Shanghai – 2 December, 2020 – The dependable growth in China’s fast moving consumer goods (FMCG) market saw a pause in 2020 after five years of premiumization, due to the dramatic effects of Covid-19 on consumer behavior. The market saw a sharp decline in overall spending in the early months of 2020 as cautious consumers stocked up on necessities, sought out lower-priced goods and held off on anything deemed unessential. Overall FMCG spending did recover in the second and third quarters, however those gains were not enough to outweigh the significant slowdown earlier in the year with overall value declining due to lower average selling prices (ASP) - the first FMCG deflation in five years. Sales were essentially flat in the first nine months of 2020 after three straight years of more than 5 percent annual growth. This is according to the latest China Shopper Report from Bain & Company and Kantar Worldpanel, After Five Years of Premiumization, Covid-19 Delivers Deflation in China FMCG

“We all knew that Covid-19 would have a significant impact on the China FMCG market.  What came further into focus is the massive change in consumer sentiment, with a lot more caution and promotion hunting” said Bruno Lannes, partner in Bain’s Greater China Consumer Products practice and co-author of the report.  “It is clear that this “2-speed” will continue, with both premiumization and flight to value.”

The research showed that while volume growth remained steady at the same 2 percent level of 2019, the biggest contributing factor to the flat sales performance was a major decline in average selling prices (ASP). Those prices dropped by an average 2.1 percent in the first three quarters, with consumers buying more mass-market products and making more of their purchases online, where products typically are sold at promotional rates. The ASP loss represents more than a 5 percent drop, considering the 3.4 percent increase in 2019. Indeed, after years in which selling prices outpaced inflation, the long run of premiumization―or the ability to increase ASP above the rate of inflation―ended this year, another victim of Covid-19.

It was not all bad news this year. Home care categories enjoyed a healthy 9 percent value growth as consumers stocked up on necessities. Also, innovative healthy alternatives and increased home consumption boosted sales of carbonated soft drinks, which achieved 16 percent volume growth. Despite this success, the research highlighted the divergent performance in various sectors such as packaged foods and beverages. Both sectors dealt with deflated prices, which declined 3.4 percent for packaged foods and 4.1 percent for beverages, however, the volume of packaged foods grew 7.2 percent in the first nine months, as consumers stocked up on instant noodles, frozen food and other staples to get them through lockdown and a tentative recovery. The volume gains for packaged foods represent a more than threefold increase over the same period in 2019. Yet, as package food sales boomed, beverage volumes fell by 1.6 percent, the result of a hiatus on social occasions.

“2020 has been a landmark year for the China consumer sector as both companies and consumers have been adapting to the impact of Covid.” said Jason Yu, General Manager of Kantar Worldpanel Greater China. China. “Those emerging formats are playing an increasing important role in retail ecosystem and will bring new growth opportunities.”

Livestreaming, which provides immersive experiences, personalized recommendations and, as the country locked down during Covid-19, an entertaining alternative to physical shopping trips, accounted for as much as 7 percent of total FMCG, apparel and electronics sales.  Online channels also continued to attract China’s shoppers during the early months of the pandemic and the recovery that followed, representing 26.7 percent of all FMCG sales in the first three quarters of 2020.  That’s up from 21.9 percent in 2019, largely at the expense of hypermarkets and groceries.

2020 has also been the first year where we looked at FMCG through the lens of 8 consumer segments, the same 8 segments developed in 2019 with TMall (See the 2019 Online Strategic Consumer Groups Report: Innovate for Consumers with Insights from Big Data.) To help brands more clearly understand the consumer segments that are buying their products―and the potential for boosting sales―this year’s report analyzes Kantar Worldpanel consumer purchases for both online and offline sales of these eight segments.

What to expect in 2021?

As 2021 approaches, the report analyzes how the consumer landscape will continue to evolve:

• Occasions and needs. The out-of-home category, a victim of Covid-19, will gradually recover. Even as it does, there still will be room for growth in categories for at-home consumption as well as for health- and wellness-related categories. Chinese consumers will continue to make purchases that will improve their well-being.
• Digitalization. Consumers are expected to continue increasing their spending in online and online-to-offline channels. China’s FMCG market will maintain its dynamic tradition. Consumers will become more demanding in their need for anywhere, anytime shopping and a seamlessly integrated omnichannel shopping experience.
• Value proposition and price. As e-commerce steadily grows, so will the rate of heavy promotions. This will continue to serve as a challenge for most brands. The polarization trend of steady and simultaneous growth in both premium and mass categories will continue, making it critical for brands to compete with the right value proposition and price.
• Organization. Rapid and unexpected shifts like the Covid-19 pandemic shake up industries. The best consumer goods companies will become prepared with nimble organizations that will enable them to address changing needs faster and better than their competitors.

“The impact of the recent pandemic on Chinese consumers can’t be understated. Even though China has recovered better than other markets, the entire ecosystem has suffered a massive shock so it is essential that companies truly understand what it will take to win in this new normal,” said Derek Deng, Bain & Company partner and report co-author. “By analyzing and embracing the trends with a consumer-centric mentality and data-driven insights, companies should be able to remain connected to their customers and take the lead as we move past the impact of Covid.”

This is the ninth consecutive year that Bain and Kantar Worldpanel have tracked the shopping behaviors of Chinese consumers. The continuing research has provided 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 eight years, the study analyzed the key 26 categories that span the four largest consumer goods sectors: packaged food, beverages, personal care and home care. It also looked at another 19 categories to form a more comprehensive view of the market. This report, which updates the findings from China Shopper Report 2020, Vol. 1, Amid Stable Growth, Covid-19 Changed Shopper Behavior, includes Kantar Worldpanel shopper behavior data for the first three quarters of 2020. Additionally, for the first time, the study analyzes both online and offline shopping behavior across the eight distinct consumer segments developed in 2019 with Alibaba to help consumer goods companies more clearly understand who is buying their products and the untapped potential for growing their brands.

Editor’s note: To receive a copy of the report or arrange an interview with Mr. Lannes, contact:  Nick Worley at nicholas.worley@bain.com or +852 -2978-8830.

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