Domestic FMCG brands are increasingly edging out their global rivals, a new study from Bain & Company has shown.
For the fourth consecutive year, Bain & Company has partnered with Kantar Worldpanel to study the shopping behaviors of 40,000 Chinese households.
As expected, the findings show a continued deceleration in growth for most FMCG categories. In terms of total value, China’s FMCG market has moderated in recent years, dropping from 11.8% in 2012 to 7.4% in 2013 to 5.4% in 2014.
One noticeable trend however has been a tussle between global and domestic Chinese brands for market share.
The study shows that in aggregate, local brands gained share over foreign competitors for the third year in a row.
In 2014, local brands gained share in 18 of the 26 categories in the study, and grew on average by 10%; meanwhile, the foreign brands gained share in only eight categories and grew by a mere 3%.
This period of moderate growth has been labeled the “new normal” for marketers of FMCG brands.
The study covers 26 categories spanning four large consumer goods sectors – personal care, home care, beverage and packaged food – that represent about 80% of all FMCG purchases.
In 2014, sales growth declined in each sector except personal care, which maintained its growth rate of around 8%.
Higher average prices in 2014 compared with 2013 in total FMCG partially offset the adverse volume growth trend. Average prices rose by 5.4%, more than twice the rate of inflation, with beverage and personal care products making the biggest gains.
While China’s higher-tier cities remain a critical market for FMCG players, sales growth was vastly higher in lower-tier cities (Tiers 3, 4 and 5). The value of the overall urban retail market only rose by a compounded annual rate of 2% in 2014, compared with 7.7% annual growth in lower-tier cities (Tiers 3, 4 and 5). Tier-2 cities have also witnessed a substantial deceleration – from 7.4% growth in 2013 to 2.3% in 2014.
As modern trade expanded across China, FMCG value purchased from traditional grocery stores grew by less than 1%. However, the expansion of modern trade reflects a major contrast. Under pressure, hypermarkets grew by only 3.7% in 2014, while supermarkets, mini-marts and convenience stores grew by 9%. Online shopping continued to boom, with total FMCG categories gaining in online penetration, frequency and volumes per order.
In aggregate, local brands gained share over foreign competitors for the third year in a row in the selected 26 categories. Domestic companies grew by 10% in 2014, on an aggregate basis, and continue to rule the market. They now account for approximately 70% of the market value of these 26 categories. These local brands have contributed the lion’s share of market growth in 2014 – as much as 87%.
Local companies won share over foreign companies in 18 categories, with the biggest gains occurring in skin care, fabric softener, color cosmetics, infant formula, juice and biscuits. Meanwhile, the foreign brands gained share in only eight categories including toilet tissue, beer, hair conditioner and chewing gum and grew by a mere 3%.