Foreign consumer brands are losing more market share to local players in China due to a weaker presence in smaller cities where growth is stronger, according to a study released on Wednesday.
Foreign players lost the most ground – between 3.8 per cent and 4.8 per cent – in personal-care products, fabric softener and cosmetics, it said.
The study, by global consulting firm Bain & Company and market research company Kantar Worldpanel, tracked purchases by 40,000 mainland households over three years and analyzed data in 106 non-durable consumer goods categories.
Domestic brands, it showed, gained share over their foreign competitors for the third year in a row, accounting for around 70 per cent of the market value in 26 categories. While losing in most categories, foreign brands did make gains in eight, including toilet paper, beer, hair conditioner and chewing gum.
“An important reason [for foreign brands’ declining share] is that they usually focus more on top-tier mainland cities and their products sell mainly through hypermarkets. But growth in these big cities has slowed in recent years and people are showing an increasing preference to shop online or in smaller supermarkets,” Bain & Company partner Bruno Lannes said.
Last year, the value of the overall urban retail market rose just 2 per cent, compared with 7.7 per cent growth in lower-tier cities.
Lannes said Chinese brands had become more competitive by investing more in marketing, better branding and greater penetration in both online and offline channels.
The mainland’s fast-moving consumer goods market has remained soft amid a sluggish economy in recent years, with the sector’s annual growth falling from 11.8 per cent to 5.4 per cent between 2012 and 2014.
According to the study, mainland consumers made fewer trips to hypermarkets, which still accounted for 27.5 per cent of sales value in the total urban retail market last year.
Traffic in supermarkets, mini-marts and convenience stores was stable, accounting for 45 per cent of the total.
E-commerce claimed just 4.4 per cent of the market but showed strong growth momentum, with a 34 per cent increase in sales value last year.
The study also found that mainland shoppers tended to trade up in categories linked to better health and quality of life.
They were willing to pay more for yogurt, toothbrushes, milk, bottled water, juice and skincare products. But they were more price-sensitive about products like kitchen cleaners, facial tissues and fabric softeners.
Text: Celine Sun, South China Morning Post 02-07-2015