Global brands face China challenge

Warc, 30 July 2014

SHANGHAI: A number of leading international FMCG brands are finding themselves having to adapt to growing competition from Chinese brands and retailers, which are using their local know-how to appeal directly to domestic tastes.

As reported by Reuters, major brands affected by this challenge include Coca-Cola, Procter & Gamble and Colgate-Palmolive.

Consultancy Bain & Company, working with Kantar Worldpanel, released a report at the beginning of this month that showed 60% of foreign brands lost market share in 2013 with falls recorded in 26 out of the 106 product categories studied.

Speaking when the report was released, Bruno Lannes, a partner in Bain's Shanghai office, said: "The market implications for both foreign and domestic consumer goods companies in China are clear and direct: growth must come from share gain, and share gain comes from penetration gain."

Reuters highlighted privately-owned Jiaduobao Group (JDB) as an example of a Chinese company successfully taking on global brands in the canned drinks market.

Its popular canned herbal tea brand, which is marketed around the concept of traditional Chinese medicine, has become the top-selling canned drink in the country, the company said.

Overall, JDB's share of China's soft drinks market has grown from 4.2% in 2009 to 6.1% in 2013 by value, compared with PepsiCo's share of 3.9% and Coca-Cola's 13.1% share. Euromonitor said these figures represented falls of 1.8% and more than 3.0% respectively since last year.

"The good domestic brands are closing the gap really quickly and are able to play off the idea that they know how to develop something that a Chinese person is going to want," explained Ben Cavender, a principal at China Market Research Group.

Other products with a particular appeal to Chinese consumers include tea-flavoured toothpaste and those that use traditional flavours, such as pickled plum or snow pear, which has a mild sour taste.

However, some international brands have responded by forming local partnerships to cater for these tastes, notably Colgate-Palmolive's Hawley & Hazel joint venture, based in Hong Kong, whose Darlie toothpaste has green tea and jasmine flavours.

Data sourced from Reuters, Bain & Company; additional content by Warc