After a slow 2022, Mainland China’s FMCG sector is showing signs of recovery – and building momentum for a positive second half of 2023.
Last year, Chinese FMCG consumption was hamstrung by two major waves of COVID-related restrictions. Despite year-on-year value growth of 2.8% in the first six months, which rose to 6.3% in the fall, a spike in infections caused value to decline to 3.9% in the fourth quarter. As a result, the FMCG market landed at a modest annual growth rate of 1.5% for the full year.
At a macro level, there were promising signs of a moderate economic rebound in the first quarter of 2023. Chinese GDP grew 4.5% compared with the same period in 2022, while overall retail sales (excluding auto) grew 10.5% in March year-on-year, both exceeding expectations.
According to Worldpanel’s latest Mainland China Shopper Report 2023, consumers have gradually gained in confidence as COVID restrictions lifted. FMCG value grew 1.9% in Q1 2023 compared with the same quarter the previous year, driven by modest volume growth of 2.7%. This was despite a decline in the average selling price of 0.8%.
In April, the year-on-year FMCG growth rate reached 5.1%, in line with pre-pandemic levels. Overall retail sales, excluding auto, also saw impressive growth at 16.5%.
Packaged food and home care continued to grow
Among the four major FMCG sectors, home care continued to lead value growth at 13% year-on-year in Q1, due to increases in both volume (9.5%) and ASP (3.2%). Nearly all key categories grew, due to sustained awareness of the need for hygiene, and heightened demand for products that support better health.
Packaged food continued to grow at 3.2%, mainly driven by a rise in the average selling price of 5.2%, although volume dropped 2%. Data for April showed that spend on home care and packaged food continued to increase, by 12.2% and 3.8% respectively, compared to 2022.
Sales value in beverages grew 1% in the first quarter of 2023, driven by volume growth of 3.4%, while the average selling price declined 2.4%. Juice, ready-to-drink tea, milk, and packaged water continued to lead. In April, the sector experienced further growth of 3.3%, revealing its rebound potential.
In personal care, the trend of declining value slowed in Q1, to 2.6%, while volume increased 4.1%. In April, the sector achieved value growth of 5.9%, providing confidence for the coming months.
Price deflation varies across categories
The deflation of FMCG prices in Mainland China which started in 2020 persisted in the first quarter of 2023, but the trend became more divergent across categories. Some have continued to increase their average selling prices through strong innovations, and by addressing consumers’ rising health and hygiene needs. For example, the premium juice segment achieved 25% volume growth, with an ASP increase of 7% year-on-year, as a result of new processing methods and new flavours.
Other categories have sustained ASP declines as consumers chose lower-priced products and shifted to online shopping for more competitive pricing. The toothbrush category is representative of this trend: across all price tiers, the mass segment had the highest volume growth at 4%, with a 9% decrease in ASP.
E-commerce picks up speed again
In the first quarter of 2023, Chinese consumers accelerated their shift toward online channels, increasing their FMCG spend by 9% compared to Q1 of last year, due to COVID infections subsiding and the resolution of supply chain issues.
Spend in club warehouses increased significantly, with value growth of 38% year-on-year in Q1, driven by an increase in buyers and shopping frequency. The club warehouse differs from a traditional hypermarket in three ways: they operate on a membership model, sell mainly imported or own-label brands, and primarily sell in bulk.
One continuing trend is the sustained growth of online-to-offline (O2O) channels, which saw 16% value growth in Q1 2023 compared with the previous year. Essential categories that serve urgent needs are leading penetration growth – such as frozen food, facial tissues, and toilet paper.
It is clear that FMCG consumption in Chinese Mainland is recovering, with the government implementing stimulus policies to ensure the uplift continues. The industry is demonstrating great resilience, and consumers, brands, and retailers are adapting well to ever-changing circumstances. (Source: Kantar.com)
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