China's economic transformation is significantly affecting the consumption patterns of Chinese shoppers. Mass-market categories targeting blue-collar workers are struggling, while premium categories such as yogurt and pet food, as well as mid-to-high-end products in most categories, continue to grow. According to Kantar Worldpanel China, sales in China's FMCG market grew only 3.5% in 2015, a five-year low. However, this figure masks an important characteristic: despite the overall sluggish economic environment, some categories and products are maintaining relatively fast growth, highlighting the divergent growth trajectories in China's FMCG and other consumer industries. Today, Kantar Worldpanel and Bain & Company jointly released the fifth annual China Shopper Report: How to Master the Two-Speed Chinese Shopper. Over the past four years, Kantar Worldpanel and Bain have conducted in-depth analysis of 26 categories across four major sectors: personal care, home care, beverages, and packaged food (accounting for about 80% of total FMCG sales). The report details the impact of China's two-speed growth on FMCG categories, retail channels, and the ongoing battle between multinational and local brands. "China's economy is constantly changing and adapting to slower GDP growth, with the economic focus shifting from manufacturing to services, and efforts to drive innovation-led growth replacing investment-led growth," said Mr. Yu Jian, General Manager of Kantar Worldpanel China. "Our tracking of Chinese consumers' shopping behavior reveals that these shifts and other major economic changes have significantly impacted Chinese shoppers' consumption patterns." Product Categories The rise of the domestic service industry and the emergence of higher-paying positions have driven growth in premium categories such as yogurt and pet food, as well as mid-to-high-end products in most categories. Mr. Bruno Lannes, Chairman of Bain & Company's Greater China Consumer Products and Retail practice and co-author of the report, said: "FMCG companies have built extensive distribution networks to introduce their products to Chinese consumers. Currently, most categories have reached the distribution scale they need in China, and brands are facing new challenges: they need to increase sales per distribution point to achieve growth." He explained: "Since it is difficult to drive consumers to increase purchase frequency, and many categories have low purchase frequency, brands typically invest in launching premium products. This approach has proven successful in achieving sales growth when penetration is stagnant or declining." Meanwhile, as a large number of manufacturing jobs have shifted to overseas countries with lower labor costs, brands in categories traditionally targeting 'blue-collar' workers, such as instant noodles and value beer, are also struggling. In 2015, instant noodle sales fell 12.5%, and beer sales fell 3.6%. China's overall worker population peaked in 2012 and has since declined, with an increase in low-income retirees, exacerbating the slowdown. Click image to enlarge Retail Channels According to our research on Chinese shoppers' behavior, the national retail landscape is constantly changing. Small store formats will continue to see strong growth. Notably, convenience stores saw sales increase 13.2% last year, with penetration rising 8.5% across all city tiers, attracting cash-rich but time-poor urban consumers. Meanwhile, online shopping will continue to dominate China's modern retail environment. Over the past four years, China's e-commerce market has grown at an annual rate of around 37%, generating nearly 4 trillion yuan in revenue, making China the world's largest e-commerce market. Based on e-commerce penetration growth trajectories since 2012, we have divided categories into three groups. Benefiting from high e-commerce penetration, baby products and cosmetics continue to dominate the e-commerce market. Consumers prefer to buy online due to more choices, including imported brands they perceive as safer and of higher quality; Gum, beverages, and fabric softeners have low e-commerce penetration, with little growth over the past four years. This is because gum is an impulse purchase, beverages often have high last-mile delivery costs, and Chinese households do not frequently buy fabric softeners; Home care products, some personal care products, and packaged foods fall into the third category: medium but rapidly growing e-commerce penetration. E-commerce retailers and brands are actively promoting these categories to increase penetration. For example, the annual 'Tmall Wash & Care Festival' in July promotes categories such as shampoo, conditioner, and personal cleansing products, with P&G and Unilever as major participating brands. Click image to enlarge Conversely, hypermarkets (over 6,000 square meters), which reshaped China's retail environment over the past decade, saw negative growth for the first time in 2015, with sales in urban FMCG markets down 0.2%, traffic down 4.6%, and average annual household purchase volume down 4.7%. Supermarkets/small supermarkets (100-6,000 square meters) also saw sluggish growth, slowing from 9.5% last year to 4% this year. Foreign and Local Brands The two-speed development of China's consumer market is especially evident in the ongoing battle between Chinese and foreign brands. In 2015, local companies continued to gain significant share from foreign competitors. Among the brands surveyed by Kantar Worldpanel and Bain, local companies grew 7.8%, contributing 109% to market growth. These companies saw the most growth in skincare, baby diapers, conditioner, toothpaste, and shampoo categories. Foreign companies saw the most growth in fabric softeners, baby formula, instant noodles, and beer, as they invested heavily in marketing and consumers turned to foreign brands due to food safety concerns about local products. However, in 2015, overall growth for foreign brands turned negative at -1.4%. Last year also saw significant changes in regional growth patterns. In the past, city tier was one of the main factors influencing sales growth. Now, growth rates across all city tiers are converging to the 3-5% range, so brands cannot assume that lower-tier cities will continue to grow rapidly. Succeeding in China's Two-Speed FMCG Market Even in this two-speed environment, we find that shoppers still exhibit predictable purchasing behavior patterns, and brands can surpass competitors by recognizing these patterns. According to the report, companies and brands can take four steps to achieve success in the market:

  • Review their cost structure and operating model, improve flexibility and the speed of decision-making and execution, and actively embrace digital developments that disrupt their categories;
  • First cultivate digital capabilities and mindsets in the marketing and sales teams, then gradually extend to all functions;
  • Pay attention to the major changes in retail, and the decline in distributor economics caused by overall market slowdown and online competition, and adjust route-to-market models accordingly. Focus on winning channels while selectively investing in others;
  • The key to building leading brands remains penetration, which must effectively combine in-store promotion and online digital marketing activities. The PDF of the 2016 China Shopper Report has been uploaded to Kantar's Weiyun platform. Copy the link and open it in a mobile browser; you can save it to your own Weiyun account and read it on PC. 《2016中国购物者报告》 3.0M http://share.weiyun.com/5bf9e9c4b4ee46a90ff10c245bb04a54 This link is valid until July 5th. If needed, please save it to your Weiyun account (can log in with QQ number) as soon as possible. In early July, this platform will organize the third B-end e-commerce inspection tour to visit domestic B-end e-commerce platforms that are instructive for distributor transformation. Interested friends can long-press the QR code below to register. Organization Format ************1. Company visits
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