Buyers are trading up
A self service check out.
The buying public's growing desire for premium items pushed up consumer goods spending by 5.2 percent last year.
The average selling price rose by 4.6 percent as consumers spent more on such items as high quality home and personal care products, according to the latest China Shopper Report from Bain & Company and Kantar Worldpanel.
The report, which covers 106 consumer goods categories purchased for home consumption in China, also suggests that the growth of online penetration in China may be reaching a limit.
The overall growth of consumer goods spending through online digital channels slowed slightly to 30.6 percent last year from an average annual increase of 35.1 percent between 2014 and 2018.
However, lower-tier cities are expected to grow for at least three or four more years to fuel online expansion.
The trend to trade up is particularly evident in personal care categories such as skin care, where luxury products grew at 13.7 percent in value, compared to average products growing at 7.7 percent.
Food and beverage expenditure was less marked with spending on packaged foods growing by 4.7 percent in 2018 thanks to solid volume growth. Beverage spending growth stalled at 1.5 percent, the result of a volume decline despite higher prices.
“While penetration and purchase frequency may be reaching their limits in some categories, there appears to be ample room for average selling prices to rise," said Bruno Lannes, partner in Bain’s China Consumer Products Practice and co-author of the report.
"The past two years of data on shopper behavior has shown that brands can still encourage trading up."
The report also suggests offline stores may be poised to regain their momentum with smaller and more flexible formats.
And the growth of home-grown brands has been impressive as they have been quick to address local demand.
“Executives in the consumer goods industry are faced with the option of whether to focus on growing existing big brands or building a portfolio of different brands to serve different segments," commented Jason Yu, the manager of Kantar Worldpanel China.
Offline retailers are advised to redesign store portfolios, make the store experience more attractive and digitalize operations to attract both online and offline shoppers.
