With Chinese government’s easing of the one-child policy to allow all Chinese families to have two children since 2016, the number of births in China have been boosting steadily over the past few years, contributing to the significant pick up of the infant production industry.
China’s economy is growing positive with GDP growth staying at 6.8% – 6.9%. The consumer confidence in China is picking up steadily since the last quarter of 2016‘s 106 and has reached 114 in the third quarter of 2017, record high in the past three years. Price is no longer the key factor of consideration but product upgrade, and convenient purchase channels are the keys for parents. With the severe competition in the market, the driving force for further growth lies on consumption upgrades and innovations, according to Nielsen’s 2017 Chinese Infant Product Industry Report.
The “baby boom” – where the opportunities lie
With Chinese government’s continuous effort in promoting the universal two-child policy across China, the number of births has increased significantly with new born babies in 2016 reaching 17.86 million, a 7.9% increase as compared to the expected number of growth for the year and has reached its highest since 2000. A new round of “baby boom” has arrived. The impact has already been realized through the activation and return of the infant product industry. Coupled with the steady pick up of the Chinese economy over the past few years, the sales value of the infant products in China has reached RMB123.2 billion (Sep 2016 – Aug 2017), according to Nielsen data, which has recorded a 11% growth (compared to 3.9% last year).
According to data from Nielsen’s infant and retail channels, the sales value of the stage one infant milk formula has increased significantly by 17% in the second quarter of 2017 and this trend is observed to have extended to stage two infant milk formula which has recorded a 17.4% increase. However, the impact of the two-child policy doesn’t apply on all provinces in China.
“The impact of the adoption of universal two-child policy does not apply to all provinces in China. While some has shown very drastic increase, some provinces still recorded a relatively low birth rate. With this large group of affluent parents who are willing to spend money on their children coming up, their spending power on the infant product market cannot be neglected. It is therefore important for brand marketers to target at provinces with good growth potentials and identify their target parent segments, so as to maximize the profit and opportunities by reaching the parents with the right channels and the enhanced product choices and range,”said Vishal Bali, managing director of Nielsen China.
Chinese mothers don’t care about the price – consumption upgrade and convenience are more important
Looking into the specific consumption behavior of Chinese mothers, as compared with other parts of the world, price is less price-conscious when purchasing infant products for Chinese mothers. Instead, they are willing to pay a higher price for quality products. As many as 50% of the Chinese mothers said they valued the product brand than the price.
According to Nielsen’s analysis for the offline infant product market, it was found that consumption upgrade is the key motivating factor for the market growth, overriding the price increment and organic growth factor. When facing the large financial burden to nurturing a healthy baby, despite the need for consumption upgrade, most Chinese mothers are doing their upgrade tactfully and wisely in order to face. Report results showed that most mothers will only make purchases / do any bulk purchases during sales period in order to reduce the total expenditure on quality products.
Looking into specific channels, overseas online shopping rank high among the 34 fast moving consumer goods categories. Nevertheless, as many as 39% of overseas online shopper in China buys on these channels since the price is found to be relatively cheaper to buy on these sites than to buy locally in China, indicating consumers are now open to consumption upgrade through careful and wise planning and decision through all possible channels. Over half of the surveyed mothers also said they purchased on these overseas sites as foreign products are of better quality, indicating consumers’ continuous shift to purchase through these channels. The e-commerce channel is picking up well which accounts for 37% of the total sales channels for infant product in China, but is still dominated by the infant channel . Low-priced infant products continuously observed a downward trend while an upward trend is seen for products of other price categories.
Mothers are hectic when taking care of the baby as they need to multi-task all the time. Convenience in purchase has then become very critical for the infant product consumers which has been observed in all purchase channels. For online purchase channel, there is an increasing number of consumers who purchased infant products using their mobile phones with as many as 92% of Chinese mothers have visited the shopping sites via their mobile in 2017; whereas for those who used retail channels, convenient locations, at proximity to home and easily accessible are the key factors of consideration.
“Convenience is of utmost importance for consumers of all channels. It is therefore important for brands to maximize the convenience and streamline the purchase process to capture a larger amount of parents who are looking for fast and quality shopping experience,” Vishal added.
Driver of industry growth – quality product and innovation!
According to Nielsen’s retail measurement data of the 2017 China market (Sep 2016 – Aug 2017), the sales value of the key infant FMCG categories, i.e. milk pumps (36%), infant food supplement (20%), baby bottle (18%), diapers (17%), pacifiers (14%) and infant formula milk (13%), all have recorded double-digit growth.
By further analyzing the driving force behind the growth of sales value of the offline sales channel of various categories, it has been observed that consumption upgrades and production innovation are the key.
Consumption upgrade has no doubt been a trend for almost all infant products as Chinese parents are living a more quality life and is giving the best to their babies. Among baby food category, consumption upgrade has been realized in all categories. Parents are trading up the infant formula milk and food supplements to higher priced products. Among all price categories, the mid-priced and supreme-priced products have recorded a very strong growth, for example, first milk increases by 102%, follow on milk by 64%, infant food supplement by 32%. However, the supreme-priced products only account for a small portion of the entire market.
However, other baby products have seen a different trend with a strong growth in supreme-priced products which account for a key portion, especially the breast pump, contributed by some of the very famous overseas brands. And baby bottle increases by 50%, taking up the most market share.
Product innovation is another driving force of sales growth. According to Nielsen’s tracking of offline infant product market, in 2017, the contribution of new products to the total sales value has seen a decrease from 2016, such as formula milk decreasing by 31%, infant food supplement by 30% and diapers by 12%. The drive in sales growth by the new products are mainly due to the higher prices but not the sales volume. While the momentum is still on, the driving force through launching new products of old specifications will soon fade out. Given the situation, marketers should focus more on the product itself and identify the new growth point for the products with innovation.
With the continuous increase in importance of the online market for infant product, it has soon become the key driving force of the entire market; whereas for offline retail channels, baby shops remains at the most important channels with a steady growth. It has then been the key for marketers to better understand the selection criteria and motivation of their target parent customers to reach them and maximize their spending through the right products and right channels.