China holds opportunities for premium brands

07 August 2009

BEIJING: The Chinese market could prove to be a vital outlet for premium-priced brands during the downturn, as rising wealth levels mean more consumers in the country are interested in buying these types of products.

It has been argued that shoppers in the world's most populous nation are typically more restrained than their counterparts in many Western countries with regard to their spending habits, a trend that is said to have been reinforced among certain demographics during the recession.

According to Merrill Lynch, total household consumption in China stood at $1.6 trillion (£953bn; €1.1trn) last year, 35% of GDP, compared with $10.1 trillion, or 71% of GDP, in the US.

Moreover, the financial advisory and investment firm found that consumer goods made up just 12.5% of all Chinese imports in 2008, with capital goods taking a 23% share, and commodities 31%.

Speaking during a conference call with investors after Procter & Gamble announced its most recent results, Bob McDonald, the FMCG giant's ceo, said that describing China as a "developing" market was "somewhat misleading".

In support of this statement, he argued that "you've got more millionaires in China supplying premium products than you do in the United States."

This means that "in China we've got to have higher-priced products that meet the needs of those consumers looking for that kind of value," he added.

One example of P&G's activity in this area is Pantene Clinicare, a high-end haircare range that was originally launched by the company in Japan in 2008, and has since been rolled out in select Asian markets.

McDonald said that this product has used a "more exclusive distribution channel, and it's the best hair care technology we know how to put together." 

"We've got Chinese consumers buying that and liking that form of Pantene a lot," he said, demonstrating that potential customers in the country are not just "people lower in the economic pyramid.".

By contrast, in the US, "we've got a lot of Hispanic American consumers shopping in bodegas that we are trying to get similar great value offerings to where they shop."

As such, McDonald concluded, "really the key is having full portfolio in every single country."

Data sourced from Seeking Alpha/Asian Investor; additional content by WARC staff