China's FMCG market slows

Warc, 4 July 2014

SHANGAHI: China's FMCG market is growing at one third the rate of three years ago with the share of foreign brands taking a hit in all categories according to a new study.

The China Shopper Report, 2014, from researcher Kantar Worldpanel and consultancy Bain & Company, surveyed 40,000 Chinese households and analysed 106 product categories covering the personal care, home care, beverage and packaged good categories. It found that the market grew at just 4.6% in the first quarter of 2014, well down on the 15% recorded in 2011 and the 10% seen in 2012.

This decline was in line with the slowdown in the rate of growth of household spending, which halved to 4.6% in 2013. In addition, fewer new premium-priced products were coming on to the market. "With premiumisation slowing, CPGs were unable to easily push through the price increases that helped to drive growth in previous years," noted Jason Yu, China General Manager of Kantar Worldpanel.

Volume growth, however, remained stable, helped by a steady 2.6% rise every year in the number of urban households.

Foreign brands lost share across the 26 categories studied in detail, the report said. While some did see a marginal gain, "the overall scorecard was negative" as 60% of foreign brands lost share.

In the carbonated soft drinks category, for example, the share of foreign brands declined 6.3 percentage while domestic brand Wahaha boosted its share 3.8 points using product innovation and large-scale marketing.

There were, said Bruno Lannes, a partner in Bain's Shanghai office, clear implications for both foreign and domestic consumer goods companies. "Growth must come from share gain, and share gain comes from penetration gain," he declared. "Building penetration means treating each consumer as a new consumer and recruiting them at each purchase occasion."

That meant investing in advertising and sales promotion in order to keep brands in consumers' minds; the study suggested prioritising "hero" products that had the greatest potential with shoppers.

Additionally, brands should invest in in-store assets to ensure that products were always available and in the right place on store shelves.

Data sourced from Kantar Worldpanel, China Daily; additional content by Warc staf