1、LOCAL INSURGENTS SHAKE UP CHINAS “TWO-SPEED” MARKET China Shopper Report 2018, Vol. 2 Founders Mentality is a registered trademark of Bain Chinas “New Retail,” which is redefining the roles of consumers, merchandise and stores; and Chinese consumers growing preference for products that improve their

2、 lifestyle, health and wellness. We observe that insurgents making the most of these external factors exhibit traits of what we refer to as a Founders Mentality: an insurgent mission, a frontline obsession and an owners mindset. We see this in three important areas. First, local insurgents rely on c

3、onsumer-focused innovation in product, branding and assortment. Among their successful moves in product assortment: They focus on a few proven “hero” SKUs or product variants to eliminate unnecessary product complexity and ensure that the young brands limited resources are devoted to a very focused

4、message to the target consumers. YunNan BaiYao (YNBY, 云南 白药), with its Mint and Spearmint toothpastes, is a good example of this. Second, they take a localized approach to route-to-market and marketing. For example, without established offline distribution relationships, many insurgents focus on hig

5、h-traffic online platforms Local Insurgents Shake Up Chinas “Two-Speed” Market 5 such as Tmall and JD.com, and are quick to use up-and-coming social commerce and social media platforms like Pinduoduo (拼多多) and TikTok (Douyin，抖音). Also, more than half of the insurgents we evaluated, like ChaoNeng (超能

6、) in fabric detergent, launched their products in lower-tier cities first, a move that enabled them to avoid early competition from multinational brands. Finally, they create a nimble and agile operating model. Their lean, cross-functional organizations give them the flexibility and the freedom to a

7、dapt in-market. Instead of waiting for multilayers of discussions and approvals, insurgent brands can move quickly. Their local knowledge and entre- preneurial culture allow them to decide and adapt quickly to market changes. They test and learn and rapidly change course as needed without locking in

8、 significant capital expenditures. By establishing an ecosystem of partnerships, including co-manufacturers and co-marketers, insurgents remain asset light themselves. Instead of continuing to lose so much growth to these newcomers, incumbents can compete more effectively by adopting three critical

9、ingredients of insurgents success. We call it the 3D approach. DesignforChineseconsumers.Chinese FMCG consumers are unique among their counterparts in other markets. They also are changing fast. Incumbentsespecially multinationalsneed to localize in everything from product design to branding to mark

10、eting. While global experience is important, what is often more valuable is a local team that deeply understands both the Chinese culture and the latest trends: the significance of Traditional Chinese Medicine, for instance, or the shopping behaviors of the Chinese millennials born under the one-chi

11、ld policy. DecideinChina. The Chinese FMCG market is moving so fast that theres no time for decisions to travel from the local to regional to global headquarters for approval. Multinationals need to delegate innovation, marketing, distribution and other decisions affecting their China business to th

12、eir China teams as well as change their incentive systems to be more in line with local insurgents. DoitatChinesespeed.While incumbent brands by nature are typically less nimble than insurgents, they can take two proven approaches to boost their ability to act quickly on market opportunities. First,

13、 they can learn from scale insurgents like Alibaba and Tencent, which grew fast by leveraging an ecosystem. For example, an FMCG company can focus on core functions such as product development and marketing while relying on players in an ecosystem for other functions such as manufacturing and distri

14、bution. The other way to move swiftly to compete against insurgents: deploy micro-battles. These are small, achievable battles that later can be scaled. The micro-battle approach involves an extremely focused initiative that starts by attacking the hardest problem first and iterates on the solution.

15、 Cross- functional teams test and learn, with a willingness to fail quickly and adapt. It is a crucial mindset for getting on (or, getting back on) the fast track in Chinas two-speed FMCG market. Local Insurgents Shake Up Chinas “Two-Speed” Market 6 Figure1:.Fast-moving.consumer.goods.(FMCG).growth.

16、remained.low,.while.two-speed.growth. between.food.and.beverage.vs .personal.and.home.care.continued Note: Kantar has excluded cigarettes from total FMCG and updated all category data slightly in 2017, leading to minor changes when refreshed with previous years data Sources: Kantar Worldpanel; Bain

17、Bain National Bureau of Statistics of China Annual growth of urban FMCG market value (2012H1 18) Annual growth of urban FMCG market volume (2012H1 18) Annual growth of urban FMCG ASP (2012H1 18) ValueVolumeAverage selling price 0 2 4 6 8 10% 2012 13 7.8 1314 6.1 1415 4.7 1516 3.6 1617 4.3 H1 17 H1 1

18、8 2012 13 1314 1415 1516 5 1516 1617H1 17 H1 18 3.3 0 2 4 6% InflationGrowth without e-commerce 3.8 5.9 5.6 3.0 4.0 4.6 3 1 1 3 4% 2012 13 3.9 0.2 0.9 0.6 0.2 H1 17 H1 18 1.3 sectors: packaged food, beverages, personal care and home care.1 Combined, these sectors represent 80% of Chinas F

19、MCG purchases. This report, which updates the findings from China Shopper Report 2018, Vol. 1, As Shoppers Upgrade, Growth Returns, includes Kantar Worldpanel shopper behaviors data for the first half of 2018. The new data provides insights into continuing trends that are critical for brands as they

20、 set a course for growth in the worlds largest FMCG market. As we have seen for years now, packaged food and beverage categories took a noticeably different growth trajectory than personal care and home care categories. Packaged food and beverages showed weaker performance, with dropping volumes con

21、tributing to lower value growth (see Figure 3). Some brands managed to outperform by introducing healthier and higher-quality food or beverages. For example, new varieties that appeal to nutrition-conscious consumers helped the instant noodle category grow by 4.1% in value in H1 2018, driven by the

22、introduction of more premium SKUs by leading brands, like Golden Soup (金汤系列) from Master Kong (康师傅) and Magic Soup (汤达人) from Uni-President (统一). Similarly, the CSD category enjoyed a healthy 5.8% growth in H1 2018 through the growth of small packs and the success of healthier SKUs such as Sprite Fi

23、ber from Coca- Cola. Premium brands in yogurt, juice and milk still gained ground. But lower import taxes limited the growth in selling prices for the overall beverage category. Yet while some brands were able to com- mand slightly higher prices by introducing healthier and higher-quality offerings,

24、 the increase was not enough to counter the effect of overall declining volume in food and beverage categories. Local Insurgents Shake Up Chinas “Two-Speed” Market 8 Figure3:.Beverage.and.packaged.food.values.suffered.from.volume.decline,.while.higher.prices. boosted.value.growth.for.some.packaged.f

25、oods Note: Kantar has excluded cigarettes from total FMCG and updated all category data slightly in 2017, leading to minor changes when refreshed with previous years data Sources: Kantar Worldpanel; Bain Bain Bain Bain company annual reports; company tax reports 33 FMCG subcategories (value) Subcate

26、gory examples (value, B RMB) Across 33 subcategories, insurgent brands accounted for 6% market share but 20% of revenue growth For several subcategories, insurgent brands played an even bigger role in revenue growth contribution 50 0 50 100 150% Market share (2017) 12.5B Share of revenue growth (151

27、7) 0.3B 0.1B Market share (2017) 9.2B Share of revenue growth (1517) 2.0B Other brandsInsurgent brands JuicePackaged water 0 20 40 60 80 100% Market share (2017)Share of revenue growth (1517) Local Insurgents Shake Up Chinas “Two-Speed” Market 12 We tracked the fates of 29 high-growth insurgent bran

28、ds in the years 2013 to 2015. In 2015 to 2017 about half of them failed to maintain their more than 10% growth rate and nine actually suffered negative growth. Many factors come into play. While the overall FMCG growth slowdown accounts for part of the disappointing performance, some new brands fell

29、 victim to wrong channel strategy decisions, heavy debt incurred in overly ambitious expansion and an inability to innovate their products to respond to the rapidly changing needs of consumers. Blue Moon (蓝月亮), a brand covering fabric detergent, fabric softener, kitchen cleanser and personal wash ca

30、tegories, enjoyed 11% growth in 201315 but endured a negative 3% CAGR the following two years. In 2015, the company decided to exit most of its offline distribution channels (especially large supermarket chains) and shifted its focus to building an “O2O + direct sales” strategy. Blue Moon (蓝 月亮) ove

31、rlooked the importance of staying in the mind of consumers when they visit stores. As a result, it lost significant market share to key competitors. In late 2016, the brand decided to return to offline channels. While the move stopped the company from bleeding red ink, Blue Moon (蓝月亮) still needs ti

32、me to fully recover from its share loss. WuGuDaoChang (五谷道场) serves as another example of the fragility of Chinas FMCG market for insurgents. In its earlier years, the brand gained market attention by distinctly positioning itself as a “healthy” instant noodle brand. However, a number of external fo

33、rces led to the decline of this once high-growth brand, notably the slowdown of growth in the instant noodle category and the competition from established players. As a result, the brand suffered from double-digit decline in revenue in the last two years. Figure8:.In.Chinas.dynamic.FMCG.industry,.to

34、days.winning.brands.could.become.tomorrows.memory Note: Only includes brands that were tracked by Kantar Worldpanel in 2013, 2015 and 2017 Sources: Kantar Worldpanel; Bain Bain Tmall Taoshuju; Bain they have the flexibility to adopt or switch to new and alternative channels at will. Without establis

35、hed offline distribution relationships, many insurgents shift their focus to high-traffic online platforms such as Tmall and JD.com, even using those platforms to promote and sell products directly to consumers. These online engagements help brands quickly gain exposure and visibility among millions

36、 of potential consumers. Most insurgent brands also conduct localized content and topic marketing through popular social media and online platforms in China, notably Weibo, WeChat and the Chinese music video platform TikTok (Douyin, 抖音). Its not an accident that juice brand WeiQuan Daily C (味全每日C) i

37、s achieving record-setting growth and has earned distinction as consumers favorite juice brand in research conducted by CBNweekly for four years in a row. The brand conducted multiple content campaigns to continuously gauge interests among online consumers. Among the successful campaigns: “Say Hi to

38、 a Better Self” with MIGU Reading (咪咕阅读), a leading Chinese online reading platform; “Words Combination” with key opin- ion leaders through Weibo and WeChat; and the “Say Love” bottle. It also sponsors the popular TV series Love O2O (see Case Study No. 3). Unlike established brands, most young insur

39、gents do not feel the immediate pressure to launch products nationally. They have the luxury of selecting the right strategic market to enter. They test and refine their products in those markets, building consumer advocacy and brand image before expansion. This is the approach favored by many insur

40、gent brands appealing to the good-enough segment. Among the insurgents we evaluated, more than half launched their products in lower-tier cities, a move that enables them to avoid early competition from multinational brands. According to Kantar Worldpanel data, even today, many “good-enough” insurge

41、nts still have a higher penetration rate in lower-tier cities. Founder Qichuan Zhuang made the strategic decision to sell fabric detergent brand ChaoNeng (超能) in lower-tier cities, where he would encounter less direct competition from brands such as Tide and Omo. ChaoNeng (超能) was heavily marketed i

42、n Tier-3Tier-5 cities as a cost-effective brand, gaining strong recognition, which eventually helped ChaoNeng (超能) expand to Tier-1Tier-2 cities (see Figure 11). Insurgents also take a uniquely Chinese approach to marketing and consumer engagement. They typically rely on celebrities, hot TV series,

43、reality shows and key opinion leaders to increase exposure to mass audiences, both online and offline. Snack brand Three Squirrels (三只松鼠) collaborated Local Insurgents Shake Up Chinas “Two-Speed” Market 19 with the popular TV show Ode to Joy, whose lead actress was hired as the brands spokeswoman. T

44、he soft-marketing approach worked very well with the post-90s generation, the snack brands tar- get market. Similarly, Pechoin (百雀羚) heavily invested in popular reality shows such as The Voice of China in 201215 and Ice Fantasy, an epic drama hugely popular with Chinese youngsters, in 2016. It also

45、hired a Taiwanese superstar, Jay Chou, as its brand ambassador to enhance brand recognition (see Case Study No. 4). For their part, good-enough insurgents often focus their marketing on hosting local eventsan option that generates consumer engagement but requires smaller investment. For example, Fir

46、mus (飞鹤), an infant formula brand, hosted parent-child “space carnival” events in shopping malls in eight major cities. It proved to be an effective way for Firmus (飞鹤) to meet its targeted consumers, showcase its parenting expertise and encourage both on-the-spot and future sales. In addition, we s

47、ee many insurgent brands taking advantage of the creative opportunities made possible by New Retail. They are rolling out interactive shopping experiences and investing in personalized online advertising. When makeup brand Marie Dalgar (玛丽黛佳) introduced its automated “TO GO machine” and augmented re

48、ality (AR) mirror, it wowed store consumers with a novel shopping experienceand immediately boosted sales. Anagileoperatingmodel.Because they are young and entrepreneurial, most insurgent brands retain a nimble organization with an owners mindset. They outpace incumbents by having lean, cross- Figur

49、e11:.Most.“good-enough”.insurgent.brands.established.roots.in.lower-tier.cities,.even.more. so.than.other.top-performing.brands Sources: Kantar Worldpanel; Bain b) beverages: milk, yogurt, juice, beer, ready-to-drink tea, carbonated soft drinks (CSD) and packaged water; c) personal care: skin care, shampoo, personal wash, toothpaste, makeup, hair conditioner, diapers and toothbrushes; and d) home care: toilet tissue, fabric detergent, facial tissue, kitchen cleanser and fabric softener. Local Insurgents Shake Up Chinas “Two-Speed” Market 24 About the