD believes that the greatest challenge facing anyone operating in China is understanding the diverse, fragmented and constantly evolving needs of the consumer. 

IGD has found there are huge differences between Chinese consumers, in terms of different generations, eating habits and where they live. 

Key political events over the past 50 years including the Cultural Revolution, the opening up of China and its recent economic growth mean that three distinct generations have emerged.  Differing experiences mean that consumption habits vary between these generations, for example the over 35s are more traditional and conservative, preferring to shop daily and stay loyal to local brands, while those aged 25-35 and under 25 have a higher disposable income, prefer to shop weekly, are familiar with foreign lifestyles and open to western products.  Eating habits and tastes vary widely between provinces, and there is no guarantee that a product successfully introduced into one region will prove popular in another. 

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The rapid urbanisation of China as a result of continued economic growth is a tempting prospect.  However, there are huge regional differences.  The urban population accounts for 41% of the total population, and has an average annual household expenditure twice as high as that of the rural population.  The concentration of wealth is predominantly along the east coast, although there are pockets of wealth developing in the centre and west. 

China’s supply chain is still in the early stages of development, due to the fragmented market and lack of scale of international retailers.  IGD anticipates that suppliers will come under increasing pressure to improve their service levels, while retailers will seek to develop sophisticated automated distribution centres. 

Joanne Denney-Finch, chief executive IGD, said “China is, without doubt, one of the most exciting grocery markets in the world and the potential for growth is astounding.  The race to win has only just started and the next five years will be critical.  However entry into China does come with a health warning.  Anyone entering this market must keep very close to the consumer and be able to adapt very quickly as the markets develop.  Retailers and suppliers must be flexible and prepared to continually fine-tune their approach, for example using different approaches for primary, secondary and more rural markets and ensuring that product quality and service are high.”