A customer eyes the beverage department in a supermarket in Handan, Hebei Province on June 9, 2021.
Li Hao | Visual China Group | Getty Images
BEIJING – Chinese consumers spent less on daily necessities of foreign brands during the coronavirus pandemic last year, while consumers in smaller cities were more willing to spend than big ones, according to a report.
Co-authored by consulting firm Bain & Company and analytics firm Kantar Worldpanel, the report reflects areas of growth in an economy that was already slowing its expansion before the pandemic.
The China Shopper Report, which companies have run for 10 years in a row, covers a category called “Fast Moving Consumer Goods,” which encompasses food, beverages, personal care and home care. Items such as clothing are not included.
According to the report released on June 29, the volume of overseas brands sold in China decreased 4.1% over the past year, while the average retail price increased 1%.
As a result, the value of foreign brands fell 3.1%, according to the study, compared with a 0.5% decrease for domestic companies. Volume was measured in kilograms, liters, or units depending on the category, Bain said.
“With the support of their strong local supply chain, Chinese brands responded more quickly to changing consumer sentiment and achieved higher volume growth through reductions. [average selling price]“, It says in the report.
The Covid-19 pandemic disrupted global supply chains and trade channels as governments restricted business and international travel to control the spread of the virus. In particular, China has restricted the ability of foreigners to enter the country.
Simmering geopolitical tensions have also hampered the ability of some foreign brands to sell in China earlier this year.
For example, Swedish clothing brand H&M faced backlash in China in March after comments surfaced on concerns about alleged forced labor in the Xinjiang area. Management said in a call on July 1 that the situation in China was “complex”.
Meanwhile, in the comments on earnings talks over the past two months, executives at sportswear brands Nike and Adidas have been more optimistic about the market’s growth.
The fact that it is a local brand versus an international brand may not be that important a criterion. More importantly, is this the right brand for me?
Partner, Bain & Company
The China Shopper Report does not cover clothing. In the personal and home care products category, the report found that in pre-pandemic 2019, foreign brands were able to catch up and outperform local brands in terms of market value growth.
“In general, Chinese consumers know, know, understand, and love to buy and use foreign brands, just as they like to buy and use local brands,” said Bruno Lannes, partner at Bain in Shanghai.
He said Chinese consumers are generally becoming less loyal and buying from a wider variety of brands.
“The fact that it is a local brand versus an international brand may not be that important criterion. More importantly, is this the right brand for me? ”He said, referring to factors like functionality and recommendations from friends.
Small cities grow faster
While total spending on fast-moving consumer goods in China’s largest cities like Beijing fell by more than 1%, spending in smaller cities rose, the report said.
“The smaller the city, the faster FMCG spending will grow in 2020,” the report said, referring to spending for the consumer product category, which includes packaged foods, juices and personal care items.
“The population in suburban cities continues to increase due to rural exodus,” the report said. “In addition, residents of suburban cities have generally been less affected by Covid-19 outbreaks. The purchasing volume of every household continued to grow relatively isolated from Covid-19 disruptions. “
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The divergence contrasts with reports from previous years when growth rates across the country were pretty similar, Lannes said. He said many brands could still find new markets in less developed parts of China, while new internet-driven shopping trends such as group or “joint shopping” could attract older users outside of the big cities.
Overall, people are willing to spend money. That’s why the volume has increased … You are a little more price-sensitive than before.
Partner, Bain & Company
According to the report, another internet-driven trend, live streaming e-commerce, is likely to build on last year’s massive growth, with gross merchandise value totaling 2 trillion yuan ($ 312.5 billion) this year. GMV refers to the value of goods sold over a period of time.
In fact, the report’s authors expect live streaming e-commerce to increase its share of Chinese retail sales to around 9% or 10% this year, up from a range of 6% to 7% in 2020.
More price sensitive
However, many Chinese consumers are still reluctant to spend at pre-pandemic levels.
Retail sales declined over the past year, while consumer spending growth over the past two months fell short of analysts’ expectations.
The subdued growth is due to the government trying to stimulate consumption with special promotions in May, which, according to the Commerce Department, recorded a transaction value of 4.82 trillion yuan, up 22.8% year over year.
“Overall, people are willing to spend money. That’s why the volume has increased,” said Bain’s Lannes, pointing to the price cuts. “You are a little more price-sensitive than before.”