- MAP Asia Pacific Ltd
Do foreign FMCG brands still have a place in China 2023?
The Fast-Moving Consumer Goods (FMCG) market in China is one of the largest and most dynamic in the world. With a rapidly growing middle class, increasing disposable income, and changing consumer habits, the demand for high-quality FMCG foreign products in China is on the rise despite the intensifying domestic competition. The lockdown and the pandemic had an adverse effect on the market. In 2021, the Chinese FMCG market experienced a sharp decline in growth, but a strong rebound in the first quarter of the year. Despite the market’s overall growth of 2.3% in 2021, growth rates for most product categories fell sharply during the second and third quarters of 2020, with a slight increase in the fourth quarter. Consumers have become more health-oriented, price-sensitive, and overall, more cautious. The pandemic has influenced consumption habits with consumers becoming more health-oriented, price-sensitive, and overall, more cautious. Aside from being cautious, Chinese consumers have also stockpiled FMCG goods in 2022. Baidu’s search index shows that as of December 12, 2022, the average Baidu search index for “stockpiling” increased by more than 329% YOY. Categories representing a new lifestyle, such as cheese and ready-to-drink coffee, grew in 2020 by more than 20%, while disinfectants and handwashing products fell by more than 10% in 2021. Local brands have the upper hand in competition with foreign brands in most categories. In 2021, e-commerce maintained growth, while O2O accelerated and doubled in sales in 2020 and 2021. Even in 2022, the O2O channels continued to grow despite consumer fears of infection risk. In the first three quarters of 2022 alone, the frequency of consumer shopping increased by 14.6% YOY which suggests consumers’ preference for instant gratification.
Chinese consumers have developed a growing preference for imported quality FMCG due to a range of factors. Foreign brands are often seen as more trustworthy and of higher quality than domestic ones, in part because of safety issues and scandals involving domestic brands. Imported products are also considered a status symbol among the growing middle and upper classes in China, with purchasing foreign brands signalling sophistication and wealth. Additionally, the wider variety of unique products and flavours offered by imported FMCG brands appeals to many Chinese consumers looking for new and exciting options. Will foreign FMCG brands continue to thrive in China in 2023? Foreign FMCG brands will still likely thrive in China despite the increasing dominance of local FMCG brands, but it would require careful market research and a strategic approach to overcome the challenges of competing in a highly competitive and culturally unique market. Greater variety and choices While today some domestic FMCG brands offer Chinese consumers often a greater variety of flavour choices, foreign brands are trying their best to stay relevant, and both innovate for China and bring their best unique products and flavours from around the world. For example, Lay’s and Doritos and other FMCG brands regularly introduce unique flavours to the Chinese market, such as cucumber and lamb. In 2023 the Chinese government seems to also start encouraging foreign investment and brands to enter the country to cater to its rapidly growing market. Similarly, in 2021, Nestle launched a range of limited flavours of their famous KitKat chocolate bars. To capture the hearts of younger consumers, they introduced a limited Chinese version called “Dandong Strawberry” flavour – inspired by Chinese strawberries in the famous Dandong area.
Foreign brands try to compete on a wider range of options within a particular product category to better appeal to Chinese consumers who are looking for new and exciting options beyond what is available from domestic brands. Coca-Cola, for instance, has experimented with new product formats, such as a drinkable yoghurt called “Vio” and their peach-flavoured Coke. Economic boost and investment FMCG brands have had a difficult journey in China since the onset of the COVID-19 pandemic. The pandemic has resulted in wide-ranging disruptions to the FMCG industry in China, from supply chain disruptions down to decreasing demand for products and services. While the pandemic has harmed foreign FMCG brands in China, the good news is that the market is beginning to recover in 2023 and is projected to continue to do so in the years ahead. Read More at https://daoinsights.com/opinions/do-foreign-fmcg-brands-still-have-a-place-in-china-2023/