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What Happened: Chinese consumers are gradually regaining confidence following the lifting of Covid-19 restrictions, finds Bain & Co.’s latest China Shopper Report.
The consultancy looked at changes in consumer behavior in 2022 and the first quarter of 2023, across the four largest consumer goods sectors: packaged food, beverages, personal care, and home care.
Fast-moving consumer goods (FMCG) recovered slowly in Q1 2023 to achieve value growth of 1.9 percent compared to the same period in 2022. Among the four major sectors, home care continued to lead, increasing 13 percent year-on year in Q1 due to local consumers’ elevated awareness of their health.
Personal care showed signs of recovery, too. The segment steeply declined in 2022 as China’s mask mandate caused makeup demand to drop significantly. In Q1 2023, personal care fell 2.6 percent year-on-year in value, but in April it climbed 5.9 percent YoY.
“Chinese consumption is recovering, and the government has already implemented stimulus policies to boost consumption, with more expected. The FMCG industry continues to demonstrate resilience, and consumers, brands, and retailers [continue to] adapt to ever-changing circumstances,” said Derek Deng, a partner at Bain & Company, in a press release.
The Jing Take: Although the report focuses on the FMCG industry, there are several interesting takeaways for brands more widely.
Firstly, Chinese consumers’ consciousness of health is evident and unwavering. Even categories like juice and instant noodles achieved impressive growth in the premium segment as more shoppers sought health-focused concepts and innovations. Local brands like Huiyuan and Baienshi have launched zero-sugar drinks, new flavors such as hawthorn juice and sea buckthorn juice, as well as Chinese medicine-based products to meet the demand for healthier alternatives.
Secondly, Chinese consumers are increasingly shifting toward online channels, particularly interest-based e-commerce platforms like Douyin and Kuaishou. Douyin gained significant traction in sales value and overtook Pinduoduo for the first time to become the third-largest e-commerce platform in FMCG sales value in the first quarter of 2023, trailing giants Tmall and JD.com.
Douyin’s success can be attributed to its expanding user base, increased livestreaming penetration, and the introduction of new interfaces like Douyin Supermarket, the report states.
And finally, the online-to-offline (O2O) trend is “growing and irreversible,” increasing 16 percent in value in Q1 2023 vs. Q1 2022. Because e-commerce was disrupted by logistical challenges during the pandemic, O2O boomed as people wanted to stock up and meet their immediate needs while avoiding traffic and physical stores.
The retail format remains popular thanks to its convenience and low-price value proposition, with offline retailers like RT-Mart and group buying platforms such as Duoduo Maicai and Taocaicai paving the way.
Consumers pick up their grocery orders at a Taocaicai affiliated convenience store in Dalian. Photo: Alibaba Group
Bain offers some advice for brands: “Increasing price sensitivity by consumers should lead FMCG brands to adjust their cost position and reinvest savings in marketing and price/promotion. Changing and proliferating channel dynamics require brands to integrate channel strategies and break silos between online and offline channels in planning.”
Although price sensitivity may not affect China’s high-net-worth luxury consumers, it certainly impacts younger and entry-level aspirational shoppers, particularly as the country’s high unemployment rate is a drag on purchasing power. Moreover, consumers’ prioritization of health, preference for short-video e-commerce platforms, and desire to buy certain products in person are factors that impact far more than just the FMCG industry.
The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.
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