After a slow 2022, China’s fast-moving consumer goods (FMCG) sector is showing signs of recovery and building momentum for a positive rest of 2023, according to a report released today by Bain & Company and Kantar Worldpanel.
In 2022, Chinese consumption was affected by two major waves of Covid-related restrictions. Despite year-on-year value growth of 2.8 percent in the first half of the year and reaching 6.3 percent in the fall, an infection spike at the end of 2022 caused the value to decline to 3.9 percent in the fourth quarter. As a result, the FMCG market landed at an annual growth rate of 1.5 percent for the whole year. Like previous years, local brands gained share from foreign brands, mainly through volume gains, while average selling price (ASP) decreased for local and foreign brands.
The first quarter of 2023 showed signs of an economic rebound. China’s GDP grew 4.5 percent in the first quarter of 2023 compared to 2022, while overall retail sales (excluding auto) grew 10.5 percent in March year-on-year. The market’s Consumer Confidence Index showed a steady upward trend but had yet to return to pre-pandemic levels.
The 12th edition of China Shopper Report 2023, volume one, reported that consumers are gradually gaining confidence now that Covid restrictions have been lifted. Overall, the FMCG industry rebounded from the fourth quarter of 2022 and reported value growth of 1.9 percent in the first quarter of 2023 versus 2022, driven by mild volume growth of 2.7 percent, despite a decline in ASP of 0.8 percent.
“Although the first quarter’s value growth rate might appear modest, the story is very different month-by-month. While January consumption was severely affected by a Covid outbreak, the 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, partner at Bain & Company based in Shanghai.
In April, the year-on-year FMCG growth rate reached 5.1 percent, in line with pre-pandemic levels. Overall retail sales, excluding auto, also saw impressive growth at 16.5 percent.
Packaged food and home care continued to grow; personal care and beverage showed signs of recovery.
Across all four major FMCG sectors, home care continued to lead value growth at 13 percent year-on-year in the first quarter of 2023 due to sustained health awareness and increases in both volumes (9.5 percent) and ASP (3.2 percent). Nearly all key categories grew due to sustained and heightened attention to hygiene and health needs. Packaged food continued to grow at 3.2 percent, mainly driven by an ASP increase (5.2 percent), although volume dropped two percent. April data showed that home care and packaged food continued value growth of 12.2 percent and 3.8 percent compared to April 2022.
Beverage value grew by one percent in the first quarter of 2023, driven by volume growth of 3.4 percent, while ASP declined by 2.4 percent. 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 percent, revealing its rebound potential.
In personal care, the trend of declining value slowed in the first quarter of 2023 (2.6 percent), with an increase in volume (4.1 percent). In April, the sector achieved value growth of 5.9 percent, providing confidence for the coming months.
Deflationary pricing trends across categories further diverged.
“The deflationary price trend, which started in 2020, persisted in the first quarter of 2023 but became more divergent across categories. Some categories have continued increasing their ASPs through strong innovations and addressing consumers’ rising health and hygiene needs,” said Jason Yu, Managing Director of Kantar Worldpanel in Greater China.
For example, the premium juice segment achieved 25 percent volume growth, and ASP increased seven percent year-on-year due to new processing methods and flavours.
Others have sustained ASP declines as consumers chose lower-priced products and shifted to online for more competitive pricing. The toothbrush category is representative of this. Across all price tiers, the mass segment for toothbrushes had the highest volume growth at four percent, with a nine percent ASP decrease.
In the first quarter of 2023, consumers accelerated their shift toward online channels, reaching a sales value growth rate of nine percent compared to the first quarter of last year due to Covid infections subsiding and the logistics supply chain resumption.
Club warehouses showed a significant value increase of 38 percent year-on-year in the first quarter of 2023, with growth attributed to a growing number of buyers and increased shopping frequency.
The club warehouse differs from a traditional hypermarket. Membership fees drive profit more than product margins, items sold are imported or self-labelled, 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 percent value growth in the first quarter of 2023 versus 2022. From a category penetration perspective, O2O has distinct patterns compared with online penetration. Necessity categories with urgent needs, such as frozen food, facial tissue, and toilet paper, led to O2O penetration growth. Consumers are responding favourably to the convenience and speed offered by O2O solutions.
“Chinese consumption is recovering, and the government has already implemented stimulus policies to boost consumption, with more expected. The FMCG industry continues to demonstrate resilience, and consumers, brands, and retailers adapt to ever-changing circumstances. The industry’s recovery is likely to take shape over the coming months, repeating a few trends from the first quarter of the year,” said Derek Deng, partner at Bain & Company based in Shanghai.
