A customer looks at the beverage department at 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 from foreign brands last year during the coronavirus pandemic, while those in smaller cities 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 growth points in an economy that slowed its expansion before the pandemic.
The “China Shopper Report” — which the firms have conducted for a decade in a row — looks at a category called “fast-moving consumer goods” that 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 value of foreign brands fell by 3.1%, compared to a 0.5% drop for domestic companies. The volume was measured in kilograms, liters or units, depending on the category, Bain said.
“Chinese brands, helped by their strong local supply chain, responded more quickly to changing consumer sentiments and delivered more volume growth due to lower [average selling price]the report said.
The Covid-19 pandemic disrupted global supply chains and trade channels as governments restricted business activities and international travel in an effort to contain the spread of the virus. In particular, China has restricted the ability of foreigners to enter the country.
Ongoing 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 a stir in China in March over comments about its concerns about alleged forced labor in the Xinjiang region. Management said on July 1, the situation in China remained “complex”.
Meanwhile, executives of sportswear brands Nike and Adidas have been more optimistic about the market’s growth over the past two months in comments on earnings calls.
The China Shopper Report does not cover clothing. In the personal and home care category, the report found that in 2019, before the pandemic, foreign brands were able to overtake and outperform local brands in terms of market value growth.
“When you talk about foreign brands, Chinese consumers know them, understand them, and enjoy buying and using them, just as they love buying and using local brands,” said Bruno Lannes, Shanghai partner at Bain .
He said Chinese consumers are generally becoming less loyal and buying from a wider variety of brands.
“The fact that this is a local brand versus an international brand may not be such an important criterion. More 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 fast-moving consumer goods in China’s largest cities, such as Beijing, fell by more than 1%, spending in smaller cities rose, the report said.
“The smaller the city, the faster the growth of FMCG spending in 2020,” the report said, referring to spending on the consumer goods category that includes packaged food, juice and personal care items.
“The population in lower towns continues to increase as a result of migration to the countryside,” the report said. “Also because residents of lower towns tend to travel less, they were less affected by Covid-19 outbreaks. Each household’s purchased volume continued to grow relatively isolated from Covid-19 disruptions.”
The divergence is in stark contrast to reports in previous years, when growth rates across the country were quite similar, Lannes said. He said many brands can still find new markets in less developed parts of China, while new internet-driven shopping trends such as group buying or “community buying” have been able to attract older users outside major cities.
The report said another internet-driven trend, live streaming of e-commerce, is likely to build on last year’s massive growth for a total of 2 trillion yuan ($312.5 billion) in gross trade value this year. GMV refers to the value of goods sold over a period of time.
In fact, the report’s authors expect live streaming of e-commerce to increase the share of Chinese retail sales this year to about 9% or 10%, up from 6% to 7% in 2020.
More price sensitive
However, many Chinese consumers are still reluctant to spend at pre-pandemic levels.
Retail sales fell last year, while consumer spending growth over the past two months exceeded analyst expectations.
The moderate growth comes as the government tried to boost consumption in May with special promotions that brought in a transaction value of 4.82 trillion yuan, 22.8% more than a year ago, the Commerce Ministry said.
“In general, people are willing to spend money. That’s why the volume has increased,” says Bain’s Lannes, pointing out that prices have been reduced. “They are a bit more price sensitive than before.”