Oyster sauce in and MSG out in Bain's latest China consumer goods survey

30 July 2018 Consultancy.asia 5 min. read

Premium goods and a healthier mindset are amplifying a two-speed growth trajectory in the Chinese fast-moving consumer goods market according to the latest local industry survey from Bain & Company, with oyster sauce in and MSG out.

In its seventh annual report on Chinese shopping trends, conducted in association with market research agency Kantar, the global strategy and management firm Bain & Company has identified an ongoing pattern of two-speed growth among key fast-moving consumer goods (FMCG) products, with rising local incomes leading to greater ‘premiumisation’.

Altogether, the FMCG market in China grew in total value by 4.3 percent last year, up from 3.6 percent in 2016, in what the annual report states is the first time since its 2012 introduction that local sales grew faster than over the previous year. This growth, however, can be put down to one major factor; average selling prices rose by 4%, offsetting stagnant volume growth.Chinese consumer goods market growthThe annual study tracks shopping trends in China across more than 100 FMCG categories, with a deep analysis of 26 key items spanning the four largest consumer sectors; packaged food, beverages, personal care, and home care – together accounting for 80 percent of the FMCG market. The results: premium goods with an appeal to health and lifestyle are outperforming lower quality items, driven by rising local incomes.

“From silicone-free shampoo to not-from-concentrate (NFC) juice that's more natural and nutritious, Chinese consumers are spending more on premium goods that deliver health benefits or elevate their lifestyle. Increasingly, they can afford it: Disposable household income per capita has grown by a compound annual rate of 8.2 percent over the past six years,” the report states.Growth trends for Chinese consumer goods productsThe upshot is a ~15 percent decrease in value growth for chewing gum from 2015 to 2017, outweighed by a ~48 percent increase in the mouthwash segment. Similarly, oyster sauce was up 15.5 percent while MSG dropped by over 10 percent, and soy milk and bottled water rose by approximately 16 and 13 percent respectively against falling Asian traditional drinks (-6.4%) and foreign spirits (-8%).

Still, despite having no obvious health benefit, kitchen rolls, pet food and makeup also featured in the top five fastest growing categories, with income-driven lifestyle factors and a move toward enhanced pleasure also prompting increased ‘premiumisation’, which is in turn accelerating the ‘two-speed’ growth phenomenon identified by the consulting firm in its previous market reports. And, as the authors point out in the report, growth in some markets can be much faster than the actual overall income growth.

It states; “Assuming a normal distribution of income, as average income per capita increases by 25% (which happened in the last three years), then the share of the population with income greater than $15,000 increases from 2.3% to 15.9%. That’s nearly a sevenfold increase, which fuels the fast growth of premium categories and segments that are expanding at high speed. Likewise, the low-speed categories and sectors feel the opposite effects from the reduced share of lower-income earners.”Macroeconomics of two-speed growth patternsAccording to the big players of the consulting world, the 'premiumisation' trend shows no signs of slowing, occurring across all retail sectors in China. In recent months, EY Parthenon has reported China as the fastest growing market for luxury fashion, while McKinsey & Company found that 20 percent of Chinese consumers were ‘trading up’ to upscale packaged goods brands, with the firm earlier reporting a similar trend in the Chinese car market.

KPMG survey meanwhile noted that 70 percent of Chinese millennials expected to increase their consumption of luxury goods over the current year – with the generation on track to eclipse their older counterparts as the country’s biggest spenders in the consumer retail market within five years. This is backed by another recent survey report from Big Four rival Deloitte, which found that Chinese millennials were brimming with personal and national economic confidence

Bain, too, previously reported Chinese millennials as the primary drivers in the luxury segment, and in a parallel future retail trends report to the most recent FMCG survey, stated that those born after the 90s will consume at greater rates with higher standards for quality and variety. Companies then, the firm contends, will need to develop premium products to meet those demands.