Local brands big challenge in China
While the new Chinese economy offers a sea of opportunity for foreign consumer goods brands, it is critical these brands know their consumer and category, have a deep understanding of regional dynamics, and pick their battlefields wisely.
The fact is, foreign brands have been losing ground in China for some time.
In food and beverage, there is almost a renewed sense of nationalism and growing distrust of foreign products – either not being as good as originally perceived, or because of heightened publicity about Western diets causing obesity and other lifestyle diseases.
Kantar Worldpanel’s 2016 brand footprint ranking shows Chinese consumer brands continuing to outperform their global counterparts, dominating the top 10 for frequency of purchase during the past year.
Chinese dairy company Yili moved up one notch from a year ago to first place because of continuous innovation of its premium products, seeing it reach new consumers in lower-tier cities. According to the report, Yili’s products were chosen by 88.5 per cent of the population, on average 7.8 times a year.
While China is growing rapidly, the growth is greatest in the smaller cities. It is also the smaller cities where the competition is most fierce. As the consumer goods market slows, foreign brands are being forced to expand from top-tier cities to lower-tier cities where local brands have traditionally dominated.
However, local brands are starting to adopt the sophisticated strategies of their global competitors to gain the advantage. They are also capitalising on the trend for consumers in these areas to ‘trade up’ by growing their premium product options. According to BCG Perspectives, many Chinese consumers wanting to trade up prefer local brands, particularly in F&B, healthcare and nutritional products, and household goods.
Contrary to popular belief, Chinese consumers en masse do not make purchase decisions based solely on foreign status, with some exceptions in categories where a country’s ‘clean and green’ image is important (like infant formula).
We casually interviewed six people for this story in both younger and older age groups, and overwhelmingly local brands were perceived as catering more to Chinese tastes, cheaper and providing more value, and were more readily available. Foreign products were favoured when there was not a local equivalent and they were seen as unique (‘I buy manuka honey because it’s good for my health – it’s really special, and you can’t find a local version of it’).
Trust is the single biggest factor in trying a new brand, then new flavours – but only from a brand already trusted. However, there are some distinct differences between the younger and older age groups.
For the older generations who have had little to no exposure to outside brands, they are quite satisfied with the Chinese brands they have been using most of their lives. They don’t read English and are much less accepting of foreign products. Heritage is particularly important for older generations, with our survey group citing a preference for brands with a long history and good reputation, like Maling, whose canned food has been enjoyed by three generations of Shanghainese.
When trying new products, a trusted recommendation was most important. Says one woman: ‘I won’t try new things unless there’s a trial, or it is recommended by a platform I trust. I’ve seen manuka honey many times on OCJ [a TV shopping channel in Shanghai]. I trust OCJ very much, so I decided to have a try.’
However, millennials and even the 30 to 39-year-olds tend to be more accepting of foreign brands and either shop for some products in higher-end import grocery stores (like City Shop, City Super, Lotus and Ole in Shanghai) or stores with imported goods sections.
There’s also this feeling of it being more hip and modern, making them look ‘in the know’ to their peers. They are also quite interested in trying new things and are particularly fond of foreign snacks and chocolate. ‘I like European chocolate, from Italy or Switzerland, as it is not so sweet compared with Chinese chocolate,’ one woman said.
The younger group preferred to buy foreign brands made locally. Says one college student, ‘I like Lay’s and Mars. They have been with me since childhood, they know my history and I trust them. I also like the diverse flavours and I think they are affordable.’
It all comes down to most people wanting to support their home brands over imports when possible, particularly if those brands have invested in building their trust.
Clint Smith is a director at The Silk Initiative, a Shanghai-based F&B brand-strategy and insights consultancy. This article first appeared in the July issue of Inside FMCG. Subscribe now.