China’s consumption upgrade hits coronavirus hurdle as consumers want more bang for their buck amid slowdown
- Spending on fast-moving consumer goods in the mainland fell 6.7 per cent in the first quarter, the biggest decline on record, study shows
- Kantar’s list of the world’s 100 most valuable brands in 2020 includes Alibaba and Tencent
“The middle class is grappling with an economic downturn and they will spend less,” said Derek Deng, a partner at Bain, adding that that pandemic has slowed China’s consumption upgrade drive.
He said that consumers were closely watching the prices of daily necessities such as milk powder, instant noodles and toothpaste.
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The category of FMCG refers to non-durable goods such as packaged foods, beverages, skincare products, shampoos and over-the-counter drugs. The Chinese government has been using the phrase “consumption upgrade” over the past few years to describe the growing demand for high quality, higher priced goods and services.
The coronavirus pandemic, which originated in Wuhan, in central China’s Hubei province, last December, has resulted in nearly three months of lockdown and home isolation since late January, largely disrupting production of goods and commercial activity across the mainland.
“The expected ‘revenge spending’ will not be enough to compensate the loss during the three months,” said Jason Yu, the general manager of Kantar Worldpanel China. “The whole-year figure for FMCG spending is set to drop in 2020.”
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In 2019, FMCG spending in China grew 5.5 per cent year on year, as consumers shrugged off gloomy sentiment about the bruising US-China trade war, pursuing a better quality of life. Consumption on packaged food products rose 1.9 per cent last year and overall spending on beverages grew 1.9 per cent. Spending on personal care products jumped 11.8 per cent.
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Some 59 per cent of the respondents in a survey of mainland consumers by the Boston Consulting Group in May said they were worried about their household financial conditions and would refrain from spending.
However, top brands remain attractive to consumers.
The pandemic has hastened the flight to value brands and accelerated the shift to online channels, said Bruno Lannes, another Bain partner.
On Tuesday, Kantar released its list of the world’s 100 most valuable brands in 2020. Seventeen Chinese brands made the cut, including Alibaba and Tencent, which were ranked sixth and seventh, respectively.
Kantar said companies that successfully wade through the Covid-19 crisis will see their brand value soar when the global economy recovers.