How to navigate the new normal
Our topic today is how COVID-19 has impacted China’s fast-moving consumer goods (FMCG) market, especially the F&B market. It’s significant to have full insights about these trends in order to improve brand innovation.
Trend 1: Holistic view of well-being
The pandemic has directly impacted consumer’s view of well-being, pushing them to pay more attention to the quality, nutritional and immunity benefits of food. Milk witnessed an outstanding growth since it has been recommended by the most famous disease experts.
Due to many stores having to close temporarily combined with a lack of supply, milk sales decreased for a short time during the pandemic, but the category started to boom from March to May. The growth was maintained in May, which should have been an off-season for milk, largely thanks to the benefit lactoferrion brings to consumers, which can help with immunity. Aside from milk, many other dairy products are also benefiting from consumers’ growing pursuit for nutrition. A number of plant-based products were mentioned in the forum yesterday and plant protein is also beneficial for immune system. Given this perspective, this industry will continue to benefit from the pandemic.
Meanwhile, low or zero sugar beverage products are accelerating their growth, leading to the popularity of notions like sugar-free fiber. Many new star brands, represented by Yuanqisenlin, are promoting the concept of zero sugar and fat for zero burden. In addition, classic brands like Coca Cola and Sprite are also promoting fiber+ for health, contributing to an evident improvement in sales growth. All of these brands are gaining popularity among young consumers. Therefore, in the post-pandemic era the concept of low/zero sugar will continue to be welcomed.
What’s more, we used to talk more about physical health meaning not getting sick or having a strong immune system. But this pandemic has led our society and consumers to think more about mental and spiritual health. Consumers are now concerned about not only physical health, but more about life well-being. They are likely to try more new things, to pursue beauty, a quality life and to improve their sense of national pride. According to our survey, Chinese consumers have developed a more holistic view about well-being so in this sense brands should communicate more about mental and spiritual health instead of focusing solely on the physical aspect.
After the pandemic, brands should introduce products with relevant health and protective benefits while continuing to monitor how consumer purchase behaviors evolve to meet their holistic needs on wellness.
Trend 2 : New habits and back to normal
Second, consumers have formed new habits. Many people have become a chef or baker in home cooking due to the pandemic. Interestingly, many home-cooking relative categories grew well in February and March and maintained their growth momentum even when the situation was better in April and May. Condiments including seasoning products, soy sauce and oyster sauce all maintained a two-digit growth after the pandemic.
This interesting trend has also been observed in carbonated drinks. During the pandemic we needed drinks like Coca-Cola as ‘happiness water’ to deal with stress but even after the peak of the outbreak this category still soared by more than 20% because people needed soda beverage to alleviate their anxiety. In this sense, this category is a necessity for consumers at any time.
We also found Chinese consumers using more cheese and butter products to cook a variety of delicious food. This category saw an astonishing year-on-year surge by 60% .
What’s more, we have mentioned that sales of ice cream also increased during the lockdown period and kept growing in April and May even though summer had not yet come. Home-purchasing of these categories are likely to become a trend this year. We used to talk more about 2B channels, the peak season or outdoor channels for many categories, but in 2020 home shopping will play a more important role in these categories.
We can also see some consumers chose to stockpile different categories of goods during the pandemic, i.e. bread, instant noodles and frozen food, and they maintained their stock afterwards because no one knew whether the pandemic would see another wave, so these categories are still enjoying positive growth.
But at the same time, some F&B brands suffered greatly due to habit changes. For these brands, they saw an evident recovery in the post-pandemic era, especially alcohol, coffee and Chinese pastry, which indicates that consumers are desperate to resume ‘normal’ life. Many experts are talking about the new normal but consumers actually aspire to go back to normal life although they have formed some new habits. It’s important for brands to capitalize and lead the development of the new habits while understanding the ‘old needs’ that remain.
Trend 3: Revive the OOH consumption
Out-of-Home consumption is an important market especially for the F&B industry. OOH refers to all occasions that consumers purchase outdoor. Disappointing news is that until May, few brands have recovered from the negative impact of COVID-19 with only milk, ice-cream and CSD seeing positive growth.
Here I’d like to point out three bright points of OOH occasions. First, people had less outdoor activities but they still have to go to work, so strong snacking demands between meals during work have led to an evident recovery in workplace. Second, as I have noticed during my commute or lunchtime, tea, coffee and ice cream shops as well as street vendors and the night market economy were recovering quickly in April and May, which went in line with the street economy promotion by the government. Third, consumption amongst the young, especially those between 20 to 29, bounced back quickly. With relatively higher income, these young consumers are more desperate to revive normal life, whose social gatherings and self-indulgence bring more opportunities for OOH occasions. Therefore, we have seen a lot of brands taking actions. For example, Coca Cola is enhancing the communications of drinking occasions in workplace. The brand used to promote large-sized cola for family gatherings, but now it wisely seizes the workplace occasion to encourage drinking after working hard.
Soda beverage started to emerge last year and will enjoy accelerated growth this year because consumers are in great need of such stimulus and joyful taste in the post-pandemic era to counter the anxiety they are facing in their daily life. I believe you have your own perspectives on whether soda beverage will become the next ‘happiness water’,
It’s key to capture heavy buyers in OOH market. We find that 73% of OOH heavy buyers in 2019 still remain heavy buyers in 2020 and they accounted for 40-60% in categories ranging from on-premise beverage to packaged beverage. They are the key group for any category to keep in touch with and to transform.
According to Kantar’s data from a survey about outdoor heavy buyers last week, there are three occasions for these heavy buyers to purchase more F&B products: workplace, family gatherings and outdoor shopping, especially from April to June. These are the key occasions for us to capture consumers. And we also find a decrease in consumption in another three occasions, including where they buy products, consumption along the street, on their commute to work and after dinner. We interviewed these buyers about what kind of products would attract them and the answers could be summarized into two key words: Health and Self-indulgence.
For health, they are paying growing attention to the ingredients and raw materials of products, for example, whether there’s additive or sweetener. In addition, they want the product to be beneficial for keeping fit.
Second, they still want these products to be self-indulgent and that’s why we believe outdoor activities will become even more essential to them and will be a key area for recovery.
What’s more, safety also matters so contactless delivery services and travelling by private cars have become their top choices. For these buyers health and self-indulgence are key marketing tools in brand communication.
To summarize, the OOH market is still far from a full recovery, so we need to improve the situation step-by-step in different occasions. Here are three occasions:
First, how to capture occasions in the workplace to increase buying.
Second, how to utilize social gatherings to remind young consumers of our product.
Third, although the entertaining industry will not recover fully until the pandemic is totally confronted, it’s still important to get well prepared for the moment in advance.
Trend 4: O2O service upgrade
The growing popularity of O2O service is a vital phenomenon in 2020. It has been emerging for a few years, but this year O2O service will definitely achieve a disruptive growth in the FMCG sector. In 2019 we observed that O2O accounted for 4.3% of value in the FMCG market and the figure was certainly higher in within F&B. Similarly, this year’s Chinese consumer report also analyzed the two strongest driving forces in O2O development. First, convenience. Consumers hope to get what they want as soon as they have the need. That is what O2O was born for. Second, different from foreign consumers, consumers in China can realize one-stop shopping on Chinese platforms, buying whatever they need for a week with full options of brands and categories to satisfy all their needs. This pandemic also boosted the demand and efficiency in the logistics of O2O platforms and has helped to ensure the profitability of O2O business models.
How many consumers are using O2O services in China? In 2019, 57% urban families bought FMCG via O2O, with 5.5 trips on average a year and 107 yuan per trip. Therefore, many of them were having one stop shopping instead of fragmented shopping. On average, people are willing to pay 30% more compared to the trip size made at stores, with 76 yuan for every offline trip versus 107 yuan online. Compared with last year, FMCG consumption in this Q1 has largely improved in both penetration and frequency and the data was even higher in food sector, with a rise of 4.5 percentage points in penetration compared with Q1 last year.
What categories will consumers purchase through O2O service? Among all the F&B categories we listed, O2O is more suitable for dairy, alcohol, seasoning and liquid beverages. More categories are enhancing their presence in O2O by starting partnerships with ecommerce platforms to provide joint promotions to boost their sales. I believe for many categories and brands, how to leverage O2O for their business will be a valuable topic this year.
For example, white collar workers may feel in need of some snacks when they are hungry or sleepy during work. Yili tagged this right moment and cooperated with ELEME to promote their Danish cheese yogurt in the workplace, encouraging the targeted group to purchase their yogurt when feeling a little hungry.
The customized package of this yogurt is designed for two purposes. By scanning the QR code on the bottle, consumers can not only get exclusive coupons on ELEME, but also join the membership of Yili, which achieves the closed-loop traffic direction between the brand and the platform. What’s more, this marketing strategy closely ties the product to the marketing occasions of ELEME as well as the product demand.
Here I also want to share with you the channel development in China. Until 2025, it is estimated that e-commerce will account for 38% of the Chinese FMCG market and O2O will take at least a share of 12%, and 13% in the F&B market. The pandemic will positively impact the overall O2O service especially the offline retailing business.
Apart from enhancing communication of occasions of the product itself, it’s more important to guide consumers to think of targeted products at right moment and make the products accessible in O2O communication.
Trend 5: Money and Lipstick effect
Fifth, what kind of product portfolios should we promote in the post-pandemic environment?
According to our analysis, in Q1 this year the shift to online was accelerated compared with the same period of last year. Meanwhile, although the growth speed of high-end products had been faster than that of mass products in the past three years, it experienced a drop in Q1 during the pandemic. The 618 shopping festival helped grow big brands at unprecedented level, but these sales records were made at the cost of high discount provided by brands. E-commerce festivals indeed enable consumers to buy the big brand’s products at a lower price.
Recently Tmall.com published the top 10 beverage brands this year and they shared a common feature: relatively higher price with attractive packages to be welcomed by the young. These brands captured the new lipstick effect in the F&B market. Although they are not cheap, they can still quickly go viral on the back of e-commerce and social media to attract more consumers. Therefore, in the post COVID-19 world cost performance and the lipstick effect will co-exist, providing a great chance for development as long as brands find a suitable positioning.
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Managing Director, Great China