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Business / Economy

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

By WANG ZHUOQIONG (China Daily) Updated: 2015-07-02 08:02

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 40,000 Chinese 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 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 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 second-tier 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 Kantar Worldpanel 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 grew by a mere 3 percent.

Bruno Lannes, partner in Bain's greater China 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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