Retail in Asia

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Local insurgent brands are shaking up China’s FMCG market

Local insurgent brands are shaking up China's FMCG market

The first half of 2018 was a period of slower overall growth for the Chinese fast-moving consumer goods (FMCG) industry following a strong recovery in the second half of 2017.

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Urban shoppers total spending grew by only 3.3 percent during this time for several reasons, including a decline in gifting during the 2018 Chinese New Year and pre-load year end purchases.

However, the 3.3 percent growth rate was much higher than the 2 percent growth observed between the first half of 2016 and the first half of 2017, confirming the recovery observed in H2 2017.

In a trend that Kantar Worldpanel and Bain have tracked for six years, the sales performance reflects China’s two-speed growth trajectory, with personal and home care growing at a much faster rate than food and beverage.

The two companies’ joined report testifies of local insurgent brands gaining share from both local and foreign brands alike.

Bruno Lannesa partner in Bain’s Greater China Consumer Products practice and co-author of the report explains the success of the insurgent brands.

Their key features would be their entrepreneurial mission, Chinese consumers’ focused innovations, and more speed and agile operating models, which are giving them an advantage in China’s ever changing market. He says that if foreign brands want to compete, they need to adopt a more distinctly Chinese insurgent approach.

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Specifically, incumbents can battle back against insurgent newcomers by adopting a 3D approach:

  • Design for Chinese consumers. Chinese FMCG consumers are unique among their counterparts in other markets. They also are changing fast. Incumbents—especially multinationals—need to localize in everything from product design to branding to marketing. While global experience is important, what is often more valuable is a local team that deeply understands both the Chinese culture and the latest trends.
  • Decide in China. The Chinese FMCG market is moving so fast that there’s no time for decisions to travel from the local to regional to global headquarters for approval. Multinationals need to delegate innovation, marketing, distribution and other decisions affecting their China business to their China teams as well as change their incentive systems to be more in line with local insurgents.
  • Do it at Chinese speed. While incumbent brands by nature are typically less nimble than insurgents, they can take two proven approaches to boost their ability to act quickly on market opportunities – Rely on ecosystems and deploy micro-battles.

“Having proprietary insights on the uniqueness of Chinese consumers and  the China market is one of the most important tools that brands have at their disposal to connect with local consumers,” said Derek Deng, a partner in Bain’s Greater China Consumer Products practice and co-author of the report. “Understanding how and why these local insurgent brands are disrupting this market, is only one part of the battle. Foreign firms will need to plan out their strategy effectively, in order to both survive and win.”