China Shopper Report 2023, Vol. 1
Signs of spring in China’s FMCG sector signal optimism for rest of 2023
After a slow 2022, China’s fast moving consumer goods (FMCG) sector is showing signs of recovery and building the momentum for a positive rest of 2023, according to a report released today by Bain & Company and Kantar Worldpanel.
In 2022, Chinese consumption was hamstringed by two major waves of Covid-related restrictions. Despite year-on-year value growth of 2.8% in the first half of the year and reaching 6.3% in the fall, an infection spike at the end of 2022 caused value to decline to 3.9% in the fourth quarter. As a result, the FMCG market landed at a modest annual growth rate of 1.5% for the full year. Like previous years, local brands gained share from foreign brands, mainly through volume gains, while average selling price (ASP) decreased for both local and foreign brands.
The first quarter of 2023 revealed promising signs of a moderate economic rebound. China’s GDP grew 4.5% in Q1 2023 compared to Q1 2022, while overall retail sales (excluding auto) grew 10.5% in March year-on-year, both exceeding expectations. The market’s Consumer Confidence Index showed a steady upward trend but has yet to return to pre-pandemic levels.
The 12th edition of China Shopper Report 2023, Vol. 1 reported that consumers are gradually gaining confidence now that Covid restrictions have lifted. Overall, the FMCG industry rebounded from the fourth quarter of 2022 and reported value growth of 1.9% in Q1 2023 vs. Q1 2022, driven by mild volume growth of 2.7%, despite a decline in ASP of 0.8%.
“Although the first quarter’s value growth rate might appear modest, the story is very different on a month-by-month basis. While January consumption was severely affected by a Covid outbreak, the FMCG sector started its growth trajectory in the months after. Full recovery will take time, and we think the first quarter numbers are tracking well,” said Bruno Lannes, a partner at Bain & Company based in Shanghai.
In April, the year-on-year FMCG growth rate reached 5.1%, in line with pre-pandemic levels. Overall retail sales, excluding auto, also saw impressive growth at 16.5%.
Packaged food and home care continued to grow; personal care and beverage showed signs of recovery
Across all four major FMCG sectors, home care continued to lead value growth at 13% year-on-year in the first quarter of 2023 due to sustained health awareness and increases in both volume (9.5%) and ASP (3.2%). Nearly all key categories grew due to sustained and heightened attention to hygiene and health needs. Packaged food continued to grow at 3.2%, mainly driven by an ASP increase (5.2%), although volume dropped 2%. April data showed that home care and packaged food continued value growth of 12.2% and 3.8% compared to April 2022, respectively.
Beverage value grew 1% in the first quarter of 2023, driven by volume growth of 3.4%, while ASP declined 2.4%. Juice, ready-to-drink tea, milk, and packaged water continued to lead the sector’s growth. In April, the sector experienced further growth of 3.3%, revealing its rebound potential.
In personal care, the trend of declining value slowed in the first quarter of 2023 (2.6%), with an increase in volume (4.1%). In April, the sector achieved a value growth of 5.9%, providing confidence for the coming months.
Deflationary pricing trend across categories further diverged
“The price deflationary trend which started in 2020 persisted in the first quarter of 2023 but became more divergent across categories. Some categories have continued to increase their ASPs through strong innovations and by addressing consumers’ rising health and hygiene needs. For example, the premium juice segment achieved 25% volume growth, and ASP increased 7% year-on-year, a result of new processing methods and new flavors,” said Jason Yu, Managing Director of Kantar Worldpanel in Greater China.
Others have sustained ASP declines as consumers chose lower-priced products and shifted to online for more competitive pricing. The toothbrush category is representative of this. Across all price tiers, the mass segment for toothbrushes had the highest volume growth at 4%, with a 9% ASP decrease.
E-commerce reaccelerated, club warehouses soared, and O2O sustained growth
In the first quarter of 2023, consumers accelerated their shift toward online channels, reaching a sales value growth rate of 9% compared to the first quarter last year, due to Covid infections subsiding and resumption of logistics supply chain.
Club warehouses showed a significant value increase of 38% year-on-year in Q1 2023, with growth attributed to a growing number of buyers and increased shopping frequency.
The club warehouse differs from a traditional hypermarket in three ways: membership fees drive profit more than product margins, items sold are mainly imported or self-labeled, and products are primarily sold in bulk with lower unit prices vs. single packs.
One continuing trend is the sustained growth of online-to-offline (O2O) channels, which saw 16% value growth in Q1 2023 vs. Q1 2022. From a category penetration perspective, O2O has distinct patterns compared with online penetration. Necessity categories with urgent needs, such as frozen food, facial tissue, and toilet paper, led O2O penetration growth. Consumers are responding favorably to the convenience and speed offered by O2O solutions.
“Chinese consumption is recovering, and the government has already implemented stimulus policies to boost consumption, with more expected. The FMCG industry continues to demonstrate resilience, and consumers, brands, and retailers adapt to ever-changing circumstances. The industry’s recovery is likely to take shape over the coming months, repeating a few trends from the first quarter of the year.” said Derek Deng, a partner at Bain & Company based in Shanghai.
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