2019 FMCG trends and new “normal” after COVID-19
Kantar Worldpanel and Bain & Company’s China Shopper Report shows FMCG growth was +5.5 percent in 2019, dropping to -6.7 percent in Q1 2020 with strong online acceleration
Overall, 2019 was a good vintage for FMCG with growth at +5.5 percent, slightly higher than 2017 & 2018. Some interesting developments include a slowdown in premiumization and growth in the mass segments of several categories. Also, for the first time, foreign companies outpaced their domestic counterparts with foreign FMCG companies growing by 9.5 percent in 2019 compared with the Chinese company growth rate of 7 percent. However, consumers have spent less in the first quarter of 2020 because of COVID-19, with overall fast-moving consumer goods (FMCG) spending dropping by 6.7 percent, the biggest decline on record. These are the findings of Kantar Worldpanel and Bain & Company’s ninth annual 2020 China Shopper Report Vol 1.
Since 2012, the report has tracked shopping behaviors of Chinese consumers, creating a long-term view across 106 FMGC categories purchased for home consumption in China. The report analyzes the key 26 categories that span the four largest consumer goods sectors: packaged food, beverages, personal care and home care and an additional 24 categories to form a more comprehensive view of the market. Combined, these sectors represent 80 percent of all FMCG. In 2019, packaged foods value rose by 1.9 percent, beverages grew by 2.9 percent and, in line with the two-speed pattern, personal care categories grew 11.8 percent while home care registered 9.4 percent growth.
E-commerce grew by 35.2 percent in 2019, largely at the expense of hypermarkets and groceries, which declined by 3.4 percent and 7.2 percent, respectively. Convenience has been a big reason for the shift to online retailing in China. This is reflected in the widespread adoption of online to offline retail (O2O), which now represents 4.3 percent of total FMCG value share and is playing an increasing role in offline channels. Online channels experienced 19 percent year-over-year growth during the COVID-19 pandemic in the first quarter of 2020, while offline sales dropped by 13 percent.
“The pandemic has hastened the flight to value brands that we identified in 2019 and accelerated the shift to online channels,” said Bruno Lannes, Bain & Company partner and report co-author. “Consumers, quarantined at home because of the COVID-19 pandemic, had no choice but to buy online, with many opting to continue even after stores opened.”
Virtually non-existent three years ago, live streaming sales also more than tripled in 2019 and now account for 4 percent of total online retail sales and about 1 percent of total retail sales. The increasing number of online festivals and the steady shift to online also contributed to higher promotion rates for most categories in 2019. This is especially true in the case of personal care, home care and baby categories. Overall, online sales on promotion grew from 40 percent to 43 percent in 2019. Meanwhile, offline sales on promotion remained much lower, at 23 percent, in the same period.
“Brands and retailers will have to learn to navigate through the uncertainties presented by a Post COVID-19 world as growth will be more difficult to attain for the rest of the year and beyond,” said Jason Yu, Managing Director of Kantar Worldpanel and report co-author. “The path to recovery will be different for every brand as it depends on how the category has been impacted by the Covid-19 outbreak but also how consumers needs will change in the future. It is vital to keep monitoring how consumers’ purchase behaviors evolve to form a strategy of how to grow in the time of ‘new normal’.”
We have seen FMCG categories react to the ongoing COVID-19 pandemic in various ways with recovery taking a different shape across individual categories. FMCG segments reacted to the pandemic in the following ways:
- A first group of categories, including personal wash and soy sauce, boomed during the pandemic and have continued expanding in the recovery. These were widely used in stay-at-home situations. Once restrictions eased, consumers remained focused on health and a desire to pursue at-home activities which continues to strengthen sales.
- A second group of categories – frozen food, packaged water and household cleansers boomed during the lockdown but have since stabilized. Consumers stocked up for the pandemic and had enough on hand after it ended.
- A third group endured a V-shaped recovery, with sales of beer, skin care and pet food dropping dramatically during the pandemic, only to recover quickly, as consumers felt the need to re-purchase.
- The final group, non-essential categories such as makeup and impulse categories such as candy, declined but are slowly improving in an L/U-shaped recovery.
“Facing an uncertain future, brands need to retool,” said Derek Deng, Bain & Company partner and report co-author. “Those that closely monitor and re-evaluate the market, industry and consumers spending patterns in the post-COVID economy are better positioned to build a product portfolio with the right value propositions and pricing.”
Successful brands must also review their innovation pipeline to accelerate new products relevant in a post-COVID-19 environment and ensure they cover both premium and value segments. Additionally, brands should implement a 4-D approach to win in the right channels, in particular online, O2O, live streaming and continue to build trust and local relevance with China’s consumers: Design for China, Decide in China, Deliver at China speed and Digitalize the China business.