China's consumer goods market rebounds in 2017 as a growing middle class upgrades shopping choices and aims to improve health and lifestyle


Bain & Company and Kantar Worldpanel's seventh annual China shopper report finds the rate of total value growth increased over the previous year, from 3.6 percent in 2016 to 4.3 percent in 2017

Beijing– June 28, 2018 – China's market for fast-moving consumer goods (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 percent increase in total value growth for the market in 2017 – up from 3.6 percent 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 Bain & Company and Kantar Worldpanel's seventh annual China shopper report, As Shoppers Upgrade, Growth Returns, released today.

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 percent 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, general manager of Kantar Worldpanel 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 percent last year and now represent about 10 percent of the market—twice as much as two years ago.
  • Online penetration growth is shifting from higher-tier to lower-tier cities. At 73 percent, 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 percent and 17 percent annually and Tier-5 cities are experiencing a 21 percent annual increase in online penetration.
  • China's O2O market has continued to grow by around 30 percent in 2017, with O2O services to homes such as food delivery and laundry growing by an astonishing 76 percent,
  • The Convenience and grocery channels continue to pivot towards out-of-home consumption, which represents ~85 percent of their sales in 10 major FMCG categories. Convenience channels grew 6.8 percent for out-of-home consumption, but only 1.9 percent for at-home consumption
  • Hypermarkets continue to lose traffic, which explains why that channel declined by 2.5 percent in 2017
  • Local brands grew by 7.7 percent in 2017, contributing to 98 percent share of market growth, while foreign brands increased by a mere 0.4 percent 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, Bain & Company and Kantar Worldpanel identified three ways which companies and brands can win amid these major changes impacting the market:

  1. Take advantage of channel dynamics and anticipate future retail consolidation.
  2. Develop high-value and personalized products to make the most of the premiumization trend.
  3. 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:

  1. Prepare for "New Retail" as illustrated by the recent alliance between Sun Art and Alibaba
  2. Integrating inventory and supply chain management with e-commerce retailers or solution platforms.
  3. Redesign store portfolio and formats to better capture customers' needs.
  4. Make the store experience attractive again.

Bain & Company and Kantar track the shopping behaviors of Chinese consumers, creating a valuable long-term view across 106 fast-moving consumer goods (FMCG) categories purchased for home consumption in China.

As in each of the past six years, Bain & Company and Kantar Worldpanel 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.

About Bain & Company, Inc.

Bain & Company is the management consulting firm that the world's business leaders come to when they want results. Bain advises clients on strategy, operations, information technology, organization, private equity, digital transformation and strategy, and mergers and acquisition, developing practical insights that clients act on and transferring skills that make change stick. The firm aligns its incentives with clients by linking its fees to their results. Bain clients have outperformed the stock market 4 to 1. Founded in 1973, Bain has 55 offices in 36 countries, and its deep expertise and client roster cross every industry and economic sector. For more information visit: Follow us on Twitter @BainAlerts.

Kantar Worldpanel—Inspiring Successful Decisions, a CTR service in China

Kantar Worldpanel is the global expert in shoppers’ behaviour.

Through continuous monitoring, advanced analytics and tailored solutions, Kantar Worldpanel inspires successful decisions by brand owners, retailers, market analysts and government organisations globally.

With over 60 years’ experience, a team of 3,500, and services covering 60 countries directly or through partners, Kantar Worldpanel turns purchase behaviour into competitive advantage in markets as diverse as FMCG, impulse products, fashion, baby, telecommunications and entertainment, among many others.