China’s FMCG sector is showing signs of recovery and building the momentum for a positive rest of 2023 after a slow 2022, said Bain & Company recently.
According to a report by Bain & Company and Kantar Worldpanel, China’s FMCG sector 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 average selling price (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, China’s 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, year-on-year growth in China’s FMCG sector reached 5.1%, in line with pre-pandemic levels. Overall retail sales, excluding auto, also saw impressive growth at 16.5%, according to the report.
In addition, 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 firm added.
Report highlights
- 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 flavours,”
- 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.
