For­eign firms find the go­ing tough in China’s FMCG mar­ket

China Daily (Canada) - - FRONT PAGE - ByWANG ZHUOQIONG wangzhuo­qiong@ chindaily.com.cn

Growth slowed fur­ther in China’s fast-mov­ing con­sumer goods mar­ket dur­ing the first three months of the year, with for­eign brands see­ing a steeper ero­sion in mar­ket share, an in­dus­try re­port said on Wed­nes­day.

Fast-mov­ing con­sumer goods saw growth drop to 4.4 per­cent dur­ing the first quar­ter of 2015 from nearly 12 per­cent be­tween 2011 and 2012, ac­cord­ing to a re­port jointly pub­lished by global man­age­ment con­sul­tancy Bain & Co and mar­ket re­search firm Kan­tar World­panel. The re­port tracked the shop­ping be­hav­ior of house­holds.

There were, how­ever, some in­ter­est­ing high­lights in the study. Skin care prod­ucts were the sole ex­cep­tion among all prod­uct cat­e­gories and saw sig­nif­i­cant growth re­bounds in the last part of 2014 and early this year.

“Chang­ing shop­ping habits of con­sumers, the rapid ex­pan­sion of online chan­nels and pric­ing dy­nam­ics have put the brakes on FMCG com­pany growth in China once again,” said Jason Yu, gen­eral man­ager of Kan­tarWorld­panel China.

Among the 26 FMCG cat­e­gories span­ning the four largest con­sumer goods sec­tors — per­sonal care, home care, bev­er­ages

40,000

Chi­nese and pack­aged food — vol­ume, not price, is largely re­spon­si­ble for the slow­down.

Growth in spend­ing per house­hold re­mains much lower than China’s dis­pos­able in­come growth rate, which is re­flected in the to­tal fast-mov­ing con­sumer goods vol­ume— which re­mained flat at about 0.1 per­cent in 2014 com­pared with 2013.

Re­tail­ers ex­hib­ited dif­fer­ent pat­terns of growth with hy­per­mar­kets’ growth rate slow­ing from 7.9 per­cent in 2013 to 3.7 per­cent in 2014 due to de­clin­ing traf­fic. Con­sumer de­mand at smaller for­mat su­per­mar­kets, mini-marts and con­ve­nience sto­ries re­mained rel­a­tively sta­ble dur­ing the same pe­riod.

How­ever, e-com­merce con­tin­ues to reign supreme in China, the largest dig­i­tal re­tail mar­ket in the world. Online sales now rep­re­sent 3.3 per­cent of all FMCG goods with sales grow­ing by 34 per­cent last year. Chi­nese con­sumers are also rapidly mak­ing the leap to mo­bile re­tail.

In China’s lower-tier cities, the im­pact of the slow­down was min­i­mal due to in­creas­ingly health­ier sales growth— 8 per­cent com­pared with 2 per­cent in first- and sec­ondtier cities — which ac­cel­er­ates Chi­nese FMCG com­pa­nies gain­ing share over for­eign com­peti­tors, said Yu.

Last year, on an ag­gre­gate ba­sis, lo­cal brands gained share in 18 of the 26 cat­e­gories in the Bain and Kan­tarWorld­panel study and grew on av­er­age by 10 per­cent. They now ac­count for ap­prox­i­mately 70 per­cent of the mar­ket value of these 26 cat­e­gories. Mean­while, for­eign brands, also on an ag­gre­gate ba­sis, gained share in only eight cat­e­gories and grewby a mere 3 per­cent.

Bruno Lannes, part­ner in Bain’s greaterChina con­sumer prod­ucts prac­tice and co-au­thor of the re­port, said: “Con­sumer be­hav­ior and new mar­ket trends have led FMCG com­pa­nies, both for­eign and lo­cal, to take a hard look at their cost struc­tures and op­er­at­ing mod­els. Cost-sav­ings and faster de­ci­sion-mak­ing and ex­e­cu­tion will help at­tract more shop­pers.”

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