Premiumization in personal care categories as 2015 value sales (7%) outgrow volume (1%), similar trend expected into 2016
Convenience stores will continue to win consumers in the 2016 CPG market
A recent forecasting project by Nielsen estimates that sales of the total consumer packaged goods (CPG) market in China will grow slightly faster in 2016 than 2015, and consumers will continue to reach for increasingly premium, high quality products, especially those offering a health concept or benefit. Additionally, consumers are more and more demanding in terms of convenience, as smaller format retailers and convenience stores drive much of the growth. The study covers 35 CPG categories, taking into account major trends in the 2015 China market as well as the use of data modeling to forecast 2016 sales for the CPG market.
In recent years Chinese consumers have continued to urbanize, obtain higher paying jobs and increase their spending power. This ongoing trend is not only contributing to rising disposable income, but also to the creation of a much more sophisticated buyer who demands a high quality product.
Innovative manufacturers are riding the trend by launching more premium, high quality products with a segmented function or benefit. These niche products are catching the eyes of consumers, with the trend particularly clear in personal care categories where value sales outgrew volume at 7 percent compared with 1 percent respectively in year to date 2015. In categories like toothpaste, products in premium, higher priced segments like advanced whitening or multi-care are capturing consumer spending. Nielsen’s data shows that in year to date 2015, total toothpaste volume sales were almost identical to 2014, however value sales grew by 6.7 percent, a result of consumers switching up to more expensive products.
Similarly within the skin moisturizer market, premium benefits like hydration and sun protection are now driving sales, and despite volume growth of just under 3 percent compared with last year, total value sales grew by double digits to an impressive 13 percent. Nielsen’s forecasted 2016 numbers predict value sales will further outgrow volume for these categories as quality and premiumization trends continue.
“With the mobile internet now offering instant access to product reviews and social opinion, consumers are able to quickly educate themselves on product quality and value,” said Kiki Fan, Managing Director of Nielsen China. “As a result premium, high quality of life products are now becoming the norm, driving growth within the CPG market.”
Similar to a rising demand for premium, high quality products in personal care or household categories; food health and safety are ever-present in the minds of Chinese consumers as they shop for their family’s food and drink. In 2015, that meant a growing thirst for beverages which offer wellness or functional benefits and a hunger for healthy, natural foods.
In China’s beverage market, Nielsen reports steady yet modest growth, with just under 1 percent increase year to date 2015 compared to 2014. However, consumers are now looking for more from their beverages; creating an opportunity for innovative manufacturers that offer drinks with a functional benefit like increased energy for work or sports. Juice has a similar appeal as a healthy and natural option. Nielsen’s year to date 2015 data shows that functional drinks are growing at 7.6 percent and juice is growing at 4.7 percent compared to this time last year.
“Natural and health focused products are incredibly relevant to today’s consumer,” said Fan. “They want to live a healthy and fit lifestyle and are always thinking about food safety. At the same time, rising middle class consumers are willing to pay a premium for health and safety. This is a clear trend from the 2016 forecasted data.”
Convenience is another factor influencing China’s quickly evolving CPG retail landscape. Nielsen’s retail data shows that consumers are now spending more in smaller retail stores and chain convenience stores, while decreasing their reliance on larger stores like hypermarkets and supermarkets. Chain convenience stores alone accounted for approximately 9 percent of 2015 total CPG category growth.
The trend can be seen across categories. Household cleaning products saw an 11 percent rise in convenience stores, but a negative 4 percent drop in hypermarkets. Within food, instant noodles enjoyed growth of over 6 percent in convenience stores, while hypermarket sales suffered an almost 12 percent decline. Nielsen expects small format channels will continue to grow in importance, with 2016 forecasted sales in line with this trend.
According to Nielsen’s forecasted 2016 market size and sales data, the overall CPG market will grow at a steady pace; however brands can expect faster value growth than volume growth in many categories, as consumers trade up to new, premium products. For example, within convenience stores, total facial cleansers are forecasted to see 14 percent value growth with volume growing at only 7 percent. In terms of the types of products that will see the strongest growth, consumers will continue to make more expensive, high quality of life purchases in non-food categories. The forecasted data reinforces the spending power of Chinese consumers and their increasing demand for innovative products and concepts. Within food categories, this means products with safe, natural, and healthy concepts will further drive sales. Yogurt drinks are riding this trend, and forecasted to see high double digit growth in 2016.
In terms of retail store channels, Nielsen’s 2016 forecast shows that consumers’ demand for convenience will go on, and their spending will further shift from larger format stores like hypermarkets towards smaller retail channels. This is true even for household categories like laundry detergent, which is forecasted to see 2016 growth of 9.8 percent in convenience stores. For manufactures looking to win in the 2016 market and beyond, it is critical to obtain a clear picture of what the China landscape will look like in order to effectively appeal to evolving consumer demand.
Using sophisticated modelling and analytics techniques, Nielsen’s 2016 Sales Forecasting reports use existing retail sales data and market trends to forecast future retail sales. Over the past 30 years, we have created a global database of norms that can calibrate previous sales and trend data into actual sales forecasts. Nielsen is unmatched in our ability to produce reliable sales estimates and insight on the drivers of sales. All year to date 2015 data stated above refers to year to date September, 2015.
Nielsen N.V. (NYSE: NLSN) is a global performance management company that provides a comprehensive understanding of what consumers Watch and Buy. Nielsen’s Watch segment provides media and advertising clients with Total Audience measurement services across all devices where content—video, audio and text—is consumed. The Buy segment offers consumer packaged goods manufacturers and retailers the industry’s only global view of retail performance measurement. By integrating information from its Watch and Buy segments and other data sources, Nielsen provides its clients with both world-class measurement as well as analytics that help improve performance. Nielsen, an S&P 500 company, has operations in over 100 countries that cover more than 90% of the world’s population. For more information, visit www.nielsen.com.