Foreign consumer brands see declining market share in China

Want China Times, Staff Reporter 2012-10-07

Mutinationals like P&G are losing their market share steadily to domestic
 companies, who are expanding aggressively in first and second-tier
cities in China. (Photo/Xinhua)

Global companies selling consumer products, such as Procter & Gamble (P&G) and Unilever, are experiencing a decline in their market shares in China as they face growing competition from local rivals that dominated markets in smaller Chinese cities, the Chinese-language Global Entrepreneur magazine reported.

According to a report by Euromonitor International, P&G's market share in China's toothpaste market, which is dominated by foreign brands, had dropped from 20.8% to 19.7%, while Unilever's share slipped from 12% to 9.9%.

Such a development, the magazine said, was a the result of foreign and Chinese companies going head-to-head in the competition, as foreign brands permeated smaller Chinese cities and Chinese brands expanded into first and second-tier markets.

Earlier, foreign brands had targeted the higher end of the market and focused on modern retail channels, while Chinese brands established strong sales networks in the smaller cities, the magazine pointed out.

The integration of sales channels will further intensify the competition between foreign and Chinese brands, said Bruno Lannes, from the consultancy firm Bain & Company.

Despite the prominent influence of foreign brands, the magazine said, Chinese companies have the upper hand owing to their flexible strategies at the retail end, which, according to a Bain and Kantar Worldpanel report, requires more investment than advertising does.

The report also found that as the consumer and personal care products market became saturated, consumers display lower brand loyalty and are more willing to try different brands, making last-minute changes in their purchase decisions.

However, contrary to the report's suggestion, P&G is conservative in its investments at the retail end, with several retailers complaining about the small profit margin for selling P&G products.

Additionally, salespersons play a more important role than the brand itself in retail channels in smaller Chinese cities, where foreign companies are trying to get a foothold, the magazine said.

Meanwhile, the magazine added that Chinese companies are catching up with their foreign rivals in their ability to quickly introduce new brands or products. A P&G product developer even called the change introduced by China's Liby Group in its products as too fast.

In its bid to achieve faster expansion in the Chinese market, Japan's Kao formed an alliance with China's Shanghai Jahwa United Co last year, and plans to expand its reach from 90 Chinese cities to 650.

On the other hand, employees at some foreign companies told the magazine that their firms had become over reliant on discounts. They pointed out that over 50% of the sales of P&G's shampoos and Unilever's washing powders came from products sold at a discounted price, which might lead to a major crisis for strong brands.