Across categories, disruptive brands grow faster than market average
Multiple paths lead to disruptive growth
by Jason Yu
Managing Director, Greater China
Worldpanel Division, Kantar
Enthusiastic shoppers swamped Costco’s first warehouse club store in Shanghai in August, as the world’s second largest retailer staged its debut in Mainland China. Despite the store’s suburban location, consumers in Shanghai flooded in to buy everything from Birkin bags and Kweichow Moutai liquor to Costco’s famous Kirkland Signature own-label ranges. The store had to suspend its business by early afternoon because of huge crowds.
The Costco experience suggests that Chinese consumers are always ready for the next new disruption, and, despite the slowing economy and trade tensions between China and the US, Chinese consumers are ready to spend, as indicated by their still-growing appetite for fast-moving consumer goods (FMCG). In the first three quarters of 2019, total FMCG sales monitored by Kantar grew by 2.7 percent, 6.9 percent, and 5.7 percent, respectively, maintaining the same pace as 2018. Despite higher inflation, consumers continue to trade up and the number of active brands grew by 4.2 percent. The entry of new brands resulted in intensified competition with the established players, but also brought new dynamics to the market.
Kantar also noticed that in both fast growing categories and maturing categories, there are always 20 percent star performers growing more than twice as fast as the market average. Some of them are new entrants to the market, and others are established incumbents. This development suggests that in today’s fast changing market, big or small players can always find their own disruptive path to growth. As China retail market continues to evolve, disruptive players win by excelling in at least three brand building practices:
- Identifying and fulfilling emerging and highly individualized consumer needs;
- Optimizing marketing investment with the most effective content and social media; and
- Integrating online and offline channels with innovations and collaborations.
Individualized consumer needs
Chinese consumers are increasingly sophisticated, and different consumer cohorts show distinctively different needs. Introducing products that tap into different usage occasions helped Nongfu Spring grow by double by digits, despite already commanding the largest share of the bottled water category. Over the past few years, the brand successfully launched products to serve a wide range of occasions, such as gifting and rice cooking. It also targeted products at special audiences, such as families with babies and elders.
ISDIN, a Spanish derma-cosmetics brand, focused on promoting different sun protection usage occasions.
ISDIN successfully promoted a broad spectrum of products for each sun care need, including, prevention, daily care, maintenance, treatment, and repair as Chinese consumers are increasingly conscious of the differences.
Content and social
Content and social media investment is gradually replacing the search-based media strategy to accelerate brand building and sales conversion. Kantar’s latest report suggested that 14 percent of consumers now purchase food and beverage products through WeChat (on a merchant’s or brand’s own Mini-Program), and the social-driven sales channel accounted for 16 percent of the incremental sales value of the sector. Short-video content continued to drastically change the way users consume content due to their increasingly fragmented lifestyles, where they only have time to engage with bitesize pieces of content.
Livestreaming took off and became a widely accepted means of promoting and selling products. This is largely due to live streaming’s strong appeal among consumers in China’s lower tier cities. Alibaba’s Taobao Live generated more than 20 billion RMB ($2.8 billion) in gross merchandise volume (GMV) through livestreaming sessions during the Singles’ Day shopping festival. Brands are also becoming increasingly savvy in their use of key opinion leaders (KOLs) to engage their audience and key opinion consumers (KOCs) to create user generated content on social media such as Little Red Book.
Further integration between online and offline channels is eliminating the border between the brick-and-mortar retail channels and the virtual world. Alibaba’s acquisition of RT-mart has accelerated the digital transformation of the hypermarket chain and the full adoption of an O2O platform across all its 400-plus stores throughout China. Starbucks is also advancing O2O convenience. Consumers in China can order their favorite drink from Starbucks and have it delivered by Alibaba’s Ele.me within 30 minutes. As part of its collaboration with Alibaba, Starbucks also opened “Star Kitchens” inside Freshippo stores, leveraging Alibaba’s supermarket chain’s fulfillment capabilities to enhance its delivery speed and reach. Recently launched “Coffee Express” service allows consumers to order their favorite drink before they arrive at the restaurant and then pick it up immediately.
In a rapid evolving marketplace like China, brands need to deliver disruptive growth. Creating superior products based on deeper understanding of individual needs is paramount. Brands will have to endorse an “Always On” content and social communication strategy to keep engaging with their consumers. Managing the mix of offline assets and online presence remains a critical challenge and presents excellent opportunities. Accomplishing these goals requires the deep market understanding that comes from research, planning, commitment, as illustrated by the Costco example. Its first brick and mortar store in China was not an overnight success. Before the debut of its physical presence in China, Costco gained insight about Chinese consumers’ taste and preferences through years of operating a Tmall cross-border e-commerce store.
In a rapid evolving marketplace like China, brands need to deliver disruptive growth. Creating superior products based on deeper understanding of individual needs is paramount. Brands will have to endorse an “Always On” content and social communication strategy to keep engaging with their consumers.