Baby Category Returning to Growth in China
Total sales of baby sector in 27 major Chinese cities reached 35.5 billion RMB in the latest 12 months up to March 2015
Kantar Worldpanel and Bain Company jointly released the latest version of their China Shopper Report, series for 2015 last month. The report indicates that China’s economy has stepped into a “new normal”, with the growth rate of fast-moving consumer goods (FMCG) market showing a noticeable slowdown: from 11.8% in 2012 to 5.6% in 2014. Spending on Baby categories defied this trend and enjoyed even stronger growth.
Total sales of baby sector in 27 major Chinese cities reached 35.5 billion RMB in the 12 months up to March 2015 according to the latest report released by Kantar Worldpanel. The year on year growth rate was 7.3%, which is significantly higher than 3.6% observed in the previous year, and is also substantially higher than the growth rate of total FMCG (2.8%) in these cities.
So what are the drivers of baby markets in the latest year?
Growth of Diaper is Much Stronger than IMF
To some extent, the high growth of baby product market reflects a recovery from a tough year in 2013. In 2013, both infant milk formula (IMF) and baby diaper faced huge challenges: Fonterra Botulism Crisis led to massive market panic, resulting in IMF market only adding 2.2% in value during the 12 months up to March 2014. Diaper sales were also hit by the fact that the temperature in 2013 summer was abnormally high causing many families with babies to drop out of the diaper category earlier than usual.
The picture has shifted in 2014 as the Fonterra Botulism Crisis was proved to be a false alarm and the temperature returned to normal. The market also received a boost as China’s birth rate rebounded to 12.37‰ in 2014 (based on National Bureau of Statistics data). This is the highest level since 2003. Of course more babies being born leads to more sales of baby necessities. The growth rate of diaper market reached 12.2% (vs. 4.9% in the previous 12 months), and IMF grew by 5.5%.
Kantar Worldpanel also observed a stronger growth of the highest price tier products in both IMF and diaper market.
In diaper market, super-premium products such as Merries diaper and Huggies Platinum diaper grew significantly faster than economical or low price diaper. Shoppers were also increasingly willing to try emerging premium categories such as Pull up Pants.
In IMF market, premium IMF continues to grow, though rate of growth is slower than last year. One reason is that the price of super-premium IMF was suppressed: in second half of 2013 due to an antimonopoly investigation by the government which led to most super-premium IMF brands cutting price. Heavy promotions by e-commerce retailers such as JD.com brought down the price of super-premium IMF even further to 378 RMB/Kg in Q2 and Q3 2014. This represents the lowest level in 3 years, 6% lower than the peak of 403 RMB/kg at the beginning of 2013.
Overseas purchase grew rapidly, while share of e-commerce stagnant
Online shopping plays an important role in baby market compared to other FMCG categories. It is a mainstream channel in first &second tier cities rather than an ‘emerging one’. However, in recent 12 months up to March 2015, Kantar Worldpanel observed that share of online purchase in IMF stagnated. A possible reason for this phenomenon is that many super-premium or premium products started to move from online channel to offline channels. For example, brands such as Friso and Nutrilon, who initially was more aggressive in e-commerce when they first enter Chinese market, started to expand their presence to offline channels. This enabled a wider base of consumers who want to buy the product from a physical store to enter the brand.
In addition, the growth of online shopping may be affected by the rapid development of overseas purchase. Overseas purchase in IMF market reports a constant growth rate of 50%-60% every year, and its share has doubled in 3 years. At present, about 20% families in the 27 major cities have purchased baby products from overseas in the recent 12 months (here “overseas purchase” means consumers by product from abroad by themselves or through friends/relevant, excluding imported products bought from e-commerce sites).
As government encourages cross border trade and adopted a series of policies (such as the tariff reduction of baby diaper and free trade agreement), the feeling of necessity towards buying overseas might weaken. We are observing the higher profile of many e-tailers who specialized in imported baby products and a lot of online stores have started to sell imported baby products supplied directly from free-trade zone. If consumers could purchase imported baby products easily from a credible e-commerce retailer then demand for overseas purchased goods should fall. Consequently we expect e-commerce channel will resume growth at expense of overseas purchase in the near future.
Convenience to parents creates opportunities to growth
In baby diaper market, the growth of pull-up-pants, a relatively new product, may have surprised a lot of people. 2 years ago, it was a minor segment whose share was 5.7%, and 2 years later its share was more than doubled to hit 13.7%. If we look at large size diaper market only (since diaper pants mainly offer size L and above), its share has reached 20%.
The growth of pull-up pants reflects Chinese consumers’ increased willingness to pay a premium for convenience. Similar cases can also be seen in baby toiletry products. There are 4 categories of baby shower products: shampoo, shower gel, 2 in 1 (which can wash both hair and body), and soap. During the past 3 years, 2 in 1 keeps attracting more buyers, while other 3 categories keeps losing buyers. Despite the benefits claimed by 2 in 1 manufacturers (such as “healthier” or “more suitable to the skin of new born babies”), convenience could be a key reason behind its growth: with 2 in 1, parents no longer need separate gel to wash babies’ hair and body.
In the past few years, baby market in China experienced turbulence and transformations: from Melamine crisis to Botulism crisis, from the rise of super-premium IMF to price war, from online purchase to overseas purchase, all of them impacting the market fundamentally. However, despite all the changes, what remains key success formula is how companies adapt to fulfil the needs of shoppers. As more and more Chinese brands entering the market, more competition is expected. The winner of the game will eventually be those who truly understand Chinese shoppers.
1. Kantar WorldpanelBaby continuously tracks the shopping behaviour on baby products of 2000 Chinese families with babies under 3 year old. We are the only market research agency who has single-source full channel coverage, not only modern trade, but also internet, baby store, gift etc., thus to help manufacturers optimise their channel strategy
2. The 27 cities covered by Kantar WorldpanelBaby are: Beijing, Shanghai, Guangzhou, Chengdu, Changchun, Changsha, Dalian, Fuzhou, Guiyang, Harbin, Hangzhou, Hefei, Jinan, Kunming, Nanchang, Nanjing, Nanning, Qingdao, Shenzhen, Shenyang, Shijiazhuang, Taiyuan, Tianjin, Wuhan, Xian, Zhengzhou, Chongqing.
3. The key categories covered by Kantar WorldpanelBaby are: IMF, baby diaper, infant nutrition food, wipes, shampoo, personal wash, body care, body chill, dental care etc.
4. Criteria of the price tier for IMF is: low price 0-100 RMB/kg; economic 101-160 RMB/kg; premium 161-300 RMB/kg; super-premium >300 RMB/kg
Super-premium diaper include: imported Merries Diaper, Huggies Platinum Diaper, Moony and Goo.N. Premium diaper include: Huggies Gold Diaper, Pampers Premium Care. Economical diaper include: Pampers Fit&Dry, Huggies Silver, Mamypoko, Anerle etc. (Diaper price tier is applied to normal diaper only, but not to pants)