The FMCG market is growing against the trend and is resilient

Reporter Luo Chen

Bain & Company, together with Kantar Worldpanel, recently released the 2022 China Shopper Report, Series 2 (the Report
).
This is the 11th consecutive year that the two companies have tracked the shopping behavior of Chinese shoppers, analyzing 26 categories in four consumer goods sectors: packaged food, beverage, personal care and home care
.
The report pointed out that China's FMCG market showed strong resilience in the first three quarters of 2022, with market sales increasing by 5.
9% over the same period last year, and overall sales increasing by 3.
6% over the same period last year, reversing the consistent trend since 2020 and outperforming the national GDP growth rate in the second and third quarters
.

The environment is changeable, and the future is still promising

The packaged food and home care category led the growth

"China's FMCG market sales increased by 5.
9% compared with the same period last year, becoming the main engine
of sales growth.
Consumer hoarding due to the pandemic was one of the reasons for the increase in sales, and sales increased
in all categories.
Bruno Lannes, Senior Global Partner at Bain & Company, said, "Despite the overall complex and volatile market environment, China's FMCG market continues to show strong resilience and remains promising in the coming months and years
.
" ”

According to the report, packaged food and home care led growth in the first three quarters of the four major consumer goods segments, mainly due to the surge in consumer stockpiling demand during the epidemic and the strengthening
of health and hygiene awareness.
In the first three quarters of 2022, packaged food volumes and prices rose, with sales volumes increasing by 4.
6% and average selling prices increasing by 2.
6%, driving sales growth of 7.
4%.

Similar to packaged foods, the pandemic spurred a surge in demand in the home care category, with sales volumes and average selling prices increasing by 5.
4% and 0.
6%, respectively, driving sales growth of 6%.

The beverage category also performed well
.
Although average selling prices fell 3% in the first three quarters of this year, sales volumes increased by 7.
2%, driving overall category sales growth of 4.
1%.

In addition to the gradual release of pent-up consumer demand during the lockdown, this summer's extreme high temperature weather has also boosted growth
.
In addition, the home care category has seen strong sales momentum on the back of strong demand for clean care, while the growth trend of the personal care category has reversed, with the pandemic as the main reason
hindering growth.

E-commerce channel growth stalled

The O2O channel is growing rapidly

The impact of the pandemic is also driving changes
in the channel landscape.
In the first three quarters of 2022, the growth rate of e-commerce channels was basically the same as the overall growth rate of the FMCG market, while the small offline store format and O2O commerce took advantage of the epidemic
.
In view of consumers' high demand for stockpiling, the desire for instant gratification, and the desire to avoid the order fulfillment problems caused by pure online shopping, the sales of FMCG O2O channel in the first three quarters increased by 17%
compared with the same period last year.
Categories such as frozen food, toilet paper and facial tissue performed prominently, and the penetration rate of O2O channels increased
significantly.

It is worth mentioning that the convenience store and grocery store channels showed strong growth momentum, sweeping the sluggish trend of zero growth last year, with a year-on-year increase of 9%.

This is contrary to the trend described in the previous report and reflects a change
in consumer preferences.
The pandemic has had a huge impact on the transportation industry, coupled with the hidden danger of virus transmission caused by large-scale crowd gatherings, consumers are more inclined to buy
nearby for reasons of predictability, convenience and safety.

Despite cost inflation reaching 2% in the first three quarters, average selling prices showed a downward trend for the third consecutive year, down 2.
1% from the same period last year, the largest decline since 2020
.
However, different consumer goods sectors have reacted
differently to falling prices.

Only a few categories saw higher real average selling price growth than inflation, mostly in food and beverage and home care, mainly due to changes in consumer behaviour due to the pandemic
.
As factors of production rise, FMCG brands have had to reduce margin pressures
by raising product prices.
However, consumers have reacted
differently to higher prices in food and non-food categories.

Jian Yu, General Manager, Kantar Worldpanel Greater China, said: "The pursuit of price-performance has gradually become a mainstream consumer trend
.
However, in the food and beverage sector, consumers' large-scale packaging hoarding stimulates sales more pronouncedly, while in the personal and home care category, consumers prefer low-priced products and channels
.
”

Category and price trends remain

Consumer pandemic response capabilities have improved

The growth trend of the four major categories summarized in the 2020 report remained largely unchanged: the long-term unified growth trend of all category groups diverged again in the first half of this year, but it was more moderate than in 2020, and soon unified in the third quarter
.
It can be seen that consumers' ability to respond to the epidemic has improved
.

Among the four major category price trends summarized in the "2022 China Shopper Report, Series 1", the three major price trends of premiumization, mid-range and the pursuit of price-performance ratio have further continued, and the polarization trend is no longer significant
in the first three quarters of this year.
For example, carbonated beverages, beer and laundry products have continued the trend of premiumization, especially in first-tier cities
, through initiatives such as continuous innovation, new products and flavors.
The mid-range trend is led by toothpaste, personal cleaning products and infant formula
.

During the epidemic, with the general rise in prices, cost-effective products have further gained the favor of consumers, and the trend of stockpiling large packaging is more significant
than in previous years.
In the skin care category, domestic affordable substitution has gradually become a trend
.
The price trends of the above two categories are consistent
with the downward trend of average selling prices in lower-tier cities.

All indications are that 2023 will remain a year
of uncertainty.
The report recommends that brands act now and plan ahead to be fully prepared
for future market turbulence.

Identify opportunities, improve efficiency, and plan scenarios

Three action directions help brands win

Identify growth opportunities As the dynamics of the market change and competition intensifies, brands must create new growth engines
.
They can plan and deploy reliable growth paths by comprehensively assessing market and consumer trends, such as expanding into new geographic markets, entering or developing new market segments, opening up new sales channels, and engaging with consumers through new touchpoints
.

Improving efficiency Rising factor costs and unforeseen crises are forcing brands to adopt more prudent cost management approaches and even reset cost bases to achieve sustainable financial returns
.
In order to continuously stimulate consumer demand and ensure that brands keep up with the times, brands should adopt a "test and learn" approach: constantly optimize marketing effectiveness, while dynamically adjusting pricing, classification, packaging and promotions to fully unlock revenue potential
.

Navigating future uncertainty with scenario planning In the face of the ups and downs of the pandemic and geopolitical tensions, brands must strengthen their ability to anticipate change ahead of time and build flexibility and resilience
.
With the help of scenario planning, they can develop contingency plans
for different events based on forward-looking indicators and trigger conditions.

On this basis, FMCG retailers also have three major action directions, namely:

Driving sustainable business model transformation Given the ongoing tightening pressure on the retail industry as a whole, retailers should shift from a focus on gross merchandise (GMV) and revenue growth to a focus on margin and operational sustainability, with strategies to leverage including optimizing store layout and SKU mix
.

Increase consumer loyalty through unique shopping experiences Faced with the many challenges of the retail market, retailers should focus on core consumer groups, improve consumer loyalty through differentiated services and cross-channel consumer operations, and further focus on creating a seamless online and offline O2O channel shopping experience to lay the foundation
for winning the market.

Create a differentiated competitive advantage with exclusive products As consumers cut back and capital markets cut retail investment, retailers should build differentiated product portfolios to continue to attract and acquire new customers
through private label or exclusive products.

Min Deng, Global Partner at Bain & Company and Chairman of the Consumer Products practice for Greater China, said: "Looking ahead to 2023, China's FMCG market is likely to remain volatile
.
Despite the huge uncertainty surrounding the market outlook, there are reasons to be optimistic
about the future.
China's FMCG industry has shown strong resilience in the first three quarters of this year, and the improvement of brand owners and consumers
' resilience is obvious to all.
With the gradual relaxation of epidemic prevention policies, consumer confidence will gradually recover
.
FMCG companies should carefully deploy strategies, continuously monitor consumer demand trends, continuously improve business agility, and optimize organizational resilience to navigate the volatile market environment.

”

China Food News(December 16, 2022, Version 02)

(Responsible editor: Luo Chen)