In China, say it with consumer
goods By Jayanthi Iyengar
If
you were a new company willing to enter the Chinese
market, where would you go and with which products?
According to a recent findings by CTR Market Research,
the leading market and media research company in China,
a smart answer could be: to the major cities with
fast-moving consumer goods (FMCG). CTR is a joint
venture between China International Television Corp
(CITVC) and TNS, one of the top three market research
groups worldwide.
The study throws significant
insights into current Chinese consumption patterns. The
patterns are generally known, but what is significant is
that for once, they are backed up by measurable
statistics. The study points out that urban Chinese
household living standards have significantly risen in
recent years. If one were to measure this growth in
terms of the average monthly household income (AMHI), a
widely accepted parameter for measuring such growth, the
AMHI has grown by more than 10 percent during the past
five years in the Tier 1 (most prosperous and populous)
cities. They include Shanghai, Beijing, Guangzhou and
Chengdu. From a marketer's point of view, they are
considered the most prosperous urban pockets of China.
In these cities, the average monthly household income
was about 250 euros (US$298) in 2003.
The top 10
cities include Tier 2, Tianjin, Xi'an, Shenyang, Wuhan,
Nanjing and Jinan. These have not been as prosperous,
but they are not far behind. The monthly household
income average in these cities was in the range of 200
euros during the same period.
Further, another
important development is that about half of the
population in Shanghai, Beijing and Guangzhou has
average monthly household incomes exceeding 200 euros,
while about one-fourth of the population in the
second-tier cities enjoys move than the equivalent of
200 euros a month per household. "To a larger extent, we
observe that wealth tends to be better shared among the
populations of the wealthiest cities," says CTR research
manager Emmanuel Harle.
Clearly there's a
significant pointer here for every marketer hoping to
penetrate the Chinese market - the wealthy are growing
wealthier in China. Also, the revenues of companies
selling in these markets is greater than those just
operating in the rest of China.
Where and how
are the rich in the top cities spending their disposable
income? The FMCG sector is a hot favorite, growing at
around 40 percent over the last five years. The CTR
survey takes into account 43 major FMCG products.
Furthermore, the consuming Chinese in these top 10
cities have spent 19 percent of total national consumer
spending in 2003 on FMCG. Also, half of this spending
was in food, while a third was composed of beverages.
Compared with beverages and other items, the share of
basic groceries, the mainstay of traditional consumers,
has fallen.
Gone are the days when Chinese
consumers spent the bulk of their salaries on basic food
items, such as bread and meat. They now hanker for
frozen foods, ready-to-eat snacks, sauces, ketchup,
biscuits, chocolates, milkshakes, yogurt, soups, wines,
beer, carbonated drinks, packaged fresh and flavored
juices, juice mixes, and so on.
A few cities
account for 40 percent of sales Another important
development to remember is that within the top 10
cities, Beijing and Shanghai together account for 40
percent of the total FMCG sales. In value terms, this
was roughly 3.8 billion euros in 2003. Broadly, this
means that the mecca of the Chinese markets lies in
Beijing and Shanghai. So late entrants to the Chinese
markets may be best advised to concentrate on these
centers to quickly corner a larger share of disposable
incomes - subject, however, to their own marketing
strategy - while those who are already ensconced
marketwise may wish to spread their wings to the
second-tier cities.
There's a word of caution,
however. Unlike most other countries, the Chinese FMCG
consumption pattern is uneven. It is concentrated in the
three "golden weeks" linked to the three national
holidays: Spring Festival or Chinese New Year (January
this year but changing with the lunar calendar), Labor
Day week in May, and National Day in October. "These
three weeks off [were] set up by the Chinese government
to stimulate consumption. Above all, the Spring Festival
period has the greatest impact on Chinese urban
consumption," says Harle of CTR.
In most of the
consuming markets, including the United States and
India, the child is an important decision-maker who
makes a significant impact on the family's spending
pattern. In China, this is all the more true. With the
Chinese government adopting a single-child norm, the
Chinese child and his or her likes and dislikes
significantly influence the way families spend their
disposable income.
Interestingly, the average
urban Chinese woman, the main family shopper, largely
draws her messages for FMCG purchases from television.
She shops in the hypermarkets, which are growing in
popularity and are set to become the urban Chinese
shopper's paradise. The urban Chinese is also
health-conscious, spending hours in physical activity
and in watching sports programs - and this has an impact
on food and other spending. A CSM (CVSC-Sofres Media)
-TNS China Sports Barometer conducted in 2003, with a
sample of 15-to-65-year-olds in Beijing, Shanghai and
Guangzhou, shows that urban Chinese now exercise
regularly. Walking (particularly in Beijing, Shanghai
and Guangzhou), playing badminton (Beijing, Guangzhou,
Shanghai), cycling (Shanghai and Beijing) and swimming
(Guangzhou) are the preferred forms of physical
activity.
The Chinese are great television
watchers. China boasts the world's largest prime-time
viewership, garnering about 500 million viewers every
evening.
The Chinese love for physical activity
is also translating into a following for sports
programs, meaning that television sports sponsorship is
increasingly seen as the preferred medium of getting
home sales message to consumers.
Giving gifts
important in Chinese culture Interestingly, the
Chinese do not buy just for themselves. They shop for
friends, relatives and business associates. Giving gifts
is a national tradition and habit, which partially
accounts for the concentration of sales during the three
national holidays. Companies offer gifts to their
employees. Employees give gifts to their clients,
relatives or friends. And business associates present
gifts to each other as part of business relationships.
Professor Joe Nan Zhou, head of the department of
marketing at City University of Hong Kong, explains,
"Traditionally, wine has been an appropriate gift for
the boss (to show respect), friends (to show
guanxi or relationship) and family members (to
show intimacy). Almost all well-known wine brands in
China claim that they were used to pay tribute to the
emperors before."
Emmanuel Harle, the research
manager at CTR Market Research, adds that apart from the
cultural habit of giving gifts within the company to
employees, and outside the business unit to family and
business associates, new product promotions such as "buy
two, get one free" also have been largely responsible
for promoting the gift-giving habit as well as FMCG
sales.
Understandably, wine is an important item
in the basket of FMCG goods identified by CTR as popular
business gifts. Also understandably, gifts, business and
otherwise, account for 25 percent of FMCG sales in urban
China. Clearly, if the rest of the world says "thank
you" and "I love you" with flowers and greeting cards,
the Chinese say it with FMCG as well.
And
therein lies an important marketing message for
manufacturers and traders wishing to sell in the world's
fastest-growing consumer market: "Don't say it with
flowers."
Jayanthi Iyengar is a senior
business journalist from India who writes on a range of
subjects for several publications in Asia, Britain and
the United States. She may be contacted atjayanthiiyengar1@hotmail.com.
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