China enjoys an impressive pandemic rebound

NIELSEN MARKET SNAPSHOT: CHINA

China and it’s resilience to fight the covid-19 pandemic has been tested to the highest limit ever since the onset of the pandemic and the spiralling effects on it’s economy will determine not only the future growth trajectory for China but also global economic prospects.

The first quarter of 2020 contracted the economy with a decline of GDP by 6.8%[1] as an aftermath of the pandemic, however it rebounded to an impressive 3.2% in Q2 2020 as a result of multiple efforts to contain the virus, government policies and rebound in production and economic activities.

The outlook for the FMCG industry looks promising given the 8% FMCG growth recorded in April—mainly dominated by online FMCG. Nielsen research showed FMCG online sales climbed 33% year-on-year in January and February, while the FMCG sales through omnichannel in the first two months increased by 3% YoY. In the month of march, online FMCG continued growth with 32% while omnichannel sales dropped by 6% during the same month. The FMCG online sales in April continued to show momentum with 43% YoY growth whereas FMCG omnichannel

Sales demonstrated rebound at 8% YoY growth. By June this year, online FMCG increased 37% while omnichannel sales grew 4%.

With the support of government policies aimed at spurring consumption, the retail industry continues to improve and new consumption momentum has emerged in this market. According to data released by the National Bureau of Statistics, the total retail sales of consumer goods shrank 7.5 percent year-on-year in April, a decrease of 8.3 percentage points over the previous month. It showed consumption has been gradually picking up.

Nielsen’s latest CEO survey[2] conducted also shows that business leaders’ confidence increased in May. When asked their prediction of the pandemic’s impact on companies, three in four respondents (as compared to 40% of respondents in March) believed that the situation in the second quarter was optimistic or not affected. Significant majority of CEOs (55%) believed that the disease will either not affect or will have a positive impact on their company's overall performance in 2020 (as compared to 50% of respondents in March).

According to Nielsen's long-term market monitoring, a large number of new products appear in China's FMCG market each year, accounting for 46% percent of FMCG growth. Nielsen data shows that 17,251 new items were launched in March and April this year, and seven in 10 new products belong to small regional players. These small regional players have become an important force driving product innovation. The market growth brought about by successful product innovation cannot be underestimated. Local manufacturers in China are gaining momentum in food and beverage categories. Regional players are enjoying momentum in rural and lower tier cities, especially within non-food categories.

Nielsen’s latest data[3] shows that consumers reduced spending on dining out, traveling, clothing, entertainment and even food and beverages due to the coronavirus contagion. After meeting basic living expenses, an increasing number of consumers started to save more (54% of respondents), and invest in education (34% of respondents) and health (8% of respondents).

Post covid-19, the market landscape has shifted significantly leading to changes in consumer demand in the next three to six months period. FMCG companies need to think about meeting consumer demands depending on the city tiers (premium vs mainstream vs economy) and reassess their strategy to build loyalty vs price sensitivity. The success in the new normal is going to depend on how FMCG companies innovate to drive organic growth and create new consumption occasions.