As 2023 enters its second half, what trends are emerging in the food consumption market, and where are the growth opportunities for the rest of the year? At the 2023 4th China Innovative Food Conference, hosted by the China Light Industry Enterprise Investment and Development Association, the Dongguan Municipal Bureau of Industry and Information Technology, and the Houjie Town People's Government, Yu Jian, General Manager of Kantar Worldpanel Greater China, pointed out six major trends in the food consumption market for 2023, based on current FMCG market performance: People's health needs are growing, focusing not only on effective results but also on the therapeutic properties of food during the process; the one-person economy requires companies to provide more matching demands; price polarization means high-end and value-for-money products are more likely to gain consumer recognition; retail fragmentation is bringing more traffic to proximity small formats and interest-based e-commerce; revenge travel is boosting beverage categories that combine convenience and functionality; and the key to sustainable development lies in finding a connection between grand narratives and individual experiences.
Kantar Worldpanel, as China's only consumer continuous purchase behavior data covering all channels, collects daily purchase behavior from sample points in over 500 cities to observe consumption habits both in and out of home, online and offline. Data shows that in the first half of 2023, China's FMCG market growth rate was 0.1%, and excluding basic livelihood categories like grain, oil, rice, and noodles, the growth rate could reach 1.8%, with overall fluctuations being minimal and stable. Similarly, the Consumer Price Index (CPI) grew by 0.7%, up 1.7% year-on-year from the first quarter of 2022, but total retail sales of consumer goods fell by 0.7% year-on-year in the first quarter. Prices rose but total retail sales slightly declined, indicating a stable recovery in the consumer market.
This relatively stable overall FMCG state shows clear divergence across categories. Nutritional powders/pastes and supplements, which meet nutritional needs, grew faster than convenient foods like instant noodles, frozen foods, and sausages. Healthy beverages like ready-to-drink tea, juice, ready-to-drink coffee, functional drinks, and packaged water were more popular than carbonated drinks. Cleaning products like wet wipes, facial tissues, toilet paper, and laundry detergent grew faster than kitchen paper rolls. It can be seen that categories meeting health, nutrition, and cleaning needs continue to grow, while categories related to going out, such as color cosmetics and hair styling, are recovering as mobility increases, with immediate consumption characteristics initially emerging.
Among them, Western spirits and hair styling, which were affected by the pandemic, began to rebound in 2023, while yogurt and candy have not yet recovered. Categories that were boosted by home quarantine, such as frozen foods, puffed foods, and flour, declined in early 2023, while nutritional supplements, sports/functional drinks, and juice maintained strong growth due to increased out-of-home activities. Health has become a hot topic, and health categories maintain strong growth momentum. Behind this is the advancement of consumer needs; people are no longer limited to simple conclusions of good or bad, but care more about the process of how to achieve it, so niche markets continue to develop.
In terms of dietary health, comparing sales growth in Q1 2023 vs Q1 2022, zero-additive soy sauce grew 71%, organic milk grew 18%, and sugar-free yogurt grew 8%, with a significant increase in the proportion of healthy ingredients. This phenomenon is also reflected in skincare products, where base makeup products add skincare ingredients, and face creams add serums, with a gentler approach to beauty becoming the pursuit of urban women. On top of studying the physical benefits of ingredients, consumers also pay attention to the emotional value brought by food and beverages. Dopamine aesthetics are on the rise, and sensory collision has become a new competitive point for brands. The Shenzhen Sam's Club flagship store opened at the end of June with a limited-edition product, the "Cup Noodles Bucket" large instant noodle bucket, which sold out instantly upon launch, highlighting the healing attributes of food and drink. People not only expect to eat healthily and beneficially but also hope to relax and relieve anxiety through eating. Making consumers feel healed, happy, and enjoyable through food may become a consideration for every brand.
In 2021, the number of one-person households in China had already reached 92 million. With the prevalence of singlehood, the proportion of one-person households in China may reach 35%-40% or more in the future. This lifestyle of small-scale families will inevitably directly affect the direction of food and beverage innovation. The one-person economy is highly flexible and covers a wide range. Compared to 2021, in 2022, instant noodles grew 31%, niche alcoholic beverages grew 34%, and packaged water, ice cream, pet food, fabric softeners, and other more refined and personalized demand categories also grew. It can be seen that adapting to the one-person food and beverage needs of "one-time use," "designed for one-person scenarios," and "enjoyed alone" will become the direction for companies to innovate in product packaging, product formulas, and consumption experiences.
From large packaging to small packaging, from family sets and couple sets to one-person meals, new demand brings new supply is an eternal economic law. Is this year consumption upgrading or downgrading? Overall, although the FMCG market faces pressure, in terms of average selling price changes, the average selling price still rose 3.7% in the first half of this year. Packaged food prices have maintained an upward trend over the past few years, meaning consumers are willing to spend more for a better experience when it comes to eating.
In the first half of this year, the average price growth rate for food and beverages rose 4.5%, promotions fell 0.2%, daily chemical categories saw an average price decline of 3.9%, and promotion rates fell 1.8%. It is undeniable that consumption is showing a further divergence trend: most food and beverage categories have seen average price increases, with categories like instant noodles and juice accelerating premiumization; for non-essential categories like color cosmetics, consumers tend to choose products with higher cost performance.
Channels are a very critical issue in market development. Over the past few years, China's channels have undergone significant changes. Interest-based e-commerce, instant retail, and proximity small formats are booming. These channels closer to consumers have absorbed a large amount of traffic from large channels like hypermarkets and supermarkets.
Due to reduced traffic, mainstream offline retail formats like hypermarkets still face challenges. In fact, most retailers in China are losing market share, while small and medium-sized enterprises in the retail sector are growing very fast. Some private enterprises in Dongguan are performing very well; although rooted in regional markets, they have more opportunities than national large enterprises due to their proximity to consumers. In the first half of this year, there were two very important trends: the rapid expansion of discount stores and the high growth of membership stores. Sam's Club saw a 62% increase in traffic in Q2, and consumer shopping frequency also increased, reflecting consumers' pursuit of ultimate cost performance. Behind this is the decline in concentration of modern channel retailers and further fragmentation.
The changes in the e-commerce market mainly focus on the obvious squeeze that the rise of interest-based e-commerce has placed on mainstream e-commerce. In the first half of 2023, the penetration efficiency of Taotian Group, JD.com, and Pinduoduo declined compared to the same period last year. In contrast, Douyin e-commerce further expanded, with more consumers buying general consumer goods on Douyin than on Pinduoduo, making it China's third-largest FMCG retail platform. As an interest-based e-commerce platform, Douyin is not suitable for all categories. Categories like color cosmetics, face creams, and care products have very high development indices on Douyin, but food and beverages still have significant room for growth. Where there is traffic, there are business opportunities, and the development opportunities of these new e-commerce platforms will be further explored.
This year, the out-of-home market is thriving. In Q1, the market was in recovery, with revenge travel causing traffic to exceed the same period last year, and Q2 overall grew 7.3%. At the same time, consumption scenarios further expanded. In Q1 2023 compared to Q1 2022, going out/travel/picnics grew 21%, shopping grew 13%, office locations grew 8%, and restaurants/street vending machines grew 6%. The development of new scenarios such as outings, picnics, and office settings is closely related to food and beverages, meaning food and drink brands can better reach consumers through new scenarios.
In the first half of this year, many beverage categories achieved dual development in-home and out-of-home, reaching consumption scenarios such as picnics, camping, spring outings, night economy, and internet-famous check-in spots through the demand attributes of "convenience + function," becoming scenario-based consumption points for beverage brands to leverage.
Chinese consumers have never stopped paying attention to sustainable development, but they have their own understanding of the sustainable development business track. On the one hand, sustainable development is friendly to the earth and environment, a green concept that can be practiced; on the other hand, Chinese consumers are very pragmatic, believing that sustainable consumer goods must be beneficial to their own health and extend value based on meeting their own needs. Therefore, how brands combine a grand narrative proposition with the personal interests of each consumer has become a key issue for the penetration of sustainable development concepts in product marketing.
With the investment in brand ESG in recent years, young Chinese consumers' acceptance of sustainable development has increased. "Low-carbon lifestyle + low-burden food" and quantifying and rewarding consumers' "sustainable development" have become actions for young consumers to show a sense of responsibility and pursue a new lifestyle. In a sense, only sustainable development that forms strong interaction with consumers can achieve a win-win situation for enterprises and consumers.
The FMCG consumer market in 2023 is relatively stable, and the uneven performance across categories is a manifestation of current social demand shifts. People are no longer limited to the nutrients provided by consumer product ingredients but pay more attention to the experience and emotional value behind consumption. The one-person meal scenario demand is forcing food and drink brands to reduce the time consumers spend finding companions to achieve deep participation in the consumption chain. The K-shaped price divergence, the growth of interest-based e-commerce and proximity small retail formats, and the emergence of new consumption scenarios like office settings and outbound travel all point to self-pleasing needs. For this reason, when brands emphasize their sustainable development ecological philosophy, they should incorporate consumers' self-pleasing needs into consideration to further narrow the distance in interaction and truly achieve communication with consumers. In this sense, the growth point of innovative food consumption lies in seizing the shift in consumer needs, providing better products and services to offer consumers a better experience, thereby achieving dual growth in market and reputation!