Of the 20 product categories examined in the BrandZÔ Top 100 Most Valuable Chinese Brands 2017, 12 increased in value, seven declined, and one registered no change. The ups and downs of the categories generally reflected the dynamics of China’s economic transition. Categories driven by consumption and the aspirations of the rising middle class were among the risers and categories driven by production, and those dominated by strategic State Owned Enterprises (SOEs), were more likely to decline. Several related trends crossed many categories, including: the influence of millennials; and the importance of e-commerce; and differences in how economic change impacted middle class and less affluent consumers.
The 6 percent rise in the BrandZÔ China Top 100 overall was less than half of last year’s 13 percent increase, and a narrower gap separated categories that gained or lost the most value. It almost seems as if the government levers moderating economic swings worked like a mood stabilizing drug, making the highs less high and the lows less low. This stability is precisely what the government intended to achieve with its supply-side focus aimed at removing the excess of the production-driven economy to match the demand of the consumption-driven era.
The categories with the greatest increase in value, travel agencies and education, grew 46 percent, significantly less than the 61 percent increase of last year’s value gain leaders, the personal care and jewelry retail categories. Conversely, the two categories with this year’s sharpest declines, baby care and jewelry retailer, lost 25 percent and 31 percent in value, respectively. Last year, apparel and catering declined most in value, 46 percent and 29 percent.
Two categories experienced extreme reversal of fortune, with jewelry declining from the top to the bottom of the value change list, and apparel moving in the other direction, from the bottom to near the top. Category-specific dynamics explain these changes. The jewelry retailer category was especially hurt by the decline in travel to Hong Kong, a center of jewelry retail sales. Apparel rebounded after a period of excess inventory and overstoring, with the sportswear sector aided by the government’s promotion of sports as a way to display Chinese soft power at international competitions.
The alcohol category value continued to climb, rising after a sharp decline three years ago, when the government first articulated its displeasure with extravagant official events and gift giving. Government policy has not changed, but brands of Baijiu, the traditional Chinese white alcohol, beer, and wine adjusted with brand building – or rebuilding – initiatives, including pricing and distribution adjustments, and greater attention to exporting. The value of the alcohol category increased 24 percent, following a 30 percent rise a year ago.
Cross category trends
Several trends crossed categories. In a phenomenon identified by Kantar Worldpanel, fast moving consumer goods (FMCG) categories targeting members of the urban middle class were more likely to grow in sales, while categories dependent on workers displaced because of lost factory jobs and other economic changes languished. Some categories, like alcohol, experienced a double effect. Sales of mass market beer weakened, but premium brands and imports strengthened.
Other categories that benefited from the aspirations of the rising middle class are travel agencies and education. Not only did the online travel leader Ctrip perform well, with a 32 percent rise in value, but newcomer Caissa targeted a niche group of travelers, people seeking a more upscale experience than the typical group tour. Both education brands grew significantly in value because of people’s desire to prepare themselves, and their children, for the evolving domestic and global economies.
The power of e-commerce drove the retail category, where three of the six brands are e-commerce leaders and two bricks and mortar brands had successfully implemented online and offline (O2O) strategies. In contrast, e-commerce created fierce price competition among diaper brands, and facilitated the easy market entrance of many international options. E-commerce forced banks to reinvent their businesses to face non-banking Internet competitors and better meet the needs of millennials.
The banks are also an example of how the government policy levers affected categories. With the decline in loan businesses because of less infrastructure or factory development, banks shifted to consumer businesses like wealth management. Similarly, the insurance category growth slowed when government regulation discouraged certain products deemed too speculative. Government intervention also slowed real estate sales to avoid overheating the housing business. The banks and insurance categories declined 6 percent in value. Real estate lost 14 percent in value after a leading brand became private and, therefore, ineligible for inclusion in the BrandZÔ China Top 100.
Conversely, the prospective phasing out of sales tax reductions for electric cars drove the car industry to record annual sales. The value of the car category rose 20 percent. The articles that follow describe in detail how these and other trends influenced the 20 categories and 100 brands examined in this report.