SHANGHAI: FMCG brands in China continued to see declining market growth in most categories in 2014, but average price growth of 5.4% offered them a more positive outlook, a new report has shown.

According to Kantar Worldpanel, the consumer insights firm, and management consultancy Bain & Company, overall market growth across 26 categories in four sectors slowed to 4.4% in Q1 2015 after a high of 12% in 2011-2012.

Now in its fourth year, the joint report studied the shopping behaviour of 40,000 Chinese households and also noted that international brands are losing ground to domestic rivals.

Local brands gained share in 18 out of 26 categories in 2014, growing on average by 10% to take about 70% of the market.

Meanwhile, foreign brands grew by just 3%, their third consecutive year of declining share, and made gains in only eight categories, including beer and chocolate.

Despite the somewhat discouraging slowdown in volume growth, higher average prices in 2014 partially offset this trend with the study showing average prices rose by 5.4%, more than twice the inflation rate of 2.5%.

Premium goods, especially health-related products, fared well, but commoditised categories like soft drinks and fabric softener saw price growth lower than the inflation rate.

Not surprisingly, the study confirmed that the trend towards online shopping continued last year. Online sales increased by 34% and accounted for 3.3% of all FMCG goods sold.

"Consumers' shifting shopping habits, the expansion of online channels and pricing dynamics have put the brakes on FMCG company growth in China once again," said Jason Yu, China general manager of Kantar Worldpanel.

"These trends are forcing brands to quickly understand the changes in the market and successfully adapt to the 'new normal' they face."

The report went on to recommend that brands target lower-tier cities where there is faster growth potential and to ensure their product categories lend themselves to adding a price premium.

Prioritising a digital strategy is a must considering how many consumers are shopping online, and brands should make the most of growth in smaller sized stores.

Data sourced from Kantar Worldpanel; additional content by Warc staff