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Chinese challenges: Sparking growth in a slowing FMCG sector

By Kacey Culliney , 26-Jul-2012

How can manufacturers prompt a surge in FMGC sales across China?
How can manufacturers prompt a surge in FMGC sales across China?

Manufacturers must refocus efforts on Tier III and IV cities in China and delve into e-commerce to re-ignite consumer spending in the fast moving consumer goods (FMCGs) sector amid a slow, according to analysts.

A new report from China-based consumer research firm Kantar Worldpanel has found that FMCG sales growth has slowed across the country’s four ‘key cities’.  Growth in Beijing, Shanghai, Guangzhou and Chengdu dipped to 11% in the second quarter ending 15 June (Q2) from 18% in 2011 for the same period.

Country-wide sector growth was pegged at 15%, “slightly behind” the annual growth rate of 16%, the report said.

Jason Yu, general manager at Kantar Worldpanel, told FoodNavigator-Asia that consumer willingness to spend has been weakened in light of an economic slowdown but things should change for Q3 in light of government activity to stimulate the economy and the expected recovery of gross domestic profit (GDP).

Kevin Der Arslanian, business analyst at China Market Research (CMR), said it comes as little surprise that FMCG sales value growth has been slower in Tier I cities, like those cited in the study, as they are “more mature markets when it comes to super/hypermarket penetration.”

To ensure future growth, Arslanian said that manufacturers must gain access to the fastest growing market within China: Tier III and Tier IV cities.

Targeting the lower-tiers

“Tier II cities, and particularly Tier III and Tier IV cities, have a lot of room for growth, driven by the shift in retail formats,” he said.

“They (manufacturers) need to secure emplacements within the supermarket chains that are most active in expanding into these cities,” he added.

Yu agreed that the “less developed, inland and lower tier regions” should be the future focus for driving growth in China’s FMCGs sector.

Harnessing online power

Arslanian said manufacturers must also consider moving online, as it gives them access to a far vaster market but warned that setting up “an effective logistics system to support the e-commerce platform is incredibly expensive, and not something that manufacturers should consider doing alone”.

“They need to work out deals with the major e-tailers,” he added.

Yu agreed that manufacturers must realise the benefits of working online but form a suitable trade strategy to balance main channels and emerging channels.

Arslanian suggested that if direct e-commerce was not an option, online marketing campaigns through videos, micro-sites and advertisements should be used to build brand awareness and thus drive online sales.

The Kantar report showed that more than 1 in 5 Chinese families now shop online for FMCG products. “The growth of e-commerce shows no signs of slowing with 58% growth in the last quarter.”

“The huge growth in e-commerce is seen across all city tiers as shoppers utilise the benefits that this channel offers such as cheaper prices, the convenience of delivery and access to brands that might not be available in their local stores,” it said.

NPD efforts a must too

Yu said that manufacturers must also consciously cater to new consumer demands with new product development (NPD) as well as new categories and formats to fit industry trends.

Products must be relevant to Chinese consumer needs, he said, for example the herbal concept is strong, along with premium image or value for money.

Arslanian added that quality and safety are also key focuses that manufacturers need to commit to.

“Purchasing goods that are not safe is the number one fear among Chinese consumers and a primary driver behind their purchasing behaviour. Consumers will continue to buy products they know they can trust, and manufacturers must emphasise the strict levels of quality their products are subject to if they want to continue to sell to Chinese consumers,” he said.

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