Local consumer brands growing faster in Chinese market: report

Chinese brands continue to edge up against foreign brands among fast-moving consumer goods (FMCG) in the key areas of packaged food, beverages, personal care and home care, according to the latest data.

A customer select products in a supermarket in Shanghai, June 12, 2018. [Photo: IC]

In fact, the trend has been present in each of the six years that consulting firm Bain & Co and consumer panel research company Kantar Worldpanel has been compiling its annual shopper report.

Its 2018 study shows that last year, the share of local brands grew 7.7 percent, contributing to a 98-percent share of market growth, while that of foreign brands increased by only 0.4 percent.

Bruno Lannes, a partner at Bain & Co, said the Chinese playbook reflects innovation, a better understanding of the market, and speed.

“Local brands have the ability to go to the market and track results, improve, change and launch new products at a speed that multinationals have a hard time to cope with,” he said.

Thus, the dilemma for multinationals, according to Lannes, is: “Can the benefit of their global scale – the fact that they are a multinational – really offset the national speed and innovation of local companies? The story so far has been no.

“In fact, the global scale doesn’t seem to be a competitive advantage as it may have been in other markets around the world compared to the speed and innovation rate of Chinese companies.”

That said, Lannes is of the view multinationals will come back – provided they transform their operating model big time by increasing the speed of decision-making and having a local research and development center to develop customized products for Chinese consumers.

Jason Yu, general manager at Kantar World Panel Greater China,o a co-author of the China Shopper Report 2018, believes the Chinese market is big enough for imported brands to continue to grow.

“This is partly because of China’s ongoing reduction in tariffs and Chinese consumers’ appetite for more imported brands,” he said.

“[And so], I won’t say that one trend will necessarily beat the other. We do think that on one hand, Chinese consumers want imported brands for their skincare but in terms of food and beverage local brands still play a majority part of the market.”

Premiumization trend to continue

According to the China Shopper Report 2018, the country’s value growth of FMCG rebounded in 2017, the first time since the report started tracking shoppers’ data in 2012.

The 4.3-percent growth last year is mostly driven by an increase in average selling prices, offsetting nearly stagnant overall volume growth.

Lannes said this means the average purchase per shopper is increasing and may not necessarily mean the prices of goods themselves are rising.

He expects the trend of Chinese consumers going premium to continue.

“The fundamentals are in place. There is clearly a strong economy, there is clearly the strategy of the government that wants to shift this economy from being dependent on industrial output to one more driven by consumption and services and technology,” Lannes said.

“The average income per capita has increased by a compound annual rate of 8.2 percent per year over the last six years so there is definitely more discretionary income to spend on some of those categories; and I think Chinese consumers are showing they are very discerning, sophisticated.”

Yu from Kantar Worldpanel agrees that premiumization will continue, driven by changes in China’s demographics.

“China’s going to become an aging society so there will be more older people and lesser younger people, and this is going to have an impact on a lot of the packaged consumer goods. But I think, more importantly, it’s the change in lifestyle and people’s aspirations."