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Digital distribution of consumer goods from traditional traders is expected to grow by 27 percent annually over the next 10 years, with total sales reaching 1.1 trillion yuan (US$157 billion) by 2028, according to a white paper released on Friday by Oliver Wyman and AliResearch.
The traditional trade sector, as opposed to modern trade which include supermarkets and convenience stores, mainly consists of independently run mom-and-pop grocery stores.
Such stores still accounted for about 40 percent of the country’s total retail sales in 2018, making it an indispensable part of shopping for daily necessities.
"China is well-positioned to be the first country in the world to provide digital solutions for traditional trade at scale thanks to the leading digital ecosystem here and a very digital-savvy population,” said Jacques Penhirin, partner, head of retail and consumer goods in China at Oliver Wyman.
Alibaba Lingshoutong’s integrated platform and JD.com Xintonglu’s platform have been early movers but both still need to tackle some key challenges, such as logistical costs, lower-tier market expansion, brand controls over pricing, and distributor competition and management.
The total retail market in China is expected to reach 9.2 trillion yuan by 2028, with offline traditional trade estimated to represent about 24 percent of the market value.
Oliver Wyman's analysis of brands' digitalization level shows that confectionery and healthy snacks are leading the way, while the general food and dairy & beverage categories are lagging behind.
"Digital distribution platforms are becoming an inseparable part of traditional trade, so brands will need to utilize it to both achieve and maintain penetration within this channel," said Xiang Ming, a senior expert on New Retail at AliResearch.