April 4, 2012 at 12:35 PM ET
The Chinese economy may have slowed from its red-hot growth pace, but that hasn’t taken a bite out of consumer demand for groceries.
China has overtaken the United States as the world’s biggest food and grocery retail market, according to a report from research firm IGD, and is expected to continue growing at a rapid clip.
IGD said the Chinese grocery sector hit 607 billion pounds ($964 billion) in 2011 versus $908 billion for the U.S.
By 2015, Chinese households will spend roughly $1.6 trillion on groceries, IGD predicted, three times the amount spent in 2006. The U.S. market is expected to hit roughly $1 trillion by 2015.
“This rapid expansion (in China) has been fuelled by three main factors: rapid economic growth, population and rising food inflation,” said Joanne Denney-Finch, IGD’s chief executive.
China’s appetite for groceries is being fueled by the ongoing rise in wages among an expanding middle class, part of the government’s 30-year-old plan to transform the nation’s economy.
Though the economy came back strongly after the global recession in 2007, growth has been slowing somewhat since then. After peaking in 2010 at 10.4 percent annual growth, China’s GDP is expected to expand by 8.6 percent this year, according to estimates from Goldman Sachs.
That’s still rapid enough to continue to boost the spending power of Chinese households at a healthy clip.
“Sustained, strong wage increases should support consumption, helping the government achieve one of its key aims – the rebalancing of the economy away from its dependence on exports and investment,” according to Capital Economics Asia economists Gareth Leather and Mark Williams.
Much of the increased consumption is the result of rapid inflation, as strong demand for a variety of food and other commodities pushes up prices.
That’s expected to continue. Between 2011 and 2015, the growth of China’s grocery market will grow by 10.9 percent, double the rate of growth for the U.S.
Though China’s early stages of economic growth were largely confined to coastal cities, the demand for consumer goods such as groceries is rapidly spreading inland. By 2025, according to IGS, there will be over 200 Chinese cities with a population of over a million people.