Vol. 4 How much China's Double 11 shopping festival boosted delivery services, and six consumer trends to monitor

Delivery service issue

It's the end-of-year season for holiday shopping. We trust that you have emptied your online shopping baskets or made arrangements to do so!

In this issue, we will bring you a fun chart on China's Singles Day shopping spree in November, China’s version of Black Friday sales, based on our own index monitoring. But the bulk of this issue focuses on an in-depth analysis of China's official monthly retail sales data, an indicator of Chinese consumption released by the National Bureau of Statistics (NBS). By looking beyond the headline figures, we've uncovered some structural trends that may give you pause for thought.

Chart of the month

Much has been said about this year's Double 11 online shopping festival, China's version of Black Friday sales. It’s apparent that Chinese consumers are no longer as incentivized by coupons and discounts from online shops as they once were. Major e-commerce platforms, including Taobao and JD, ceased to release total sales values last year and have carried on this year. According to Syntun , a Chinese data analytics company, total sales value during this year's festival (Oct. 31 to Nov.11) grew by only 2.08% to RMB 1.13 trillion. The growth was much slower than last year's 13.7%, even though JD started its Double 11 sales a week earlier this year.

The State Post Office reported a 23% increase in the number of parcels handled (including those returned by consumers) from Nov.1 to 11. On the Micro Connect Daily Cash Index (MDCI) (footnote1), we've also seen an increase of over 50% for delivery service starting from the early October. However, the increase was not significantly different, if not lower, than the index performance in early September, when numerous e-commerce platforms also offered benefits and incentives to support another online shopping event. In reality, the abundance of e-commerce marketing events and the up-front spending in September could be the reasons behind this year's mediocre Double 11 sales.

Deep dive (curated charts, data, etc.)

Before delving into the official data, Some key points to keep in mind about the total retail sales of consumers goods (headline figure), China’s key indicator of consumption:

• It collects data from sellers (including businesses and self-employed individuals), instead of consumers.
• It only includes physical goods (including those from online) and catering services.
• It does NOT include virtual goods and other types of services.
• It does NOT include the sales of raw materials or other goods sold to businesses for production or fixed asset investment. (e.g. A packet of pesticide sold to a farmer to grow maize.)
• It does NOT include consumer spending on housing.
• It’s heavily influenced by large sellers (footnote2), from which NBS collects data directly. To get the sales information from small sellers (or SME), NBS uses a sample survey.

Six consumer trends to monitor (an analysis of NBS’s November data release)

(* Feb data = Jan + Feb data, due to CNY holidays )

1. Small businesses in the fast lane

The growth in total retail sales is heavily driven by large businesses in the NBS data pool, as the chart above shows. What's different in 2023, however, is that retail sales from large businesses are growing more slowly than total sales. This suggests that the sales from smaller businesses are growing faster, pushing up total retail sales.

The trend becomes apparent when we examine physical goods and catering separately (in below 2 charts). The revenue growth of major caterers has slowed towards the end of the year. Sales growth of large retailers has been lower than that of smaller ones so far this year.

2. Roaring food & beverage

One noteworthy aspect of China's consumption this year has been the thriving catering industry, primarily due to the opening of many new restaurants in the post-pandemic era. Qichacha reported that over 2 million restaurants opened in China during the first half of 2023, which is equivalent to the total openings in 2019.

This also aligns with our observations in Micro Connect's portfolio. (Revisit our issues on food , and tea beverage ). Undoubtedly, the competition in the food and beverage sector has been intense, with high turnovers. It is worth monitoring the ups and downs in the industry.

3. Supermarkets’ conundrums

Supermarkets in China are at a crossroads: Adapt or fail.

If the pandemic caused retail sales to fall, it can no longer explain the divergent recovery between supermarkets and other types of retail stores, including department stores and convenience stores, which have all seen sales rise this year. Yonghui Superstores, one of China's largest supermarket chains, opened only four stores in the first half of 2023 and closed a record 29 high-end stores. At the same time, Carrefour China closed 106 stores and opened no new stores, leaving only 41 stores in operation.

In addition to competition from e-commerce platforms, many traditional supermarkets have been slow to embrace new consumer trends and introduce new products, losing ground to other retail formats such as instant retail, discount stores, and warehouse clubs.

4. (Online) virtual goods/services boom

In August, NBS released a new dataset for the first time: retail sales of services. This release is intended to supplement the existing headline data, which only covers one service sector: Catering.

The new dataset includes services in transportation, accommodation, catering, education, health, sports, entertainment, and other areas. From January to October, retail sales of services increased by 19% from a year earlier, which was higher than the headline retail sales growth of 6.9%. The same trend is also evident in online sales, as shown in the chart above.

5. Real estate’s ripple effect

The Chinese property market is going through a tough time, with slow home sales and increasing financing pressure on developers. The growth of real estate investment has decreased since the start of 2022. Consequently, many Chinese home buyers and home owners have delayed purchasing or decorating their homes. The chart above demonstrates a strong correlation between the declining real estate sector and falling sales of furniture, household appliances, and decoration materials.

6. High inventory of office supply

NBS also published monthly sales of 16 categories of large retailers of goods separately. In the first 10 months of this year, sales of cultural and office supplies fell by 5.5% year on year, only slightly better than building and decoration materials (-7.5%).

Take printers, for example. According to IDC , sales of printers fell 20% year-on-year in the third quarter, mainly due to government budget cuts and low corporate demand. Sales of office supplies offer a special perspective on how Chinese companies are doing on the ground.

1. Micro Connect invests in individual small stores through a daily revenue sharing model, meaning that an invested store shares an agreed upon percentage of its daily cash flows with us throughout the investment period. Thanks to China’s digitized economy, we can automatically capture shared revenues every day. Based on our investment pool of more than 10,000 stores, Micro Connect Daily Cash Index (MDCI) tracks how much return we receive every day per one thousand RMB investment (e.g. if the index is 1.5 today, it means we receive RMB 1.5 in return for every RMB 1,000 investment). This gives us a glimpse into how these small shops are performing on a daily basis. In a word, we follow the money.
2. Specifically, businesses (including self-employed individuals) above the designated size include wholesalers, retailer, and lodging and catering enterprises with annual revenue from principal business over RMB 20 million, RMB 5 million, and RMB 2 million respectively. For the sake of simplicity, we refer to these types of companies as large companies or sellers.