Bain/Kantar Report: FMCG Prices Drop for First Time in Five Years as Packaged Food Volumes Rise 5.7%

Bain & Company and Kantar Worldpanel have jointly published the China Shopper Report for the tenth year running. According to the 2021 edition (Vol. 1), the pandemic sharply weighed on FMCG sales growth in the first half of 2020, yet the market stabilized and rebounded in the second half; full-year sales climbed 0.5%, almost restoring pre-COVID levels.

China’s FMCG market has started to recover since early 2021, but momentum remains modest. Sales in Q1 rose 1.6% year on year, compared with 3% growth in the same quarter of 2019.

Before the pandemic, FMCG had undergone five straight years of steady premiumization. Higher average selling prices served as a key engine of sales growth across many categories and channels.

Yet consumers in home quarantine, facing greater uncertainty, tightened spending and traded down to cheaper items, pushing FMCG prices down for the first time in five years.

By the end of 2020, average selling prices had slipped 1.1%. In that environment, volume became the primary driver of overall FMCG sales in China, while more frequent shopping helped lift volume.

Packaged Food Volumes Defy the Downturn

The report spans four main consumer goods sectors: packaged food, beverages, personal care, and home care. To paint a fuller picture of China’s FMCG market and its shifts, it added 17 categories to the previous 26.

According to the report, both packaged food and beverage prices decreased in 2020, but stockpiling helped packaged food volumes move against the trend. During quarantine, shoppers bought relatively affordable ready-to-eat items such as instant noodles and instant soups in large quantities, lifting food category volume by 5.7%; this offset a 3% price decline and drove sales up 2.7%. Beverages saw prices and volumes fall 2.3% and 1.8% respectively, dragging sales down 4%, largely because social gatherings and gifting occasions shrank sharply, especially in the first half of 2020.

As health awareness grew, demand for and purchases of care products kept rising, lifting sales in both personal care and home care.

Home care stood out in particular, growing 7.7% for the full year in 2020 and being the only one of the four sectors to record higher prices.

During the pandemic, consumers stockpiled household cleaning products, tissues and other hygiene items, pushing home care volume up 6.1%. Prices in the sector edged up 1.5%, the only increase among the four, though still below inflation. Home care products such as disinfectants and wet wipes went through shortages caused by surging demand and tight supply, which lifted overall prices.

Greater hygiene awareness also drove a 3% volume gain in personal care products such as personal cleaning items,

but personal care prices fell 2%; with the two effects offsetting each other, sales growth tumbled from 11.8% in 2019 to 1.1%.

In 2020, home quarantine and remote working caused demand for personal care categories such as color cosmetics and skincare to plummet.

E-Commerce: The Only Fast-Growing Channel

On the channel front, the pandemic accelerated several existing trends in China, including the strong shift of FMCG online and steady growth in O2O. E-commerce sales rose 31% in 2020, making it the only channel with rapid growth.

Within that, livestreaming e-commerce more than doubled, led by apparel, skincare and packaged food.

Meanwhile, as more consumers spent on at-home occasions, O2O gained traction, with sales surging more than 50%. The pandemic also gave rise to community group buying, in which internet platforms use pre-sales plus self-pickup and rely on “community group leaders” to acquire and retain shoppers. In Q1 of this year, penetration of this new retail model reached 27%.

It is also worth noting that as e-commerce platforms become more fragmented, the channel landscape is shifting. Alibaba and JD.com saw their combined share fall from 87% in 2016 to 73% in 2020, underscoring diversification. As the landscape evolves, brands need to take a more strategic approach to e-commerce channels and platform portfolios and target shoppers and shopping occasions more precisely.

Offline, convenience stores were the only stable channel; grocery stores and hypermarkets lost the most share, with sales dropping 14% and 11% respectively.

In 2020, many shoppers either stayed in quarantine or avoided entering stores. Convenience stores’ FMCG spending dipped just 1% for the year, mainly because of a strong rebound after quarantine measures eased in the second half. In the second half of this year, Lawson, one of China’s largest convenience store chains, has seen average daily FMCG sales in Shanghai and other major cities return to pre-pandemic levels.

Looking to 2021, FMCG is expected to keep growing, supported by new consumption behaviors shaped by the pandemic and a return to pre-pandemic fundamentals. For example, Chinese consumers already valued health and hygiene before the outbreak, and COVID-19 accelerated that trend, which may become the new normal. Categories such as ice cream, milk and bottled water, helped by higher average selling prices, avoided the price deflation that weighed on many other FMCG categories. In the post-pandemic era, lower-tier cities will remain a powerful growth engine for FMCG, with consumer strength as resilient as during the pandemic.

Deng Min, Global Partner at Bain & Company and Chairman of Greater China Consumer Goods Business, said: “Going forward, the pandemic will continue to have a profound impact on China’s consumer goods market. To stay ahead, we suggest brands act in three areas.

First, pursue product restructuring and brand reshaping in line with post-pandemic market conditions and consumer demand. Second, better serve the different needs of premium shoppers and value-for-money seekers, and by adjusting the overall cost structure, properly manage the tension between rising raw material costs and a new growth environment defined by falling prices and volume as king. Finally, raise penetration further by acquiring new customers, with lower-tier cities in particular becoming the next focus for brands.”

Source: China Packaging Network (pack.cn); original article: http://news.pack.cn/show-377727.html