Chinese economy sees new pockets of growth in upward buying trends

A customer looks at the drinks section at a supermarket on June 9, 2021 in Handan, Hebei Province.

Li Hao | China Visual Group | Getty Images

BEIJING – Chinese consumers spent less on staple goods of foreign brands last year during the coronavirus pandemic, while those in small towns were more willing to spend than those in large ones, according to a report.

The report, co-authored by consulting firm Bain & Company and analytics firm Kantar Worldpanel, reflects pockets of growth in an economy that was already slowing its expansion before the pandemic.

The “China Shopper Report” – which companies have run for 10 consecutive years – examines a category called “fast moving consumer goods” which includes food, beverages, personal care and home care. Items such as clothing are not included.

The volume of foreign brands sold in China last year fell 4.1%, while the average selling price rose 1%, according to the report released on June 29.

As a result, the study indicates that the value of foreign brands fell 3.1%, compared to a drop of 0.5% for domestic companies. Volume was measured in kilograms, liters or units depending on the category, Bain said.

“Chinese brands, aided by their strong local supply chain, have reacted more quickly to changing consumer sentiment and achieved greater volume growth by reducing [average selling price], indicates the report.

The Covid-19 pandemic has disrupted global supply chains and trade channels, as governments have restricted trade activities and international travel in an effort to control the spread of the virus. China has particularly limited the ability of foreigners to enter the country.

Latent geopolitical tensions 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 following comments that resurfaced over concerns about alleged forced labor in the Xinjiang region. Management said in a July 1 appeal that its situation in China remained “complex”.

Meanwhile, executives at sportswear brands Nike and Adidas have been more optimistic about market growth in comments on earnings calls over the past two months.

Whether it is a local brand versus an international brand may not be an important criterion. What’s more important, is this the right brand for me?

Bruno Lannes

partner, Bain & Compagnie

The China Shopper Report does not cover clothing. In the category comprising personal and home care products, the report found that foreign brands were able to catch up and overtake local brands in terms of market value growth in 2019, before the pandemic.

“In general, when you talk about foreign brands, Chinese consumers know them, understand them and like to buy and use them just as they like to buy and use local brands,” said Bruno Lannes, Shanghai-based Bain partner.

He said Chinese consumers are generally less loyal and are buying from a wider variety of brands.

“The fact that it’s a local brand versus an international brand is perhaps not such an important criterion. Most importantly, is this the right brand for me? He said, pointing to factors like functionality and recommendations from friends.

Small towns grow faster

While total spending on consumer staples fell more than 1% in China’s largest cities, such as Beijing, spending increased in smaller ones, the report said.

“The smaller the city, the faster the growth in FMCG spending in 2020,” the report said, referring to spending in the consumer goods category which includes packaged food, juice and personal care items.

“The population of lower-tier cities continues to increase due to rural migration, ”the report says. “In addition, since residents of lower-tier cities generally travel less, they have been less affected by the Covid-19 outbreaks. The volume purchased from each household continued to grow relatively unaffected by Covid-19 disruptions. “

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The discrepancy contrasts with reports from previous years, when growth rates were quite similar across the country, Lannes said. He said that many brands can still find new markets in less developed regions of China, while new internet-based shopping trends like group or community shopping have been successful in attracting older users. outside the big cities.

Overall, people are willing to spend. That’s why the volume is up … They are a little more price sensitive than before.

Bruno Lannes

partner, Bain & Compagnie

The report says another internet-driven trend, live e-commerce, is likely to build on last year’s massive growth to a total of 2,000 billion yuan ($ 312.5 billion) in value. gross of goods this year. GMV refers to the value of goods sold over a period of time.

In fact, the report’s authors expect online e-commerce to increase its share of retail sales in China to around 9% or 10% this year, from 6% to 7% in 2020.

More price sensitive

However, many Chinese consumers are still hesitant to spend at pre-pandemic levels.

Retail sales fell last year, while growth in consumer spending fell short of analysts’ expectations in the past two months.

The moderate growth comes as the government tried to stimulate consumption with special promotions in May that saw a transaction value of 4.82 trillion yuan, up 22.8% from a year ago. according to the Ministry of Commerce.

“Overall, people are willing to spend. That’s why the volume is up,” Bain’s Lannes said, noting that prices have been cut. “They are a little more price sensitive than before.”

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