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

Date : 2015-07-02  | From : China Daliy

Growth slowed further in China's fast-moving consumer goods market during the first threemonths of the year, with foreign brands seeing a steeper erosion in market share, an industryreport said on Wednesday.

Fast-moving consumer goods saw growth drop to 4.4 percent during the first quarter of 2015from nearly 12 percent between 2011 and 2012, according to a report jointly published byglobal management consultancy Bain & Co and market research firm Kantar Worldpanel. Thereport tracked the shopping behavior of 40,000 Chinese households.

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

"Changing shopping habits of consumers, the rapid expansion of online channels and pricingdynamics have put the brakes on FMCG company growth in China once again," said JasonYu, general manager of Kantar Worldpanel China.

Among the 26 FMCG categories spanning the four largest consumer goods sectors-personal care, home care, beverages and packaged food-volume, not price, is largelyresponsible for the slowdown.

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

Retailers exhibited different patterns of growth with hypermarkets' growth rate slowing from7.9 percent in 2013 to 3.7 percent in 2014 due to declining traffic. Consumer demand atsmaller format supermarkets, mini-marts and convenience stories remained relatively stableduring the same period.

However, e-commerce continues to reign supreme in China, the largest digital retail market inthe world. Online sales now represent 3.3 percent of all FMCG goods with sales growing by34 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 increasinglyhealthier sales growth-8 percent compared with 2 percent in first-and second-tier cities-which accelerates Chinese FMCG companies gaining share over foreign competitors, saidYu.

Last year, on an aggregate basis, local brands gained share in 18 of the 26 categories in theBain and Kantar Worldpanel study and grew on average by 10 percent. They now account forapproximately 70 percent of the market value of these 26 categories. Meanwhile, foreignbrands, also on an aggregate basis, gained share in only eight categories and grew by amere 3 percent.

Bruno Lannes, partner in Bain's greater China consumer products practice and co-author ofthe 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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