China’s consumers go local for daily necessities

Patti Waldmeir
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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.

Growth in sales of daily necessities has tumbled in recent years — even before the latest market gyrations, which could further exacerbate the slowdown, retail analysts say.

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.

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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.

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"The economic slowdown is the main factor triggering the decline," says Chen Ke, partner at retail consultancy Kurt Salmon in Shanghai. Mainland car sales fell in June for the first time in nearly two years, with carmakers also blaming the slowing economy.

Beijing will announce second-quarter gross domestic product figures on Wednesday, after first-quarter growth that was the slowest in six years.

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"It's a different game for FMCG brands in China," says Bruno Lannes, a partner in Bain's China consumer products practice. "Without the advantages of volume growth or premium pricing, FMCG companies are seeking new ways to compete."

Foreign brands lost market share in 2014 for the third year in a row, according to Bain, with local rivals gaining share in 18 of the 26 categories surveyed for the report, including the four largest consumer goods sectors — personal care, homecare, beverages and packaged food. Domestic brands account for about 70 per cent of the market in those categories, Bain says, adding that what growth did occur in the sector primarily went to local brands.