Growth will Return to FMCG in the Post Covid Era but Shopper Needs and Behaviours Have Evolved
China’s FMCG market has faced a number of challenges over the last 3 years as a result of the Covid pandemic which resulted in a significant slowdown in the pace of growth. In 2019, before the pandemic, FMCG was experiencing a robust annual growth rate of over 5% but this more than halved during 2020 to 2022. Now that life has returned to normal how do we expect the FMCG market to perform in 2023 and 2024?
To answer this question, the Expert Solutions team at Kantar Worldpanel have ran a forecast model which uses historical sales data for the last 5 years and looks at the relationship between the 4 weekly category performance and Covid case numbers to predict how the category will perform over the next 18 months during a time without the impact of Covid.
The results of this analysis shows that the FMCG market is likely to achieve a growth rate of 3.4% in 2023 which is higher than the growth rate in 2022. The growth rate in 2024 will be slightly lower at 2.4%. The higher growth in 2023 is driven mainly by the rebound effect from a very low Q4 period in 2022 as a result of the significant increase in Covid infections which severely restricted mobility and spending. This means that FMCG performance will be stronger compared to the Covid years but will not return to the pre-Covid levels.
We expect to see a different recovery path for different sectors due to how consumer needs and habits changing during Covid. The chart below shows the historical performance of the 3 FMCG sectors and our forecasted growth rate for 2023 and 2024.
FMCG In-Home Universe based on pre-2020 category list (112 categories), National Urban China (Key/A/B/C/D Cities) Forecast Method Liner Regression at category level with 4 weekly Covid Impact Level
Food & Beverage
Food & Beverage categories generally performed quite well during 2022 as many shoppers were not able to eat and drink out of the home, both during the lockdowns and when becoming infected. This meant shopper stocked up on things like instant noodles, soft drinks and frozen food. Now that there are no restrictions and shoppers generally feel safer to be out of the home we expect there to be less in-home F&B occasions and will therefore see a lower growth rate in 2023 and 2024 for these categories. However, some categories, like herbs & spices and cooking oils, are likely to maintain their growth as the ‘cooking at home’ habits formed during Covid continue for many households.
Household Care was experiencing relatively strong growth prior to Covid but saw a gradual slowdown from 2020 to 2022 as consumers looked to manage their spending and switch to lower priced products. However, generally household markets were not as heavily impacted as consumers still need to clean their homes and clothes. We expect household care to perform well over the next 2 years as consumer confidence improves and shoppers are more willing to trade up to premium products with added sanitisation benefits to help protect from future Covid variants.
Personal Care was seeing double digit growth prior to Covid and these categories were the most heavily impacted during Covid, particularly Skincare and Cosmetics, due to the fact consumers spent more time at home. In the post Covid era we expect Personal Care to achieve a robust growth rate of 4-6% but not able to reach pre Covid levels by the end of 2024. This is likely due to the higher price point of these categories and the fact that some shoppers will remain cautious on their spending.
What Does this Mean for Manufacturers and Retailers?
As life returns to normal the future holds a lot of opportunity for FMCG manufacturers and retailers, but we still expect to see some uncertainty and many new needs and habits formed during Covid are likely to remain important. Below are our thoughts on how to best capture growth in the post Covid era
- Understanding how consumers needs and preferences have changed. New needs, such as safety, health and convenience, which were formed during COVID may be permanent changes or consumers may return to their previous habits and lifestyles. Understanding this within your category and then tailoring your innovation and your messaging to meet different consumers’ needs will be essential for future growth
- Channel landscape evolution. Covid has accelerated the growth of channels such as O2O and social commerce. Ensuring that you are able to leverage these channels to get your products in the hands of consumers quickly, safely and in an engaging way will help you to stay ahead of the competition.
- Anticipate demand and understand the role of marketing levers play growing penetration. Capturing new shoppers will still be essential for brand growth. By understanding the forecast for your category and the role that pricing, promotions, distribution and media play in driving penetration will help you to optimize your marketing spend throughout the year.
Kantar Worldpanel is uniquely placed to help you understand how consumers needs and the way they shop has changed. Through advanced machine learning techniques, we can help you forecast demand for your categories and brands over the next 1-2 years and advise how you should invest your marketing spend to capture more new shoppers and maximize growth.