FMCG Prices Fall for First Time in Five Years as Packaged Food Grows Against the Trend

Recently, Bain & Company and Kantar Worldpanel jointly released the "China Shopper Report" for the tenth consecutive year. "The 2021 China Shopper Report (Series One)" shows that in the first half of 2020 the pandemic dealt a severe blow to overall FMCG sales growth, but the market stabilized and recovered in the second half, with full-year sales growing 0.5%, essentially returning to pre-pandemic levels.

Since the start of this year, China's FMCG market has begun to recover, but growth remains weak. In the first quarter of 2021, the year-on-year growth rate of China's FMCG market sales reached 1.6%, lower than the 3% growth rate in the same period of 2019.

It is worth noting that before the pandemic outbreak, FMCG had been in a steady premiumization process for five consecutive years. Rising average selling prices were a major driver of sales growth for many categories and across different channels.

However, consumers in home quarantine, more restrained in spending because of uncertainty about the future, bought lower-priced products, causing FMCG prices to decline for the first time in five years,

and by the end of 2020 average selling prices had fallen 1.1%. Against this backdrop, volume growth became the main driver of China's overall sales growth, with higher shopping frequency playing a driving role in volume growth.

Packaged food volume grows against the trend

The scope of this report mainly covers four major consumer goods sectors, including packaged food, beverages, personal care and home care. To comprehensively understand the current state of and changes in China's FMCG market, this report added research on 17 categories to the previous 26 categories.

The report shows that in 2020 the prices of both packaged food and beverages fell, but driven by consumers' stockpiling demand, packaged food volume grew against the trend. Consumers bought large amounts of relatively cheap ready-to-eat foods such as instant noodles and instant soups during pandemic quarantine, driving a 5.7% increase in volume for the food category, offsetting the negative impact of a 3% price decline and driving a 2.7% increase in sales. The beverage category, affected by declines of 2.3% in price and 1.8% in volume, saw sales fall 4%. The main reason for the decline was the sharp reduction in social gatherings and gift-giving occasions, especially in the first half of 2020.

As public health awareness continues to rise, consumers' demand for and purchase of care products keeps increasing, and sales of both personal care and home care rose.

Among them, home care performed particularly well, with full-year growth of 7.7% in 2020, making it the only category among the four major consumer goods sectors with rising prices.

Consumers stockpiled household cleaning products and hygiene products such as tissues during the pandemic, driving a 6.1% increase in home care volume. Home care prices rose slightly by 1.5%, making it the only category with rising prices, though the increase remained below the inflation rate. Home care categories such as disinfectants and wet wipes experienced a period of shortage caused by surging demand and tight supply, causing overall prices to rise.

Improved hygiene awareness also drove a 3% increase in volume for personal care products such as personal cleaning products,

but personal care prices fell 2%; the two offset each other, and the sales growth rate plunged from 11.8% in 2019 to 1.1%.

In 2020, under the impact of home quarantine and remote working, demand for personal care categories such as color cosmetics and skincare products fell sharply.

E-commerce is the only fast-growing channel

In terms of channels, the pandemic accelerated many channel trends that already existed in China, such as the strong trend toward online FMCG and the steady growth of O2O channels. In 2020 e-commerce sales grew 31%, making it the only fast-growing channel.

Among these, livestreaming e-commerce more than doubled, with apparel, skincare and packaged food leading the way.

At the same time, as more and more consumers consume at home, O2O channels became popular, with sales surging by more than 50%. In addition, the pandemic also gave rise to community group buying, in which internet platforms use a pre-sale plus self-pickup model, relying on "community group leaders" to acquire and retain consumers. In the first quarter of this year, the penetration rate of this entirely new retail model reached 27%.

But it is worth noting that, with the decentralization of e-commerce platforms, the e-commerce channel landscape is also changing. Alibaba's and JD.com's combined share fell from 87% in 2016 to 73% in 2020, showing a clear trend of diversification. As the channel landscape changes, brands also need to think more strategically about e-commerce channels and platform combinations and more precisely target shoppers and shopping scenarios.

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

In 2020, many shoppers either stayed in home quarantine or did not dare enter stores to spend. Yet convenience stores' FMCG spending fell only 1% in 2020, mainly due to the strong rebound brought by the lifting of home quarantine 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 recover to pre-pandemic levels.

Looking ahead to 2021, driven by the new consumption behaviors brought by the pandemic and a return to the basic pre-pandemic situation, FMCG is expected to continue its growth momentum. For example, Chinese consumers were already focused on health and hygiene before the pandemic outbreak, and the pandemic accelerated this trend, which may become a new normal in the future. Categories such as ice cream, milk and bottled water, benefiting from higher average selling prices, escaped the price deflation that plagued many other FMCG categories. In the post-pandemic era, lower-tier cities will still be a strong growth engine for FMCG, showing consumer power as solid as during the pandemic period.

Deng Min, Global Partner at Bain & Company and Chairman of Greater China Consumer Goods Business, said: "Looking to the future, the pandemic will continue to have a profound impact on China's consumer goods market. To maintain a leading position, we recommend that brands take action in three areas.

First, carry out product restructuring and brand reshaping in line with the post-pandemic market environment and consumer demand. Second, better meet the differing needs of premium consumers and value-for-money seekers, and, by adjusting the overall cost structure, properly handle the contradiction between rising raw material prices and the new growth environment of falling prices and volume being king. Finally, further increase penetration by acquiring new customers, with lower-tier cities in particular becoming the focus of brands' next steps."

——This article is reproduced from China Packaging Network (pack.cn), original link: http://news.pack.cn/show-377727.html