SHANGHAI: With consumer spend stagnating in China’s megacities as a result of economic downturn, FMCG companies are turning to provincial China as the next frontier of growth, according to a senior Mondelez executive.
"E-commerce and Tier 3 and 4 cities are going to make up for more than 80% of our anticipated growth for the next five years," said Stephen Maher, Mondelez's President for China, at the recent Food and Beverage Innovation Forum in Shanghai.
Tier 3 cities are classified as those with a GDP between US$18bn and US$67bn with populations between 150,000 and 3 million, while Tier 4 cities are generally more rural, with fewer than 150,000 people and less than US$17bn in GDP.
(For more on how Mondelez is crafting its marketing strategy for Tier 3 and 4 cities, read WARC's exclusive report: Mondelez targets provincial China amid economic downturn.)
Maher explained that marketing to consumers in Tier 3 and 4 cities is more challenging, partly because TV channels and cable TV penetration become less impactful with provincial cities often on the losing end of media investment.
"Most consumers are not properly exposed to our brands," Maher said of the challenges of working in this environment.
"So, consumers might want to eat an Oreo biscuit, but they might not be aware that it is available some distance away."
And companies can't assume that products popular in Tier 1 cities will automatically find success in the provinces. They will need to work directly with local retail chains to build awareness of their brands in the smaller cities, rather than via a distributor – a different strategy from the one deployed in Tier 1 and 2 cities.
Companies may also need to adapt the product format, such as selling products in a format that enables store owners to self-merchandise on the cash counter, or put it on the shelves themselves.
"The market share of big companies drops off in small format retail, indicating that companies are trying to sell the exact same things in Tier 3 and 4 that they are selling in Tier 1 and 2 cities, and it is not working," said Maher.
"With Oreo we have the cookie jar, which in smaller cities, sells at 1 RMB and lends itself to self-merchandise format," he added, giving an example of how Mondelez has adapted.
Data sourced from WARC