SHANGHAI: China's urban FMCG market grew 3% to about $190bn in 2016 and Chinese brands were the main beneficiaries as they captured greater market share at the expense of their multinational competitors, according to a new report.
Research firm Kantar Worldpanel and Bain, the management consultants, surveyed 40,000 households in China and revealed that Chinese brands expanded their sales by more than 8% last year while global brands saw their sales increase by just 1.5%.
What's more, multinational brands, including giants such as Procter & Gamble, Nestlé and Unilever, lost market share in 18 out of 26 FMCG categories while gaining just four, the Financial Times reported.
According to the study, international brands have been slow to adapt to rapidly changing consumer habits in China, where there is growing demand for premium brands.
These high-end products were traditionally the preserve of multinational brands, especially in cosmetics, but it seems consumers are switching to domestic brands, which are more focused on their home market.
For example, foreign brands lost close to 4% of the shampoo market between 2015 and 2016 as little-known Chinese brands gained ground. These included Seeyoung, which launched a silicone-free shampoo ahead of its overseas competitors.
Meanwhile, Chinese firms Huiyuan and Nongfu have done well in the juice market after marketing and packaging not-from-concentrate juices as health drinks, which has come at the expense of PepsiCo's Tropicana brand.
"Multinational brands are moving backwards while local brands are jumping on the premiumisation wagon quite well," said Jason Yu, General Manager of Kantar Worldpanel China.
He added that local brands are also benefiting from a consumer shift to online purchasing and "are moving fast in these areas and embrace ecommerce much earlier than the multinationals".
Bruno Lannes, a partner at Bain, agreed with Yu. "Multinationals have been slow to adapt to the speed at which the market is changing," he said, while suggesting part of the problem lies with the organisational structures of international companies.
They are "on the verge of becoming or have become bureaucracies," he warned.
Data sourced from Financial Times; additional content by WARC staff