China | First In/First Out
FMCG brands recover, but speed varies, depending on product segment
Some shopping habit changes will continue in post-Covid era
Head of Expert Solutions
Kantar, Worldpanel division
Following the outbreak of Covid-19 in January, China’s FMCG market was significantly impacted as shoppers were confined to their homes. Sales started to decline during the week of Chinese New Year and experienced decline for six consecutive weeks. The fastest rate of decline was witnessed during the week after the New Year, the third week of February, when the FMCG market fell by 39 percent compared to the equivalent week in 2019.
However, from the second week in March, FMCG sales returned to growth. Now that China has started to return to normal across most of the country, many FMCG manufacturers are asking, how long will it take for the FMCG market to fully recover and what can be done to help accelerate this rate?
The speed of the recovery very much depends on the nature of the category and how impacted the category was during the peak of the outbreak. Some categories will show a “V-shaped” recovery, where there is a quick recovery, whereas other categories will have more of a “U-shaped” curve, taking longer to recover. Also, there are a handful of categories that were not negatively impacted, with some even experiencing stronger than expected growth during the pandemic.
Through analysis conducted by the Expert Solutions team at Kantar Worldpanel China, 98 FMCG categories were classified into one of four segments based on the performance they experienced both during the peak of the outbreak and whether they have experienced a fast or slow recovery during recent weeks as the Covid-19 situation improved.
Growth Categories: New or increasing demand
The categories appearing here fall into two main groups. Unsurprisingly, one group consists of products that can kill germs and protect you from the coronavirus such as hand wash, disinfectant and wet
tissues. During the peak, disinfectant saw phenomenal weekly growth of over 600 percent and hand wash reported over 200 percent growth in some weeks during February.
The second group are products that can be used for home cooking such, as bouillon, MSG, herbs and spices and tomato ketchup. Also, convenient in-home meals, such as instant noodles and quick soup experienced growth, catering to consumers who might not be as willing or able to cook from scratch.
Categories falling into this segment have a real potential to leverage this unexpected growth momentum by ensuring the consumers maintain the new habits they may have established during the epidemic. Sanitizing and keeping yourself protected from viruses will undoubtedly be a much greater concern for shoppers in the future, so brands that have these benefits or have the potential to extend brands into these benefits should put more focus and media investment here.
Cooking at home is likely to see a resurgence with many people learning to cook and improving their skills during the self-isolation. Also, many families will feel safer preparing and cooking their own meals rather than ordering take-away or going to a restaurant where there is a higher risk of infection. Consumers will be keen to continue these habits once the epidemic is over so for food brands it’s important to link the brand to in-home meal occasions, food safety and spending time with the family.
Limited Impact Categories: Essential and unaffected
Categories falling into this segment include dog food, cat food, toilet tissues, infant milk powder, packaged water and sanitary protection. These are categories that many households simply cannot live without, but you do not need to use more of during a pandemic. China did not experience the panic buying behavior of toilet paper that occurred in some countries, such as Australia and the US.
Another characteristic of the “limited impact” categories is that they are more likely to be purchased online compared to the other segments; 25 percent of the spending on the “limited impact” categories came from online versus just 19 percent for an average FMCG category. Online deliveries played an instrumental role during the pandemic, ensuring that households received essential products, and enabling them to safely self-isolate and avoid visits to their local store.
Looking ahead to the rest of the year a key consideration for these categories is how many consumers the online channel has won as a result of the outbreak. We know that this channel performed very well during the epidemic, winning new consumers and additional trips. Many consumers will continue this behavior for many of these type of categories. Manufacturers need to work with online retailers to ensure their brands can capture this increased demand, which will be critical for growth.
V-Shape Categories: Loss of consumption but quick to recover
Categories here experienced a significant drop in sales during the last week of January and last week of February but have been relatively quick to recover with many returning to expected weekly growth rates within six weeks from the week of the strongest decline. These categories include cooking oil, UHT (pasturized) milk, yoghurt, biscuits, nutrient supplements and laundry detergent. The reason these categories are likely to have experienced a sharp decline is either due to limited availability during the peak of the outbreak in shopper’s local stores or because many households deemed them unessential for a week or two during the peak. Also, many shoppers will have had excess stock already resulting from bulk purchases made in the run up to the New Year, which is often the trend seen for many categories, such as cooking oil and biscuits. However, these categories were quick to recover once shoppers felt it was safer to shop, and/or the excess stock in their home had been used.
One of the main concerns for these categories is that the lost or reduced consumption is unlikely to be compensated for later in the year. Chinese New Year is an incredibly important time for many FMCG categories. Because many households canceled their family gatherings, excess consumption simply did not happen, and that extra stock in shoppers’ homes was consumed in the weeks after the New Year. However, the fact that many of these categories have returned to their usual weekly growth levels shows that the demand is still there. Manufacturers will need to find ways to encourage additional usage occasions in-home to help compensate for the loss experienced during the peak of the outbreak. This can be done by capitalizing on holidays later in the year, such as Golden Week in October or through multi-buy promotions especially for those categories which are more expandable in their nature (i.e. if you encourage shoppers to buy more they will consume more, such as biscuits or soft drinks).
U-Shape Categories: Loss of consumption and yet to recover
These categories are ones which have experienced the worst impact as a result of the Covid-19 outbreak as they experienced a significant decline during the peak (generally worse than the decline seen for V-Shape categories) and six weeks later they were yet to show signs of a full recovery. Categories here include skincare, make-up, shampoo, Chinese spirits, wine, beer, chocolate and candy. Many personal
care markets have been hit hard by the coronavirus as people had to self-isolate during the epidemic reducing the demand for make-up and other beauty products. Many households self-isolated for almost two-months and with China only just now returning to normal we are yet to see these markets recover.
The reason for seeing alcohol and snacking products here is that people are more concerned with their health during the outbreak and want to keep their bodies fit and healthy in case they need to fight infection. This, coupled with the fact that many New Year celebrations were canceled, has meant a significant loss of consumption as well as the potential for lower future demand. The key for brands operating in those categories is to ensure that they can capture demand by emphasizing the benefits their brands can offer in the new era. Consumers will be more concerned with health but will also be looking to savor family occasions and social gatherings even more than before, given that they have been unable to do this for almost two months. Therefore, capturing these moments of happiness and time together can benefit both snacking and alcohol. The perception of beauty will become more care driven than before, and products that stabilize skin condition and provide extra nourishment will recover faster.
Brand, category recovery depends on Covid impact, future consumer needs
The path to recovery will be different for every brand and category as it depends on how the category has been impacted by the Covid-19 outbreak but also how consumers needs will change in the future. Below are areas that manufactures will need to understand in order to find the fastest path the recovery:
- Demand Forecasting Understand future demand post Covid-19 and how to compensate for lost usage occasions.
- Marketing Growth Drivers Know what elements of the marketing mix will help to drive sales after the epidemic: advertising, promotions, in-store activities, and distribution are likely to have different weights of importance post epidemic.
- Usage Occasions Identifying new usage occasions that have arisen as a result of the coronavirus will be critical in helping to capture future demand and developing new products to meet these new needs.
- Media Investment Optimizing your media investment will be more crucial than ever especially in the event of reduced budgets. Knowing whom to reach and how to reach them in the most cost-effective way will help to improve the return on investment.
- Channel Dynamics Online and O2O will be even more important channels post-pandemic, so understanding how people’s behavior changes when shopping via these channels will help to identify new growth opportunities.