Publications
Partners
Hong Kong - With green-tea flavoured 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.
Last year, China's $185.31bn consumer goods market grew 7.4% annually, half the rate of three years ago, according to a report from Bain & Company and Kantar World Panel.
Market share
In this tougher market, both local and foreign brands are targeting the same customers, and increasingly, the domestic firms are winning: nearly two-thirds of foreign brands surveyed lost market share in China last year, according to the report.
"The 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.
Understanding the needs of Chinese consumers has given local companies an edge. Privately owned Jiaduobao Group makes canned herbal tea which it says can put out internal "fires", playing on a concept in traditional Chinese medicine.
Middle class
"Our campaign around 'fearing internal fire' has helped our herbal tea become the highest selling canned drink in China...," said Wang Yuegui, a senior executive at the firm.
JDB accounted for 6.1% of the soft drinks market in 2013 by value, up from 4.2 in 2009, according to data from consumer consultancy Euromonitor. Coca-Cola had 13.1% while Pepsi had 3.9%.
With a population of 1.2 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%. The US economy, by comparison, is expected to grow at just 1.7%.
Chinese taste
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.
Hawley & Hazel, a joint venture owned by Colgate-Palmolive and its Hong Kong-based founders, makes Darlie toothpaste which leads the domestic market according to Kantar and Bain, playing to Chinese tastes with green tea and jasmine flavours.
Another popular toothpaste brand is made by Yunnan Baiyao, which uses its history as one of the biggest and oldest traditional Chinese medicine makers in the country as a selling point.
Taiwan-based drinks maker Tingyi Cayman Islands Holding, which bottles and distributes PepsiCo products in China, also says it makes a point of developing traditional Chinese flavours such as snow pear and pickled plum.
Volume growth
"There are a lot of things that Chinese prefer localised," 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 sales. It also offered shoppers discounts, like rival PepsiCo.
Coca-Cola, however, saw its market share drop more than 3 percentage points to 13.1% last year, while Pepsi fell 1.8% points to 3.9%, according to Euromonitor data.
Coca-Cola International president Ahmet Bozer said he was happy with the company's 9% sales volume growth in China during the second quarter.
"From a competitive standpoint, we are quite pleased," he said on a conference call with reporters.
