FMCG (fast moving consumer goods) sales growth in China remains subdued though regaining traction, said Bain & Company recently when releasing its 10th annual China Shopper Report Vol I, done in collaboration with Kantar Worldpanel.
FMCG spending rebounded in Q2 of 2020 in the country after a dip in the first quarter of 2020, according to the company.
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%, according to the company.
While 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.
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, Bain & Company pointed out.
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, the firm added.
COVID-19 altered the way the Chinese consumers are thinking about why and how they purchase fast moving consumer goods, said 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,” Lannes noted. “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 the only channel seeing rapid growth
E-commerce was the only retail channel which experienced rapid growth, although convenience stores almost matched their pre-COVID-19 level, the firm observed.
This shift to online has persisted across all categories into 2021 and continues to gain market share and penetration, the firm added.
Livestreaming e-commerce also more than doubled in 2020, led by apparel, skin care and packaged food, said Bain & Company.
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 firm noted.
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, Jason Yu, managing director at Kantar Worldpanel Greater China observed.
“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,” he said
FMCG sales in 2021 slowly recovering
To understand the full impact of COVID-19 on FMCG sales in China and what to expect in 2021, Bain & Company said it 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 firm pointed out.
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, the firm said.
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, the firm added.
Another trend that took root in the pandemic: community group buys, according to Bain & Company.
In this growing trend, Internet platforms source directly and sell to “community captains” who handle delivery throughout the neighbourhood, the firm observed.
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, the firm noted.
“COVID-19 will have lasting implications. To stay ahead, companies need to restructure their product and brand portfolio to better fit post-COVID market conditions, boost efficiency and lower cost in the new deflationary, volume-driven growth environment, and focus more on recruiting new consumers, especially in lower-tier cities,” Derek Deng, a partner at Bain & Company based in Shanghai advised.