The Fast-Moving Consumer Goods (FMCG) market in China is one of the largest and most dynamic in the world. With a rapidly growing middle class, increasing disposable income, and changing consumer habits, the demand for high-quality FMCG foreign products in China is on the rise despite the intensifying domestic competition.
The lockdown and the pandemic had an adverse effect on the market. In 2021, the Chinese FMCG market experienced a sharp decline in growth, but a strong rebound in the first quarter of the year. Despite the market’s overall growth of 2.3% in 2021, growth rates for most product categories fell sharply during the second and third quarters of 2020, with a slight increase in the fourth quarter.
The pandemic has influenced consumption habits with consumers becoming more health-oriented, price-sensitive, and overall, more cautious. Aside from being cautious, Chinese consumers have also stockpiled FMCG goods in 2022. Baidu’s search index shows that as of December 12, 2022, the average Baidu search index for “stockpiling” increased by more than 329% YOY.
Categories representing a new lifestyle, such as cheese and ready-to-drink coffee, grew in 2020 by more than 20%, while disinfectants and handwashing products fell by more than 10% in 2021. Local brands have the upper hand in competition with foreign brands in most categories.
In 2021, e-commerce maintained growth, while O2O accelerated and doubled in sales in 2020 and 2021. Even in 2022, the O2O channels continued to grow despite consumer fears of infection risk. In the first three quarters of 2022 alone, the frequency of consumer shopping increased by 14.6% YOY which suggests consumers’ preference for instant gratification.
Chinese consumers have developed a growing preference for imported quality FMCG due to a range of factors. Foreign brands are often seen as more trustworthy and of higher quality than domestic ones, in part because of safety issues and scandals involving domestic brands. Imported products are also considered a status symbol among the growing middle and upper classes in China, with purchasing foreign brands signalling sophistication and wealth. Additionally, the wider variety of unique products and flavours offered by imported FMCG brands appeals to many Chinese consumers looking for new and exciting options.
Will foreign FMCG brands continue to thrive in China in 2023?
Foreign FMCG brands will still likely thrive in China despite the increasing dominance of local FMCG brands, but it would require careful market research and a strategic approach to overcome the challenges of competing in a highly competitive and culturally unique market.
Greater variety and choices
While today some domestic FMCG brands offer Chinese consumers often a greater variety of flavour choices, foreign brands are trying their best to stay relevant, and both innovate for China and bring their best unique products and flavours from around the world. For example, Lay’s and Doritos and other FMCG brands regularly introduce unique flavours to the Chinese market, such as cucumber and lamb.
Similarly, in 2021, Nestle launched a range of limited flavours of their famous KitKat chocolate bars. To capture the hearts of younger consumers, they introduced a limited Chinese version called “Dandong Strawberry” flavour – inspired by Chinese strawberries in the famous Dandong area.
Foreign brands try to compete on a wider range of options within a particular product category to better appeal to Chinese consumers who are looking for new and exciting options beyond what is available from domestic brands. Coca-Cola, for instance, has experimented with new product formats, such as a drinkable yoghurt called “Vio” and their peach-flavoured Coke.
Economic boost and investment
FMCG brands have had a difficult journey in China since the onset of the COVID-19 pandemic. The pandemic has resulted in wide-ranging disruptions to the FMCG industry in China, from supply chain disruptions down to decreasing demand for products and services. While the pandemic has harmed foreign FMCG brands in China, the good news is that the market is beginning to recover in 2023 and is projected to continue to do so in the years ahead.
In 2023 the Chinese government seems to also start encouraging foreign investment and brands to enter the country to cater to its rapidly growing market. While there is an ongoing rise of the national wave or “Guochao,” one simply cannot deny the value and quality that foreign goods can still offer.
Quality, reputation, and efficiency
Despite the challenging environment, foreign FMCG brands in China adapted to the changing market conditions quickly. Companies such as Unilever, Nestle, and Procter & Gamble were able to quickly ramp up production and introduce new products to meet the changing consumer needs.
Additionally, they expanded their online presence via virtual shopping experiences and delivery services, as well as offering discounts. This allowed them to continue to reach consumers and maintain their market share despite the pandemic. Foreign FMCG brands are still often seen as premium and appealing to Chinese consumers seeking high-quality products.
A series of safety issues involving domestic brands (including contaminated milk powder and toxic toothpaste) in China in the past decade has led many consumers to prefer foreign brands, which are perceived to have higher safety and quality standards.
Brands such as Nestle and Danone have responded to these concerns by emphasizing their global safety standards and local sourcing practices. They have implemented rigorous safety and quality control measures throughout their supply chain and launched products that meet China’s stringent safety and quality standards.
Foreign brands such as Pampers and Johnson & Johnson have leveraged their reputation for safety and quality to gain market share in China. China is now Pampers’ second-biggest market, while Johnson & Johnson has emphasized safety and quality in its marketing campaigns. This is not to say that foreign brands did not get their fair share of problems when the quality of their product sold inside and outside of China was compromised. In fact, Magnum ice creams got a bit of an issue when the company admitted that they use milk powder and water in Chinese versions of their ice creams compared to concentrated milk in their European version.
Successful qualities for FMCG brands in China in 2023
2022 was a difficult year defined by the pandemic’s comeback and a consequent weaker economy. This is why domestic and foreign brands must be adaptable and be ready for changes in 2023. So, how should brands position themselves for success?
First, make it a point to be efficient and convenient. Chinese consumers prioritise convenience and efficiency. Brands are focused on controlling production costs due to rising input costs and supply chain interruptions. The pandemic has led to disruptions in access to basic goods, causing a rise in food deliveries and the popularity of instant-ready FMCG goods such as microwaveable meals and all-in-one meal replacements. FMCG brands will benefit from being efficient and convenient. In fact, the ready-to-drink sector is expected to grow by 11.43% YOY in 2023, and Nestle’s ready-to-drink coffee line is part of that.
Second, invest in customer loyalty. Retailers must prioritise consumer engagement and unique services to increase shopper loyalty. A seamless online-to-offline buying experience is key to success and increases customer retention. Younger Chinese consumers value brand experiences over products. Not only you are selling the product alone, but your consumers’ experiences will anchor your brand’s identity better. L’Oreal invested in the traceability of their product (being transparent about how their products are made), building a better professional image for the brand and increasing loyalty.
Third, have an ear for consumer preferences. Consumer preferences are constantly changing, so brands must continually develop new growth strategies to stay ahead. This may include expanding into new markets and categories, reaching customers through new channels, and analyzing market and consumer trends. Healthier options are among one of the recent consumer trends that consumers gravitate towards. Nestle signed a partnership with Alibaba to expand its healthy food distribution in rural areas.
Last but not the least, be environmentally-aware. Consumers prefer “organic” and “local” products over traditional FMCG food and beverage. The health FMCG industry is growing, with plant-based milk alternatives, lab-grown “cultured meat”, and alcohol-free mocktails gaining popularity. Chinese consumers prefer “antibiotic-free”, “grass-fed”, and “free range” meat and dairy products.
Many consumers are also environmentally conscious and prefer packaging made of carton or paper over plastic. Nestle has gone and started from the top of their production chain. They partnered with 500,000 farmers and introduced sustainable and environmentally-conscious farming practices for their raw products. Their reformulation of their Nido Forti+ milk resulted in an estimated reduction of 175,000 tons of greenhouse gas emissions.
To sum it up, the FMCG market in China in 2023 is very fluid. The market itself, ever-changing consumer preferences and trends, and domestic or foreign competitors are always changing. You can learn more about the Chinese market and how the market has changed during the pandemic in the recently released 650-page-long 2022 Mega Report: China E-Commerce & Digital Space. International brands must watch and monitor the relevant trends in the Chinese consumer market to have a baseline on what sticks or what doesn’t. Foreign FMCG companies will remain a strong player in the Chinese FMCG scene, and it’s on its way to steady recovery.