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Looking Beyond COVID-19: The FMCG Sector – Fast-moving changes for fast-moving consumer goods in China

Shaun Brodie • 6/25/2020

FMCG (image)

Recent Development Trends 

Over recent years, the Fast-Moving Consumer Goods (FMCG) sector in China has enjoyed favourable industry growth off the back of a growing economy and consumer spending leading to greater retail sales. 

According to Standard Chartered, 10 years ago China’s nominal Gross Domestic Product (GDP) was worth $ 14.9 trillion in purchasing power parity (PPP) terms using current international dollars. In 10 years’ time, Standard Chartered estimates that this figure will grow to $ 64.2 trillion. 

As the economy in China has developed so spending power in the country has increased. This growing consumer potential has been consistently attractive to both overseas and domestic FMCG companies doing business in China. By 2019, average annual disposable income in China had reached RMB 42,359.0, up from RMB 39,250.8 in 2018. 
FMCG (image)
Increasing spending power in China is also reflected in retail sales. Over time, as spending power has increased, so total retail sales volume has grown,  reaching RMB 41.16 trillion in 2019, up 8.0% year-on-year (y-o-y). Moreover, if we separate out retail sales in China generated from online shopping at 19.5%, the 2019 annual volume y-o-y growth rate was more than double that of offline shopping. 
FMCG (image)

Given the importance of the Retail sector, the expanding market opportunities and the need to secure and service new business, FMCG companies have also steadily grown their organisations in China. Most large FMCG companies now have a very established business footprint in the country. Today, however, even with an established business presence, many FMCG companies are still seeking to expand their commercial activity. This is evidenced when examining office leasing activity rates in city markets around China. When considering the number of Grade A office leasing deals completed in China’s four first-tier cities between Q4 2018 and Q3 2019, companies in the Retail sector (which FMCG companies form a part of) were responsible for 3.5% of deals done in Beijing, 9.0% of deals done in Shanghai, 4.7% of deals done in Shenzhen and 6.4% of deals done in Guangzhou. 
FMCG (image)
The COVID-19 Impact 

The COVID-19 outbreak has brought about rapid changes across many sectors in China, and the FMCG sector is no exception.  

Thanks to high-speed Internet access, O2O platforms and online services, during the height of the outbreak Chinese consumers were able to effectively utilise ecommerce technology to ensure that they were able to conveniently shop for the everyday FMCG items they needed. 

79% of respondents to a recent consumer survey in China by Data100 said that 2020 Spring Festival consumption volume was down on the previous year. However, the impact of the outbreak on daily consumption was limited for 21% of survey respondents in China. 
FMCG (image)
We’ve also seen demand volume for FMCG items in China vary across generational groups and city tier classifications. 
FMCG (image)
From a product-specific perspective, we’ve seen the COVID-19 outbreak boost demand in China for household washing/cleaning/disinfectant products; food and beverage items, such as cooking ingredients and in-home meals; medicines and daily necessities. 
FMCG (image)
The Real Estate Perspective 

After assessing the changing nature of business and the different business platforms FMCG companies could utilise to optimise their businesses, the road to recovery will vary for every individual company involved in the FMCG sector in China.  

What’s more, to remain ahead of the game as much as possible, it will be important for every FMCG sector company in China to also understand:  

  • The business demand forecasts 
  • The new uses that have arisen for FMCG items as a result of the COVID-19 outbreak 
  • The various new products that could emerge from new usage 

When viewed from a real estate portfolio standpoint, we have seen major overseas and domestic FMCG sector companies already establish a comprehensive real estate platform across China, from R&D facilities, to manufacturing plants, to distribution warehouses, to offices, to retail outlets.  

Other newly emerging and fast developing FMCG companies are only just getting started and as their businesses expand, they will also look to continually enlarge their real estate portfolio footprint in China. Ahead, given the impact of the COVID-19 outbreak and also the long-term FMCG sector-related macroeconomics, many new business opportunities will appear.  

Accordingly, FMCG company executives and corporate real estate practitioners (whether they are working for established FMCG companies or newly emerging FMCG companies) will have to rapidly reassess the fast-moving and fast-changing situation. By doing this, they will be able to better formulate new real estate portfolio stratagems to ensure their companies are best positioned for future business growth in China for the years to come. 

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