What to Expect From the Shifting FMCG Landscape in China

For some time now, eCommerce has been growing in China. There is a confluence of three factors: digital pay is something consumers have been very comfortable with early on, delivery is cheap and safe, and the government has shown regulatory flexibility in terms of growing eCommerce.

One of the trends that is critical for eCommerce is livestreaming as it emerges as a new form of digital advertising. The possibility for consumers to engage and interact is a big asset of this marketing channel. WeChat has now livestreaming embedded to drive impulse purchases.

The past years have been dominated by livestreaming, and business has seen a remarkable turnaround by top livestreamers, some of them with an estimated reach of 30 to 40 million viewers per stream. Livestreaming caters mainly to the “Generation Douyin”, younger consumers with a shorter attention span.

However, these top streamers are not necessarily available or suitable for most foreign FMCG brands. There are other key opinion leaders, so-called “mini-livestreamers”, who might be worth engaging with. Not all clients are willing to do livestreaming, as it entails huge investments with no exact guarantee of sales uplift.

China’s FMCG market is characterized by a very different dynamic regarding brand building and digital advertising. Local competition is fierce and has heated up even further in recent years. China is a highly fragmented and fast-moving market, where what holds true today, might not be relevant anymore tomorrow.

Omni-channel services, such as speedy home delivery, QR code scanning, and self-check-out, have been widely adopted in major cities. The increasing internet penetration and ubiquitous use of smartphones help to unlock growth potential in rural areas and lower-tier cities. Also, the scale of China’s online grocery market is increasingly dominating the region.

The market’s dynamic has also changed in recent years because there is a lot of venture capital-funded brands that are willing to burn money to gain traffic. Not everyone is willing to or capable of putting money upfront before getting sales back in.

Many exporters think they only need to reach one percent of the 1.4 billion population to make it a success in China. It does not work that way. Another mistake is looking at China as one market, instead of a highly complex, diverse multitude of different markets.

It helps to look at China in a way you might think of Europe. What sells in Switzerland, might not sell in Portugal. For us at DKSH, we split the markets by tier, from tier 1 to tier 4. Even within the same tier, markets can be very different. As an example, chocolates generally sell very well in East China, because people there have a sweet palate. In North China, however, they do not sell well. In the same manner, in South China, chocolate is popular as a gift and less as a daily snack.

Trying to gain a foothold in China is difficult, costly, and risky. We have seen numerous foreign brands in the past that have underestimated the Chinese market. Some start as exporters, then, once volumes are required, they start filling up the market with excess stock that maybe the market cannot fulfill.

Wanting too much and too fast is often the root of the problem. Some brands who have overextended themselves decided to clear the excessive goods and sell cheap. Once you do that, you can never recover. Others exited the market completely.

It is crucial to manage the expectations, especially in the early stages of a market entry. The key is to compare apples to apples. Companies without set-up in China are sometimes dazzled by the size and the growth rates of the market. Also, due to their success in other markets, some clients expect to grow and gain market share in China way too fast.

For example, doubling sales in three years is an unrealistic statement. The idea of having sales before you eventually ramp up your overall investment is an increasingly unrealistic expectation in China.

For us at DKSH, 50 percent of our time is spent talking to the brands, explaining to them how to approach the market, managing expectations, and matching these with action plans. The other half would be following up the execution on a team level. A good strategy poorly executed is useless. I would rather have a 50 percent strategy that we execute 100 percent, than have a 100 percent strategy that is executed at 50 percent.

As for opportunities ahead, while the core growth remains in tier-1 cities like Beijing, Shanghai, Guangzhou, and Shenzhen, we expect significant growth in tier-2 cities like Chengdu, Nanjing, and Ningbo.