Brands expand range
with premium products
COVID-19 slows innovation-driven value growth
Because of the COVID-19 lockdown, consumer spending on food and beverages plunged 7.7 percent during the first quarter of 2020, according to Kantar Worldpanel and Bain & Company analysis. But the impact and recovery trajectory varied by sub-category.
While sales of carbonated soft drinks remained steady, packaged water sales first boomed, when people stocked up on essentials at the start of the lockdown, then stabilized. Milk experienced a rapid initial decline, possibly because people had already purchased extensively for Chinese New Year. Experiencing a V-shaped impact, milked rebounded quickly. Juice and ready-to-drink tea experienced more a U-shaped impact, declining rapidly before plateauing and rising.
Across FMCG, COVID-19 accelerated the shift to online shopping. Consumers preferred larger brands they trusted, Chinese brands over foreign brands, and brands that offered value. The impact of COVID-19 slowed the rate of brand value growth that had resulted from successful product premiumization and innovation. The beverages category increased 1 percent in value.
Prior to COVID-19, the beverage category experienced a surge in online sales and greater promotion from online shopping festivals and live streaming on apps like Douyin and Kuaishou, which slowed average selling price growth. Across FMCG, competition from smaller brands and foreign brands intensified.
Sales rates varied within the category, with certain high penetration products like milk sometimes commanding a premium, while a product like infant formula gained in both penetration and premium, according to the Worldpanel division of Kantar.
The two brands that comprise the BrandZ™ beverages category, Yili and Mengniu, faced stiff competition from each other and also from competitors in related categories, such as snacks. To drive interest, especially among young consumers, the beverage brands accelerated the pace of innovation.
Aware of the vast choice available online, young consumers tend to be less brand loyal and more interested in finding unique products. To increase its appeal to young consumers, Yili extended its product ranges to non-dairy categories including water, coffee, cereal, and energy bars. Mengniu entered a joint venture with the Coca-Cola Company to introduce global dairy brands in China.
Because of these changes, and to be more consistent about category designations across the BrandZTM global and country brand value reports, the BrandZ™ China Top 100 introduced the beverages and food categories this year to replace the food and dairy category.
The leading brands faced increased challenge from new competitors that market exclusively on the internet, using social media to amplify their messages. These products are called in Chinese, Wang Hong. They primarily target young people. To reach this audience some of the major dairy brands, sold in stores throughout China, have created Wang Hong products.
To fully benefit from the rapid development of e-commerce and O2O channels, Yili and Mengniu were present in online stores, particularly on JD.com and Alibaba Group Holding Ltd.’s Tmall. They were also present in Alibaba’s Freshippo stores, formally called Hema, which links the brands with Freshippo’s reputation for freshness.
Both Yili and Mengniu continued to advertise aggressively and associate with global sporting events. Yili sponsors the Winter Olympics; Mengniu, the FIFA World Cup. These sponsorships reinforce the brands’ commitment to quality and to health and wellness and elevate the brand stature in China and potentially overseas, which is important as both brands are expanding to Southeast Asia.