The most successful CPG brands operating in China have adjusted their operations to take account of increased consumer spending power and the growth of omnichannel retail, according to consulting firm McKinsey.

In its latest Commercial Excellence Benchmarking of CPG companies, undertaken in collaboration with Nielsen, McKinsey suggests that “top-performing CPG companies develop a more granular view of consumers and local markets; make greater use of data; collaborate more closely, both internally and with customers; and adopt a performance-based mind-set”.

Between 2005 and 2016 the proportion of urban households in China falling into the ‘new mainstream’ income bracket (103,000- 222,000 renminbi or $16,000-$35,000) has leapt from 2% to 43% and is projected to rise to 66% by 2025.

Many of these are trading up to higher-priced brands in many CPG categories, but given the big differences in consumer behaviour across China’s cities, brands need a detailed understanding of local markets if they are to effectively tap those with the greatest growth potential, McKinsey advises.

They also need to appreciate the impact of online retail and how local retailers are developing a truly omnichannel offer that allows consumers to move seamlessly between online and offline touchpoints.

All the ‘winners’ in McKinsey’s Commercial Excellence Benchmarking said they understand the in-store consumer decision journey, compared to 63% of the ‘others’. And 80% of winners (but only 25% of others) said they understand the online consumer decision journey as well – which positions them better when partnering with local omnichannel players.

Additionally, many winners build direct-to-consumer capabilities through the Tmall platform, McKinsey added – initiatives which are less about generating sales than capturing consumer insights.

Decision rights are another area where there is a gulf between winners and others: winners place almost all commercial decisions in the hands of local or regional managers, rather than the global brand leader or global franchise leader, McKinsey noted.

“Empowering local managers by giving them decision-making authority is crucial to success in China,” it said.

Sourced from McKinsey; additional content by WARC staff