Worldpanel China reveals that Chinese consumers are still shopping around and trading up despite the hit on overall grocery spend.
Worldpanel, the global market leader in consumer purchasing and usage insights, reveals today that although China’s grocery market was hit by the economic downturn, the overall Fast Moving Consumer Goods (FMCG) market still grew by 3.7% for the 52 weeks ending September 11th, 2009.
The slowdown of spend growth, (compared to 14.5% uplift reported for 2008), was partly driven by the easing of food price inflation since the 4th quarter of 2008, alongside more cautious consumer sentiment , uncertainty over job security and therefore future income. Across all the grocery categories monitored by Worldpanel, overall consumer spend on food increased by only 2.3% for the 52 weeks ending September 11th, 2009, driven by the price deflation of a few essential categories such as cooking oil (-10%), and a weakening of dairy sector (-6%) following the melamine incident which happened just over one year ago. Non food categories as a whole, however, saw stronger growth of 11.7%, thanks to a continued trend of consumer upgrade.
However, given the diversity and complexity of the China markets, consumers are divided in the extent to which they were affected by the economic slowdown. A recent study completed by Worldpanel, segmenting Chinese consumers into 9 groups based on the changes in FMCG volume purchased and price paid, indicated that the bottom 23% of families most affected by the economic downturn chose to buy less volume and pay less for their grocery purchases, while 19% of the families continued to buy more and pay more. It is therefore critical that retailers and manufacturers develop tailored category and brand strategies to win their targeted consumer groups who respond to economic variances differently.
With a strong rise of GDP in the third quarter, an accelerated recovery in the export sector and the government’s pledge to drive domestic consumption, China is undoubtedly the focus of many international brands. Worldpanel advises major foreign brands to monitor five major trends in China.
Chinese consumers are shopping more often but spending less on each trip
The latest Worldpanel grocery purchase data indicated that the urban Chinese consumers increased their annual shopping frequency by 8% while there was a reduction in the volume they purchased on each shopping occasion. The additional 2.1 billion shopping occasions (both physical and virtual) provide opportunities for retailers and manufacturers to drive discretionary purchases. However, smaller baskets and more frequent shopping occasions suggest a bigger challenge for the traditional retailers to maintain their shopper loyalty.
Emerging channels are increasingly important
The increase in shopping trips is also explained by the growing fragmentation of retail trade as consumers are exploiting the low price, convenience and product choices offered by a number of emerging channels, e.g. internet, catalogue/Direct Selling and specialists (especially cosmetic stores and baby stores). The number of households who purchased from internet stores grew by 91% in the first 9 months in 2009 as compared to the same period in the previous year. Although internet purchasing of FMCG is still relatively low, its importance in Beijing for baby products has reached 15%..
The rising opportunities of the lower tier cities
Lower tier cities in China continue to present enormous growth opportunity for marketers, with ongoing modern trade retailer expansion into these new territories and growing consumer trial in a number of grocery markets. Worldpanel China shows that consumer spending on non food items increased by 13% in Tier Two and Three cities for the period 52 weeks ending September 11th, 2 percentage points ahead of the Tier One cities in China. The growth was especially strong in those categories less developed outside the big cities, e.g. fabric softener, hair conditioners, make up, and panty liners amongst others.
Consumers’ trading up continued
The trend of consumers trading up slowed down during the latest 52 weeks as a result of the economic slowdown. However, the trend has not reversed. Despite the increased level of promotional activities in stores, the Chinese consumer continued to trade up to products that offer them health and beauty benefits as well as new lifestyle promises. In laundry detergent, the past 52 weeks saw liquid detergent grew by 29% in value while powder detergent only reported a growth of 8%. It is also worth pointing out the consumers are not always upgrading their product choices in the same pattern as they did before. In the instant noodles market, consumers are reducing the consumption of more expensive cup noodles, but are still tempted to buy more premium pouch pack noodles.
Increasing consumer attention on quality
The “Melamine Incident” which occurred in the second half of 2008, has attracted wide attention and served as a wake-up call to consumers, who have started to shift their attention from price to quality. While the government has made a great efforts to improve food safety systems, consumers are more becoming conscious and placing ‘quality’ as their primary criteria for product and store selection. According to an annual lifestyle survey carried out by Worldpanel China, 94.2% of primary grocery shoppers agree that access to good quality products is one of the most important decision criteria when it comes to select their shopping destination, while price was cited by 83% of the consumers.
Worldpanel China
Worldpanel™ provides syndicated consumer research service on a global scale to over 50 countries based on continuously monitored samples providing information on purchasing activity on toiletries, food, beverages and household products. Its exclusive China National Urban Panel covers 17,500 sample homes in over 20 provinces and four municipality cities (Beijing, Tianjin, Shanghai and Chongqing) as well as 16 independent city panels, measuring purchases of more than 60 categories of consumer products, and will be expanded to cover 40,000 families through a scan-based purchase panel in 2010. Worldpanel China is a service of CTR Market Research, the leading market research provider in China.
Notes: Tier one cities: 20 Provincial Capitals, 4 Municipalities (Beijing, Shanghai, Tianjin and Chongqing) and Shenzhen, so altogether 25 cities
Tier two cities: Prefecture level cities by government definition
Tier three cities: County level cities by government definition
CTR Market Research
CTR is the leading market insight and information provider in China. We are a joint venture company between CITVC and Kantar/TNS, the world’s largest provider of custom research. We are the foremost provider of continuous and customized consumer and media analysis in China. We integrate our local expertise with cutting edge market research technology, innovative thinking and excellent service to meet our client’s needs for high-quality information, tracking, analysis and market insight. Our specialist expertise includes Consumer Panel, Media Intelligence, Media & Consumption Behaviour, Media Strategy, Automotive, FMCG, Healthcare, Finance, Telecom & IT and New Media research. CTR employs more than 500 full time professional researchers and manages a comprehensive research network covering 180 cities across China.
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