Insurgent Chinese Brands: Entrepreneurial brands defy FMCG slow growth
Both penetration and premiumization drive revenue
A group of entrepreneurial Chinese brands is greatly outperforming the slow growth pace of fast-moving consumer goods (FMCG). These brands increased almost 20 percent in revenue across 33 FMCG categories, between 2015 and 2017, while representing only 6 percent of market share.
Around two-thirds of these brands increased revenue at least twice as fast as their category average. And, in contrast to the FMCG market overall, where brands resort to premiumization to compensate for flattening penetration, the insurgent brands gained only 20 percent of their revenue growth from price and 80 percent from volume.
Kantar Worldpanel analyzes this phenomenon in its China Shopper Report: Local Insurgents Shake Up China’s Two-Speed Market. The report, completed with Bain & Company, studied 46 Chinese FMCG insurgent brands and found these defining similarities: Insurgent brands attempt to fulfill the unmet needs of Chinese consumers; and they accelerate decision-making and execution.
To maximize the effectiveness of limited resources, insurgent brands also share these three operating characteristics:
- They simplify their offering and focus closely on consumer desires, sometimes limiting their assortment to the most popular, fast-moving items.
- They communicate efficiently on high-traffic platforms, such as Alibaba and JD, as well as social media platforms like Douyin (known as Tik Tok outside of China), and many focus intently on lower-tier cities where multinational competition is relatively limited.
- They stay nimble and flexible, testing, learning, and revising, and they establish partnerships for manufacturing and marketing to reduce asset investment.
Several factors drive the emergence of insurgent Chinese brands. Digitalization lowers barriers to entry, and venture capital is available to fund digital start-ups. New Retail has opened niche opportunities for more personalized products, and it has diminished economy of scale advantages. In addition, the growing consumer preference for products that are healthy and respectful of the environment requires a level of innovation that sometimes is easier for smaller brands to achieve.
The emergence of insurgent brands is consistent with the FMCG sales volume trend that Kantar Worldpanel and Bain and Company have tracked for several years, with growth of food and beverages lagging the growth of home care and personal care. The insurgent brands also participated in the modest recovery of FMCG categories during the first half of 2018, when sales volume continued to decline, but average selling price increased 4.6 percent, yielding a 3.3 percent increase in total spending.
Competing with insurgents
requires a “3-D” approach
- Design for Chinese Consumers
Global experience is important, but it needs to be complemented by local consumer insight, and that generally requires local product design, branding, and marketing. These priorities become more urgent as trends rapidly change, often influenced by young people.
- Decide in China
Making decisions abroad can slow down the process and result in the wrong outcome. Systems for incentivizing local teams need to match the programs offered by the insurgent brands.
- Do it at Chinese Speed
Large scale does not automatically mean slow speed. Alibaba and Tencent, for example, grew scale quickly by building ecosystems rather than physical assets. FMCG multinationals can mirror this approach by owning some core functions, like product development and marketing, and relying on partners for manufacturing and distribution. Multinationals can also focus on narrow initiatives that can later be scaled.