Variety of forces tug on shoppers' purse strings

The government austerity drive and a slowing economy have dealt blows to the sale of consumer goods, particularly luxury brands and high-end products

China's slowing economy, as well as the government anti-corruption campaign, have weakened the growth of many international companies. Experts predict dimmer prospects for consumer spending this year.

Zhao Ping, deputy director of the department of consumer economics at the Chinese Academy of International Trade and Economic Cooperation, said retail sales growth stood at 13.1 percent in 2013, down from the 14.3 percent growth logged in 2012 and 17.1 percent in 2011.

Jason Yu, general manager of Kantar Worldpanel, a global researcher of shopping habits, said the sales of fast-moving consumer goods rose by 7.4 percent in 2013.

Although the figure seemed positive compared with the sluggish markets of Europe and the United States, they reflect an obvious slowdown from the double-digit growth of previous years, he said.

According to China Media and Market Trends of 2014, research conducted by CTR Market Research, sales growth for fast-moving consumer goods sank to 7 percent from 11 percent in the fourth quarter of last year.

"Such weakened growth has had a major impact on many consumer businesses," Yu said.

The austerity campaign designed to curb consumption of luxury products using public funds greatly affected the sales of high-end products and luxury brands in the country, Yu said. He cited foreign alcohol, wine and tobacco as examples.

"The macroeconomy has more or less curbed the desire to purchase," he said. "Consumers are reluctant to spend."

He observed that the buying of household items from State-owned enterprises or government institutions for employee welfare also has dropped significantly.

Food marketer Nestle and liquor seller Pernod Ricard SA attributed their weak results in part to struggles in emerging economies.

Many European companies had relied on sales in markets such as China, Brazil and Mexico to maintain revenue momentum while developed markets remained sluggish.

"The macro-environment in 2013 was one of soft growth, minimal in the developed world and below recent levels in the emerging markets," Nestle Chief Executive Paul Bulcke said. "2014 will likely be the same."

Nestle, based in Vevey, Switzerland, the world's largest food maker by revenue, said growth in its Asia Oceania Africa region, which contains the Chinese market, cooled to 7.4 percent in 2013 from 10.3 percent a year earlier.

Nestle, maker of Kit Kat chocolate bars and Nescafe instant coffee, said its full-year profit fell 2.2 percent to a worse-than-expected $11.16 billion. The company cited Hsu Fu Chi, a confectionery maker in China, as a weak point, because of the slowing down of the country's sweets market.

Spirits manufacturer Pernod Ricard has seen its sales slide over the past year after China's anti-corruption campaign curbed lavish banquets and the practice of gift-giving among officials and executives.

The Paris-based company warned that a sales decline in China would weigh heavily on the group's profits going forward.

"There will be a recovery, but we don't know when and how," Chief Executive Officer Pierre Pringuet said.

Pringuet said he remains hopeful the group will return to double-digit growth in China but the glory days of Chinese consumers sipping $2,000-a-bottle brandy may be over.

In January, Unilever Plc, which makes Ben & Jerry's ice cream and Dove soap, warned of uncertainty in emerging economies that likely will hold back growth.

The Anglo-Dutch company, which gets nearly 60 percent of its revenue from China, India and other emerging markets, said underlying sales growth fell to 4.3 percent from 6.9 percent a year earlier, the first drop recorded since 2009.

Snack maker Mondelez International Inc, based in Chicago, said organic sales grew 1 percent in Europe in the fourth quarter but dropped 6.1 percent in the Asia-Pacific region because of lower pricing across most of the region and a decline in China, where revenue had a mid-teens percentage decline.

Despite the policy shift and stagnant macro-consumption environment, Yu of Kantar Worldpanel cited a lack of competitive strategy as the major cause for weakened growth in the foreign consumer industry.

According to Kantar Worldpanel, in the past quarter, local retailers continued to see stronger performances than their foreign rivals.

But brick-and-mortar retailers continued to struggle as shoppers increased their visits to other channels, such as e-commerce, where prices and convenience are more competitive.

Among hypermarkets and grocery stores, the growth rate of international chains lagged behind local outfits with more adaptable strategies.

French grocer Carrefour SA reported a 1.4 percent increase in its fourth-quarter financial results, which was lower than its third-quarter results.

Because of a slowing consumer environment, sales generated by stores open for at least 12 months were down 3.1 percent. Carrefour's 2013 sales grew by 2.5 percent to 84.3 billion euros ($115 billion).

Yu suggested mergers and acquisitions would boost the revenue of international consumer companies in China. Last year, Yinlu, bought by Nestle, enjoyed a particularly strong year, helped by its new premium congees.

Purchasing power was released in the fourth quarter of last year. Yu expects the overall fast consumption market will slowly recover this year if there are no further negative policies.

Urbanization and China's new second-child policy should stimulate the consumer market, he said.

"The fast consumption market of 2014 is expected to grow 8 or 9 percent based on the increase of consumers' incomes," Yu said.

According to the Ministry of Commerce, in January, the consumer market was fueled mostly by holiday shopping.

Based on 5,000 key retailers monitored by the ministry, sales of food and beverages have increased 19.6 percent and 22.4 percent. The growth rates are 8.3 percentage points and 12.2 percentage points higher than that of a month ago. Sales in apparel have been up 13 percent, 9.5 percentage points more than those a month before.

Supermarkets and department stores have seen sales grow month-on-month by 16.5 percent and 14.6 percent, respectively.

Most of the recovering forces of the consumer market last year were highlighted on communication products such as smartphones and e-commerce with strong Singles' Day sales, she said.

The improving consumer market also was boosted by sales in basic sectors such as food, beverage and apparel, which kept a growth rate of between 30 and 40 percent.

Zhao Ping said consumption growth will hover at around 13 percent this year as a result of the lack of short-term policy stimulus and mild gross domestic production.

Challenges in raising salaries and hiring rates also will cut into the spending power of consumers, she said.