Report: Consumer goods show recovery in Q1, to maintain momentum this year

China's fast moving consumer goods (FMCG) sector showed signs of recovery in the first quarter, according to a report, and this trend is expected to continue in the rest of 2023 following modest growth last year.

Hit hard by the COVID-19 pandemic, China's FMCG sector grew by 1.5 percent in 2022, joint research released by Bain & Co and Kantar Worldpanel showed on Tuesday.

Despite a year-on-year value growth of 2.8 percent in the first half, and a 6.3 percent increase in the third quarter, it contracted by 3.9 percent in the last quarter of 2022, the report said.

Just as in previous years, local brands gained share from foreign brands last year, mainly through volume gains, while the average selling price (ASP) decreased for both local and foreign brands, the report showed.

Along with promising signs of a moderate economic rebound in the first quarter, overall retail sales (excluding auto) outperformed expectations by growing 10.5 percent year-on-year in March. The market's consumer confidence index trended steadily upward but has yet to reach pre-pandemic levels, it said.

The China shoppers report revealed that consumers are gradually gaining confidence as pandemic-related measures are optimized.

Overall, the FMCG sector reported a value growth of 1.9 percent in the first quarter compared to a year ago, driven by mild volume growth of 2.7 percent despite a decline in ASP of 0.8 percent.

"Although the first quarter's value growth rate might appear modest, the story is very different on a month-by-month basis. While January consumption was severely affected by a COVID-19 outbreak, the FMCG sector started its growth trajectory in the months after. Full recovery will take time, and we think the first quarter numbers are tracking well," said Bruno Lannes, a partner at Bain & Co based in Shanghai.

The recovery continued in April as the year-on-year FMCG growth rate reached 5.1 percent, approaching pre-pandemic levels. Meanwhile, overall retail sales, excluding auto, also saw a growth of 16.5 percent.

Across all four major FMCG sectors, packaged food and home care continued to grow, while personal care and beverages showed signs of recovery.

Due to sustained health awareness, home care continued to lead value growth at 13 percent year-on-year in the first quarter and increased in both volume (9.5 percent) and ASP (3.2 percent). Mainly driven by an ASP increase, packaged foods continued to grow 3.2 percent.

Yu Jian, managing director of Kantar Worldpanel in China, said the price deflationary trend starting from 2020 persisted in the first quarter, but became more divergent across categories.

"Some categories have continued to increase their ASP through strong innovations and by addressing consumers' rising health and hygiene needs," Yu said.

The reported also discovered trends including re-acceleration in e-commerce, soaring club warehouses, as well as sustained growth of online to offline.

"Chinese consumption is recovering, and the government has already implemented stimulus policies to boost consumption, with more expected," said Deng Min, a partner at Bain & Co.

The FMCG sector continues to demonstrate resilience. Consumers, brands and retailers are adapting to ever-changing circumstances. The industry's recovery is likely to take shape over the coming months, repeating a few trends from the first quarter of the year, Deng said.