SHANGHAI – December 7, 2023 – China’s fast moving consumer goods (FMCG) sector observed a soft recovery during the first nine months of 2023, with health, value and exclusive products witnessing rising interest, according to the 12th China Shopper Report 2023 Vol. 2 released today by Bain & Company and Kantar Worldpanel.
The overall growth of China’s FMCG industry was modest at 1%, a result of a 1.2% increase in volume. The FMCG market exhibited diverse performance in the third quarter of 2023 compared to the previous year, primarily due to the 2022 baseline. In the third quarter of 2022, China saw a notable recovery with a 6% growth rate after the easing of COVID-19 lockdowns. This set a high benchmark for 2023, resulting in a challenging comparison and a slight decrease of 0.9% in the same quarter this year.
“There are signs of hope. In the first four weeks post Q3, we saw a noteworthy increase of 5% in value, aided by a resurgence in consumer demand due to heightened holiday spending. Although the increased expenditure during this period was not counted in our data, it suggests an overall continuing expansion of the FMCG market,” said Bruno Lannes, a partner at Bain & Company based in Shanghai.
Furthermore, while growth in the FMCG sector appears moderate, this does not necessarily signify a decrease in overall consumer spending. Instead, there may be a reallocation of expenditure towards sectors such as dining out and travel, reflecting a post-pandemic shift in consumer priorities.
Health, value-for-money and exclusive products dominate consumer purchases
Over the past few years, there has been a noticeable shift in consumer preferences towards products that are healthy, value-for-money, and exclusive across various categories. This change in consumer behavior has had a significant impact on the FMCG market. Certain categories such as chocolate, facial tissue, and hair conditioner have witnessed premiumization in average selling price, indicating that consumers are increasingly willing to pay a premium for products for better quality and experiences.
In the food and beverage sector, consumers are increasingly gravitating towards healthier options such as organic, natural, and functional foods. They are looking for products that offer nutritional benefits, clean labeling, and sustainable sourcing. Additionally, value-for-money options, such as private label brands and price promotions, have gained popularity as consumers seek to make the most of their purchasing power.
Home care continues to grow while other categories’ growth stabilizing at pre-crisis levels
In the first nine months of 2023, China’s FMCG market exhibited a nuanced picture across the four major sectors – home care, beverage, personal care, and packaged food.
Home care sustained its growth momentum with a notable 8.8% growth in value compared to the first nine months of 2022. This effect was driven by robust consumer stockpiling behavior and continued health and hygiene concerns, particularly for essentials such as toilet paper and tissue.
The growth trajectory in the packaged foods sector showed a deceleration, aligning with stabilized demand post-pandemic for staples at pre-crisis levels.
The beverage segment remained stable in 2023 with higher volumes and a focus on affordability. Consumers exhibited a clear preference for value-driven choices, prompting a shift towards more economical products.
Within the personal care segment, growth was moderated by lower average selling price, reflecting the consumer trend of seeking greater value for money.
Smaller formats thrive, e-commerce competitive dynamics shift, and O2O continues to soar
The shift towards smaller store formats, such as super/mini and grocery stores continued as their value grew 3% and 6%, respectively, between Q3 2022 and Q3 2023. E-commerce outperformed the overall market with a 4% year-on-year growth over the same period. One notable highlight in the e-commerce market was the emergence of social media platforms, including Kuaishou and Douyin, which have captured more than 6% of the market share compared to year-to-date (YTD) Q3 2022.
Hypermarkets, on the other hand, experienced a decline in market share as some players made the decision to close their stores across the country. Club warehouses showed a significant value increase of 58% in YTD Q3 2023, with growth attributed to a growing number of buyers and increased shopping frequency.
“The rise of specialized discount stores is rapidly gaining traction, reflecting a more rational approach by consumers towards daily expenditure in 2023. This emerging trend suggests a potential intensification of competition in the retail market going forward, as these stores continue to attract price-conscious shoppers,” said Jason Yu, Managing Director of Kantar Worldpanel in Greater China.
Online-to-offline (O2O) channels continued to grow with a 11% value growth in YTD Q3 2023 vs. YTD Q3 2022. Consumers are responding favorably to the convenience and speed offered by O2O solutions.
“Despite the challenges, China’s FMCG market has consistently demonstrated long-term resilience and capacity for growth. Overall, brands and retailers must remain agile in adapting to the ever-changing market environment to maintain competitiveness and market share. This involves continuous monitoring of changes in consumer trends, flexible adjustment of pricing and channel strategies, and more efficient investment in marketing and product innovation,” said Derek Deng, a partner at Bain & Company based in Shanghai.
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