A decade after a food adulteration scandal in which melamine-tainted milk and formula killed at least six infants and caused thousands to fall sick, Chinese formula makers, encouraged by the government, are investing in premium brands and special formulations to allay consumers fears.
That strategy that appears to be working: more than half (55%) of respondents to a survey by the User Research Institute of BabyTree, China’s leading parenting website, said domestic brands better understood Chinese consumers.
“This reflects a broader trend that indicates local brands are gaining traction among consumers in China,” said Wang Lei, head of the institute.
Citi Research predicts the market share of Chinese formula brands could hit 53% by 2022, up from 40% in 2015, in a market where domestic brands are growing around 2.5 times faster than foreign brands.
The latter have been able to ride the wave of prosperity that has swept the major coastal cities but they are now having to look to the interior of the country to maintain growth.
Thierry Philardeau, head of Nestlé’s infant nutrition business, told Reuters that lower-tier cities accounted for 47% of the baby formula market 15 years ago, but the share has risen to 73% percent today.
“People have more money to spend there and are catching up with the rest of China,” he said. “They are ready to pay a high price, but they need a more consumer-friendly communication, slightly less scientific, simpler,” he added.
Nestlé is planning to launch a new line of formula aimed at this market which will sit under one of its three existing Chinese brands (Illuma, S-26 and NAN) and which it will market differently.
Philardeau indicated Nestlé would be stepping up its presence on online platforms, using their distribution capabilities to reach provincial cities.
It’s an approach that has paid off for rival Reckitt Benckiser which has been able to enter 250 new Chinese cities in less than a year, Reuters reported, compared with the 18 months or more it might have taken to enter just 100 cities using a traditional feet-on-the-ground model.
Sourced from Reuters; additional content by WARC staff