Local brands cashing in on home advantage
Print Edition
WITH green-tea flavored toothpaste and pickled plum juice, an army of Chinese retailers is tapping local tastes to whittle away market share from global rivals that are banking their future growth on the world’s second-largest consumer market.
Senior executives at companies such as Coca-Cola, Procter & Gamble and Colgate-Palmolive are being forced to adapt as the challenge posed by local firms intensifies in a slowing economy.
China’s 1.15 trillion yuan (US$186 billion) consumer goods market grew 7.4 percent last year, just half the rate of three years ago, according to a report from Bain & Co and Kantar World Panel.
In this tougher market, both domestic and foreign brands are targeting the same customers, and increasingly, local firms are winning: nearly two-thirds of foreign brands surveyed lost market share in China last year, according to the report.
“Good domestic brands are closing the gap really quickly and are able to play off the idea that they know how to develop something that a Chinese person is going to want,” said Ben Cavender, a principal at China Market Research Group.
Local knowledge
Understanding the needs of consumers has given local companies an edge. Privately owned Jiaduobao Group (JDB) makes canned herbal tea which it says can put out internal “fires,” playing on a concept in traditional Chinese medicine. The firm also sponsors a TV talent show, “The China Voice.”
“Our campaign around ‘fearing internal fire’ has helped JDB herbal tea become the highest selling canned drink in China,” said Wang Yuegui, a senior executive at the firm.
JDB accounted for 6.1 percent of the soft drinks market by value last year, up from 4.2 percent in 2009, according to consumer consultancy Euromonitor. Coca-Cola had 13.1 percent and Pepsi 3.9 percent.
With a population of 1.4 billion and a rapidly expanding middle class, China is the largest consumer goods market after the United States and even with a slowing economy, remains key to the future of global brands.
China’s economy is expected to grow at its slowest pace in 24 years this year, but that’s still 7.4 percent. The US economy, by comparison, is expected to grow at just 1.7 percent.
Many of the Chinese firms taking on the international conglomerates are little-known abroad, but their local know-how is helping them broaden their appeal at home.
Traditional flavor
Hawley & Hazel, a joint venture owned by Colgate-Palmolive and its Hong Kong-based founders, makes Darlie toothpaste which leads the domestic market, playing to Chinese tastes with green tea and jasmine flavors.
Taiwan-based drinks maker Tingyi Cayman Islands Holding Corp, which bottles and distributes PepsiCo products in China’s mainland, also said it makes a point of developing traditional flavors.
“There are a lot of things that Chinese prefer localized,” said Bruce Rockowitz, chief executive of Global Brands Group and former CEO of global sourcing firm Li & Fung. “Foreign brands haven’t adapted well enough.”
In a bid to fend off competition, market leader Coca-Cola launched small-sized products, which helped boost its China’s mainland sales. It also offered shoppers discounts, like rival PepsiCo.
Coke, however, saw its market share drop more than 3 points to 13.1 percent last year, while Pepsi lost 1.8 points to 3.9 percent, Euromonitor said.
Even traditional strongholds for foreign brands are under attack, including the market for infant milk formula. That market is one of largest and fastest growing, expected to be worth US$25 billion by 2017.
Global firms like Mead Johnson Nutrition, Nestle, Danone and Abbott Laboratories have long dominated the segment, but they have increased tie-ups with Chinese partners and boosted domestic supply chains to protect their positions.
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