No matter how the Chinese economy slows or the stock market stumbles, the country’s consumers will not stop washing their clothes or eating cup noodles any time soon. But multinational makers of fast-moving consumer goods are finding it harder to rely on the mainland to take up the slack for other parts of the world.
And with local brands fast grabbing market share for items from toothpaste to fruit juice, multinational consumer companies are finding it harder to compete, especially in lower-tier cities that account for much of the recent growth in the sector.
Growth in China’s FMCG market by value has slowed from nearly 12 per cent in 2012 to 4.4 per cent in the first quarter of 2015 year on year, according to a report from Bain & Co and Kantar Worldpanel. Overall FMCG sales volume was flat in 2014 compared with 2013, while average prices rose 5.4 per cent — more than twice the rate of inflation.
“The Chinese market has become more complicated for western players,” write Pat Dodd of Nielsen global retailer services and Ryan Zhou of Nielsen in China. Nielsen points out that domestic brands respond more quickly than many multinational brands to shifting Chinese consumer tastes.
“The local giants are fast on innovation and fast on distribution, Nielsen says. Local brands also have better distribution channels in lower-tier cities, which multinationals have done too little to penetrate, retail analysts say.
Consumers are changing where they shop for daily necessities, too. Purchases in hypermarkets have increased much more slowly than in smaller-format supermarkets and convenience stores. Ecommerce sales rose 34 per cent last year, Bain says.
And things could get worse before they get better: Chen Ke of Kurt Salmon says: “The stock market crash will affect customer confidence.” But Bain says only local brands understand local consumers is a myth. “Nestlé and P&G have been working in markets all over the world for a long time — markets that might even be more challenging than Chinese lower-tier cities. It just takes time.”