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Despite slower GDP growth, China’s consumers keep spending

Martin Guo

Editor-in-Chief, Kantar China Insights

Shoppers 26.12.2019 / 17:16

Male Shopper Full

Highlights of 2019 China Shopper Report Vol.2.

This is the highlights of 2019 China Shopper Report Vol.2, a joint effort between Bain & Company and Kantar Worldpanel. 

In the third quarter of 2019, China’s GDP growth rate dipped to 6.0%. But amid the slowing economy, China’s consumers still have a growing appetite for fast-moving consumer goods (FMCG). In the first three quarters of 2019, total FMCG sales roles by 2.7%, 6.9% and 5.7%, maintaining the same pace as 2018.

In the first six months of 2019, imports represented 18% of China’s total FMCG consumption and grew 10%, close to twice the rate of overall FMCG growth.

But as we’ve seen in previous years, that stable growth follows a regular pattern, with the “macro” product categories accelerating at two distinct speeds: fast and slow. Personal care and home care categories maintained their high speed, growing by 11.8% in the third quarter of 2019, the strongest performance in three years. Food and beverage categories grew at the relatively slow rate of 2.3%.

EN Total FMCG Annual Growth

As in each of the past seven years, we studied 106 FMCG categories purchased for home consumption in China, thoroughly analysing the key 26 categories (note 1) that span the four largest consumer goods macro-categories: packaged food, beverages, personal care and home care. Combined, these sectors represent 80% of China’s FMCG purchases. Each year, Kantar Worldpanel adds new categories to its analysis to accommodate changing consumer purchasing trends. (note 2)

Two-speed growth endures

As urban Chinese consumers’ incomes rise, so does their pursuit of better health and a better quality of life. Indeed, product categories associated with healthier lifestyles grew fast, while those perceived as being unhealthy saw declines over the 12 months to September 2019. This trend has been steadily picking up steam each year. Consumers view oyster sauce as a healthier alternative to MSG. As a result, oyster sauce value has grown by 30% this year, the highest rate of any category, while MSG value declined by 4%. Stronger distribution is expanding oyster sauce from the North and South into inland provinces, and manufacturers are educating consumers through promotions and packaging about new uses for oyster sauce.

The toothbrush category rose by 28% in value, and cheese (associated with the Western lifestyle) increased by 19%. Children’s cheese snacks represent more than half of the category’s sales; even as kids snacks gain traction, brands are innovating cheese snacks for adults. Meanwhile, categories viewed as unhealthy—soft cake, butter, candy and chewing gum, for example—all experienced declining value.

EN Fast And Slow Categories

Import fever

Participants attending the massive second annual China International Import Expo (CIIE) in Shanghai in early November saw thousands of products that were making their first appearance on Chinese soil. Representatives from more than 3,000 companies from 150 countries attended, hoping to interest Chinese buyers in their products.

Even as homegrown products dominate their categories in China, consumers have an enduring desire for imports, especially in product categories where they can satisfy their aspirations for a more diversified lifestyle and quality of life. In the first six months of 2019, imports represented 18% of China’s total FMCG consumption and grew 10%, close to twice the rate of overall FMCG growth. 

EN Premium And Import Growth

 

Jason Yu,Managing Director of Kantar Worldpanel Greater China and co-author of the report, said: “By concentrating on selling online, foreign FMCG companies gain traction in China without the need to build a complex physical route to market model.”

In 2017, Spanish cosmeceutical brand Sesderma opened its first Tmall International Store. Within one year, sales exceeded 100 million yuan. In 2018, three Italian cosmetics brands—KIKO, Diego dalla Palma Milano and RVB LAB—entered China via cross-border e-commerce on Tmall International. Rihanna’s beauty brand Fenty Beauty, backed by LVMH Group, made a high-profile Chinese launch in July, using the group’s digital marketing resources on Weibo, WeChat and Little Red Book. The large Chinese digital platforms are eager to support foreign brands as they enter China.

While the impact of global trade tensions has been felt in such areas as commodities and heavy machines, it has not put a dent in Chinese consumers’ desire for imported goods from the US and elsewhere. Sales of American makeup in the 12 months ending in the second quarter of 2019 rose 54% from the same period in 2018, for example.

And Chinese consumers are expanding the number of countries from which they buy. Toothpaste sales from the Netherlands more than doubled in that time frame. Sales of nutritional supplements from South Korea increased by 35%, while those from Thailand rose 29%. The value of biscuits from Singapore and Indonesia grew by 22% and 17%, respectively. More than half of all imported milk powder in China was purchased from two countries: New Zealand and the Netherlands.

Imports account for a particularly high share of value in premium categories and categories with a higher percentage of premium brands. To see the direct correlation between import value share and premiumness, compare chocolates and biscuits. Imports represent half of the total category value in chocolates. In that category, fully 56% of the products are in the superpremium segment. In the biscuit category, 35% of the value is generated by imports, and only 34% of biscuit products are superpremium. The more premium the category, the bigger the margin that brands typically have available to compensate for the costs of importing goods.

EN Premium And Growth By Categories 

Implications for brands

Increasingly sophisticated Chinese consumers continue to buy imported goods in record numbers. For brands that are not yet in China—or just getting started—there is a path to success, one that is increasingly valuable given the importance of digital platforms as a channel and brand-building tool.

China continues to be the biggest consumer story in the world, and growing along with those consumers means making thoughtful and aggressive moves. With so many players and so much at stake, winning here isn’t a matter of chance. 

To download the full report, please click here  

Source: Kantar Worldpanel

Editor's notes

Note 1: These 26 categories are (a) packaged food: biscuits, chocolate, instant noodles, candy, chewing gum and infant formula; (b) beverages: milk, yogurt, juice, beer, ready-to-drink (RTD) tea, carbonated soft drinks (CSD) and packaged water; (c) personal care: skin care, shampoo, personal wash, toothpaste, makeup, hair conditioner, diaper and toothbrush; and (d) home care: toilet tissue, fabric detergent, facial tissue, kitchen cleanser and fabric softener.

Note 2: Kantar Worldpanel excluded cigarettes from total FMCG data and updated all category data in 2017 accordingly and adjusted the online channel database to reflect the new market realities and rapid pace of e-commerce growth; both updates led to some inconsistencies with previous years’ data.

* To reach the author, or to know more information, data and analysis of China's FMCG market, please contact us ;

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