China's consumer goods market rebounds in 2017
China’s market for FMCG rebounded in 2017, as a growing middle class of consumers showed signs of advancing their efforts to live healthier and more enjoyable lives. The result is a 4.3% increase in total value growth for the market in 2017 – up from 3.6% in 2016 – representing the first time that sales grew faster than the previous year, since the report started tracking China shopping behavior in 2012. These are the findings from volume one of Kantar Worldpanel and Bain & Company’s seventh annual China shopper report: As Shoppers Upgrade, Growth Returns.
From silicone-free shampoo to not-from-concentrate (NFC) juice that’s more natural and nutritious, Chinese consumers are spending more on premium goods that deliver health benefits or elevate their lifestyle. Increasingly, they can afford it: disposable household income per capita has grown by a compound annual rate of 8.2% over the past six years.
“As China’s ever-growing middle class continues to seek premium, healthier products, we are starting to see a clear pattern among China’s two-speed growth trajectories,” said Jason Yu, managing director of Kantar Worldpanel Great China and co-author of the report.
“Our findings show that the two-speed growth scenario we introduced in 2016 has continued to evolve, with an increasing number of high speed categories. They are driven by premiumization and the increased sophistication of the Chinese shoppers.” Pleasure, health & wellness, lifestyle or gifting were the main motivations behind the premiumization trend observed.
Bain & Company’s latest report finds that high-speed categories, such as mouthwash, petfood and make-up are steadily gaining more ground while many low-speed categories, including gum and MSG remain sluggish.
This year’s report includes a number of other key trends impacting China’s FMCG market:
- E-commerce sales grew by more than 28% last year and now represent about 10% of the market—twice as much as two years ago.
- Online penetration growth is shifting from higher-tier to lower-tier cities. At 73%, Tier-1 cities still have the highest online penetration, yet smaller-tier cities are catching up with online penetration in Tier-3 and Tier-4 cities expanding at 18% and 17% annually and Tier-5 cities are experiencing a 21% annual increase in online penetration.
- China’s O2O market has continued to grow by around 30% in 2017, with O2O services to homes such as food delivery and laundry growing by an astonishing 76%.
- The Convenience and grocery channels continue to pivot towards out-of-home consumption, which represents ~85% of their sales in 10 major FMCG categories. Convenience channels grew 6.8% for out-of-home consumption, but only 1.9% for at-home consumption.
- Hypermarkets continue to lose traffic, which explains why that channel declined by 2.5% in 2017.
- Local brands grew by 7.7% in 2017, contributing to 98% share of market growth, while foreign brands increased by a mere 0.4% in 2017. Once again, on an aggregate basis, foreign brands lost share to local brands.
“It is the 6th year that we see local brands win against foreign brands,” said Bruno Lannes, China partner in Bain’s Greater China Consumer Products practice and co-author of the report. “There are multiple reasons for this, but a major one is speed and an agile operating model, which is so critical in this fast changing market.”
Based on these trends, Kantar Worldpanel and Bain & Company identifie three ways which companies and brands can win amid these major changes impacting the market:
- Take advantage of channel dynamics and anticipate future retail consolidation.
- Develop high-value and personalized products to make the most of the premiumization trend.
- Become data driven and consumer centric, by generating their own proprietary data and partnering closely with platforms for more focused sales and marketing campaigns and more efficient operations.
Retailers can also take the following actions to succeed:
- Prepare for “New Retail” as illustrated by the recent alliance between Sun Art and Alibaba.
- Integrating inventory and supply chain management with e-commerce retailers or solution platforms.
- Redesign store portfolio and formats to better capture customers’ needs.
- Make the store experience attractive again.
Kantar Worldpanel and Bain & Company track the shopping behaviors of Chinese consumers, creating a valuable long-term view across 106 FMCG categories purchased for home consumption in China.
As in each of the past six years, Kantar Worldpanel and Bain & Company again conducted a deep analysis of the key 26 categories that span the four largest consumer goods sectors: packaged food, beverages, personal care and home care. Bain & Company also looked at another 24 categories to form a more comprehensive view of the market. Combined, these sectors represent 80 percent of all FMCG.