Chinese FMCG companies gain share as market growth slows

As single-digit growth settles in, foreign brands face fierce competition

China’s market for soft drinks, packaged foods, personal care and other consumer staples has slowed dramatically, by two-thirds since 2011. Foreign brands are feeling the most pressure, with 60 percent of those reviewed losing share in 2013—this according to the “China Shopper Report, 2014,” the third annual collaboration and study of the FMCG market in China by Kantar Worldpanel and Bain & Company ; released today at a press conference in Beijing.

Kantar Worldpanel and Bain’s survey, which tracked FMCG consumption of China’s urban households covering 12 quarters up to the first quarter of 2014, projects continued single digit market growth this year, a significant drop from recent years that is driven primarily by lower growth in disposable income and annual spending per household.

The study of 40,000 Chinese households and analysis of 106 product categories covers the personal care, home care, beverage and packaged good categories that comprise 80 percent of China’s non-durable consumer goods market. The study’s top findings:

• Market growth for non-durable consumer goods slowed to 4.6 percent in the first quarter of 2014, down from 10 percent growth in 2012 and 15 percent growth three years ago. The rate of decline was consistent across all cities regardless of size.
• Volume growth was mostly stable as pricing increases declined, in large part due to fewer new higher-premium products coming to market. Growth in annual spending per household dropped from 9 percent in 2012 to 4.6 percent last year, while the number of urban household grew 2.6 percent per year, contributing to volume growth.
• Offline shopping channels represented 97 percent of all purchases in 2013, but the nascent online sales channel is booming, and China is now the world’s No. 1 digital market. Online growth for all 106 product categories was 42 percent overall.
• Foreign brands overall lost share across the 26 categories studied in more detail. Some foreign brands did see marginal share gain, but the overall scorecard was negative, with 60 percent of foreign brands losing share.

“Our analysis shows that a key reason for fast-moving consumer goods (FMCG) growth deceleration was that the pace of premiumization slowed noticeably over the past year,” said Jason Yu, China General Manager of Kantar Worldpanel. “With premiumization slowing, CPGs were unable to easily push through the price increases that helped to drive growth in previous years.”

“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,” said Bruno Lannes, a partner in Bain’s Shanghai office who leads the firm’s Consumer Products and Retail practice in Greater China. “Building penetration means treating each consumer as a new consumer and recruiting them at each purchase occasion.”

The Kantar Worldpanel and Bain study, first of two this year, recommends investment in three brand assets to build penetration. These include:

• Spending on critical marketing touchpoints that will anchor a brand in consumer minds, such as advertising (above-the-line) and sales promotion (below-the-line) investments.
• Priority investment in so-called “hero” products that have greatest potential with shoppers.
• In-store asset investments that ensure that the most important products are always available and in the right place on store shelves.