China Insights

Next golden decade of baby products

Jason Yu

Greater China General Manager

Consumer Shoppers 17.09.2013 / 00:00

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A new golden decade of baby product market is coming.

Though China's fast moving consumer goods market is growing slower than before, the strong rebound of urban new born population and upgrading of baby products have created a 7 percent growth in the first eight months over a year ago in total baby product market, according to Kantar Worldpanel, the global market leader in consumer panels.

A golden decade for baby product market is looming, said Kantar Worldpanel, which is monitoring Chinese families with at least one 0-3 year old baby in 27 key Chinese cities.

1. Huge potential for baby products in the next five years

The previous baby boom period in China happened in 1980s and 1990s. People born in those years have grown up and are getting married. At the same time, the national childbearing policy has been relaxed, allowing couples without siblings to have a second child. These two factors will lead to an increase in China's birth rate in the next five years. By 2017, the new born population of the country is expected to reach 18.2 million. Kantar Worldpanel estimates the baby products market in 2012 to be worth around 30.7 billion yuan (US$5.02 billion). Through urbanization and population growth, the number of households with at least one 0-3 year old baby is expected to reach 6.12 million by 2017, while the overall baby supplies market will expand to 46.3 billion yuan, an increase of 50 percent compared with 2012.

2. Baby product market will be competitive, less concentrated

Key Numbers

  • 30.7 billion yuan Baby product sales in 2012
  • 46.3 billion yuan Baby product sales in 2017

Domestic and foreign manufacturers have already noticed the extraordinary growth potential of the Chinese market and began to invest heavily in China to fight for a bigger market share. Data from Kantar Worldpanel Baby shows, with the increasing competition and the introduction of new brands, the combined market share of leading brands have decreased significantly in the first eight months of this year compared with a year ago.

In the infant milk market, for instance, the top five brands' combined market share dropped from last year's 63 percent to 59 percent this year. The combined market share of the top four baby diaper brands declined from 88 percent to 83 percent. The arrival of various small brands has offered shoppers more options while at the same time intensified the competition at traditional trade. Leading brands must constantly buy advertisements and use CRM projects to consolidate shoppers' brand preference.

3. High loyalty, high quality

Shoppers of baby products are much more loyal to brands compared with other FMCG categories. Nowadays, the majority of new born babies are families' only child and their parents will pay more attention to them. Parents intend to buy premium and high quality products in the light of recent food scandals. As a result, parents believe "the more expensive, the better" and premium products in China enjoy better sales than low cost products and premier products account for a bigger and bigger share of the sector.

The data shows that in the first eight months versus same period last year, sales value of super- premium diapers grew by 38 percent. Although the growth rate of super premium infant milk formula penetration is slowing down, the total sales value still increased by 25 percent. Meanwhile, we found an interesting phenomenon in both of these two categories: penetration grew much faster in mid-and low-income families compared with among high-income families. "A" cities also grew faster than the four key cities (Beijing, Shanghai, Guangzhou and Chengdu). That means the super-premium baby products have already penetrated into different types of families and city tiers. There are huge growth opportunities for manufacturers and retailers to distribute super-premium products and upgrade their offers in different city tiers.

4. E-commerce soars while modern trade stagnant

Those parents who grew up in the Internet age learned parenting knowledge and purchase baby products online. From our Kantar Worldpanel Baby data, the value share of the e-commerce channel has climbed to the third place, ranking behind only baby stores and hypermarkets in China. Taking diapers as example, online purchase penetration increased from 19.3 percent in the first eight months of last year to 26.2 percent this year. Infant milk formula also grew significantly in the e-commerce channel, from 13.9 percent to 20.7 percent. Large packs are especially popular through the e-commerce channel thanks to its favourable price and home delivery services.

Total baby products' penetration in the e-commerce channel has already reached 40.7 percent in the first eight months, much higher than non-food FMCG online penetration of 21.7 percent. Of all these monitored regions, north and east grew even faster, reaching 54.1 percent (north) and 46.5 percent (east), mainly driven by developed cities like Beijing and Shanghai. It's necessary therefore, for those manufacturers to develop their Internet distribution and cooperate with different e-commerce platforms to capitalise on more growth opportunities.

With the rapid growth of e-commerce and overseas purchasing, the bricks and mortar channels are losing their market shares. The penetration of baby products in supermarkets and hypermarkets has declined, and purchasing volume per trip is also lower than the e-commerce channel. In many cases, people buy through traditional channels because they want to try some products first or they have unexpected need to do this shopping. In the meantime, offline channels offer fewer promotions than online sellers. As China's logistics infrastructure keeps getting better, we can expect e-commerce channel to sweep lower tier cities in the future.

5. Professional services key to traditional retailers' future

Although the rising Internet channel has squeezed the share of the bricks and mortar retailers, offline channels still play an important role in China. Among all baby stores, only "Leyou" has a nationwide coverage while others are limited to specific regions. Together with developing their e-commerce offer, baby stores should provide more one-stop professional service and specialised brands for shoppers, which will consolidate their loyalty.

At Taiwan infant milk formula market, for example, the value share of drug stores is already over 50 percent. In those drug stores, nursery advice and knowledge can be shared by professional physicians, and shoppers can also have a better experience, which online retailers cannot replicate. The new first-time parents are seeking parenting knowledge and tips, so any drug stores providing such services will have a bright future in the next five years.

Source: Kantar Worldpanel

Editor's notes

1. Kantar Worldpanel Baby covers 27 Key and A cities in China: Beijing, Shanghai, Guangzhou, Chengdu, Changchun, Changsha, Dalian, Fuzhou, Guiyang, Harbin, Hangzhou, Hefei, Jinan, Kunming, Nanchang, Nanjing, Nanning, Qingdao, Shenzhen, Shenyang, Shijiazhuang, Taiyuan, Tianjin, Wuhan, Xi'an, Zhengzhou, Chongqing.

2. Kantar Worldpanel Baby reports on categories used by babies aged 0-36 month including: infant milk formula, infant nutrition food, diaper, wiper, shampoo, personal wash, body care, body chill and dental care. 

3. Journalists, contact us for more information, data or analysis on China's baby product market.

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