Kraft, Pernod Ricard performing well in China

01 October 2009

BEIJING: Kraft, L'Oréal and Pernod Ricard are among the companies making successful in-roads in China during the downturn, but many of their rivals, both local and multinational, are finding the recession considerably more challenging.

While China is predicted to be one of the few major economies to enjoy growth this year, helped by the government's $586 billion (€401bn; £366bn) stimulus package, competition in the world's most populous nation is rapidly intensifying.

Writing in the Far Eastern Economic Review, Bruno Lannes and Kevin Chong, of Bain & Co, the consultancy, argued the Chinese market is also becoming increasingly complex.

One of the main factors contributing to this trend is the substantial variations that are observable between different geographical regions of the country, both financially and culturally.

The growing prominence of a number of domestic brands is also posing a challenge to foreign operators in a number of product categories, they added.

Procter & Gamble, Kraft and L'Oréal were described by the two analysts as examples of organisations which have exploited the financial crisis to improve their overall standing in China.

They have done so via “aggressive marketing, pursuing untapped customer segments, increasing profits through efficiencies and, when possible, acquiring struggling companies,” Lannes and Chong said.

Snow, the biggest-selling beer brand in the BRIC nation, has also taken over four of its smaller rivals, including Amber Breweries, strengthening its position against its major competitor, Tsingtao.

As a result, its volume sales improved by 20% in the first half of this year, while its revenues also grew by 25% over the same period.

Tsingtao, Darlie, an oral-care company, and Kangshifu, the beverage-to-biscuits group, were all defined as being “challenger brands” in sectors which have proved resilient in the slowdown.

According to Lannes and Chong, these sorts of properties should continue to try and build their brands, focus on consumer promotions, access new channels and attempt to cut costs.

By contrast, brand leaders in segments under more pressure, like luxury and consumer electronics, must try to both retain their existing customers and attract new ones.

Pernod Ricard, Suning and Haier are all in this group, and have looked to offer better value, improve their distribution networks, invest in branding and employ targeted promotions to achieve this goal.

By contrast, B&Q, the home improvement chain, constitutes a challenger brand in a struggling sector, and is now “paying a heavy price for expanding too rapidly in China.”

The DIY giant is closing a third of its outlets and reducing the size of many others, while also offering large discounts, modernising some stores, and aiming to increase its appeal among female shoppers.

Data sourced from Far Eastern Economic Review; additional content by WARC staff