Inside China's subtle FMCG recovery
COVID-19 had a strong impact on the purchasing habits of Chinese consumers across categories and has changed the way individuals are spending their money. After a dip in the first quarter of 2020, fast moving consumer goods (FMCG) spending rebounded in the second quarter of 2020, with food and beverage growth converging with personal and home care. By the end of 2020, overall FMCG value in China had grown by 0.5% as higher volume offset overall price deflation in the market, where average selling prices fell by 1.1%. While the report found that some product categories are in the process of returning to pre-COVID-19 trends, other product categories are feeling a lasting impact which is likely to continue throughout 2021.
These are among the findings of new research released today in Bain & Company’s 10th annual China Shopper Report Vol I, done in collaboration with Kantar Worldpanel. As in each of the past nine years, Bain and Kantar analyzed the key 26 categories that span the four largest consumer goods sectors: packaged food, beverages, personal care and home care. The research also looked at another 19 categories to form a more comprehensive view of the market.
Through 2020, prices declined for both beverages and packaged food, however, packaged food volume grew as consumers stocked up through the COVID-19 crisis as worries of food shortages increased spending on nonperishable foods. Personal care and home care spending grew as well, mainly due to a higher volume of purchasing, with home care prices rising with increasing concerns about hygiene.
“We have seen that COVID-19 altered the way the Chinese consumers are thinking about why and how they purchase fast moving consumer goods,” explained Bruno Lannes, a partner at Bain & Company based in Shanghai. “Throughout the crisis, the drive has been to keep themselves and their families healthy and safe, so they have been focused on purchasing products in a way to help them achieve this goal. There was also an increase in the purchase of goods which would get a family through food shortages, and these items were bought in bulk across the country.”
E-commerce was the only retail channel which experienced rapid growth, although convenience stores almost matched their pre-COVID-19 level. This shift to online has persisted across all categories into 2021 and continues to gain market share and penetration. Livestreaming e-commerce also more than doubled in 2020, led by apparel, skin care and packaged food. As more consumers had to shop from home during the pandemic, due to safety concerns or lockdowns, online-to-offline sales grew by more than 50%.
“The boom in online retail has been one of the greatest changes to the FMCG industry during COVID-19, not only in China but globally,” said Jason Yu, managing director at Kantar Worldpanel Greater China. “We expect that this shift will continue to be prevalent moving forward as consumers and retailers have now shifted their habits and models to account for these changes.”
To understand the full impact of COVID-19 on FMCG sales in China and what to expect in 2021, we compared performance in the first quarter of 2021 with the same pre-pandemic period in 2019. Overall, growth is regaining traction, but remains subdued. The slow FMCG spending recovery and modest gains in the first quarter of 2021 contributed to a 1.6% year-over-year value growth rate, slower than the 3% growth achieved two years earlier. Value grew 1.6% despite a 1% decline in ASP. Volume was the key contributor to value growth, spurred by a recovery in the frequency of shopping trips. Meanwhile, as the pandemic eased in China, the typical two-speed growth-rate difference between food and beverage sectors vs. the home care and personal care sectors returned.
Another trend that took root in the pandemic: community group buys. In this growing trend, Internet platforms source directly and sell to “community captains” who handle delivery throughout the neighborhood. The new distribution approach resulted in 27% penetration by the first quarter of 2021 and is becoming so important that all major retail Internet platforms are investing heavily in it to stay connected with consumers.
“COVID-19 will have lasting implications. To stay ahead, brands need to restructure their product and brand portfolio to better fit post-COVID market conditions, and adapt the entire cost structure to serve both the premium oriented and the value-driven consumers. Brands will need to manage the tension between inflationary pressures on raw materials and the development of the new deflationary, volume-driven growth environment. Also, brands should focus more on recruiting new consumers, especially in lower-tier cities,” explained Derek Deng, a partner at Bain & Company based in Shanghai.