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Like everything else in China, the fast-moving consumer goods sector is changing at warp speed—with huge rewards for brands that quickly adapt to the new rules. Bruno Lannes, a partner with Bain’s Consumer Products practice, discusses three of the major retail shifts and what brands need to do to prepare for these changes.
Read the Bain Brief: How Brands Can Get Ahead of China's Tectonic Shifts in Grocery Retail
Read the transcript below.
BRUNO LANNES: When we look at the FMCG sector in China today, we see three major tectonic shifts that are impacting the whole sector. The first one is consumer shift. The consumers are changing. They have access to multiple channels, multiple brands, multiple categories, and they are making choices that they have never made before.
The second shift is their own retail. Retail channels are changing. Some of them are growing very fast, like digital, or going well, like convenience stores. Others are declining, like the big-box retailers. We also see a big change in the way consumers are eating their meals. It's a lot more dining out or delivery that is winning against cooking at home.
The third shift is their own distribution. The way companies used to ship their products from their factories to their mom-and-pop shops around the country is old and antiquated. It has been based on multiple tiers of distributors, and that has to change as well. And so the way for brands to react to those shifts is very simple. They have to transform themselves radically around multiple dimensions.
First, they have to choose the categories where they can grow successfully, the high-speed categories, and progressively migrate their portfolio toward these high-growth categories. Second, they have to win with the winning channels. Convenience stores require on-the-go types of packages, and they have to adapt to that. The online channels require very specific consumer data to be successful and get the best return on the marketing investments, and the online investment that brands are making.
I talked about the restaurant channel. So many companies like Unilever and Fonterra have developed a food service division to go specifically after these restaurant channels. They need to continue to work with the big-box retailers because this is still a big channel for them, an important channel. But it's a declining channel. And so they need to adapt in particular the resources that they deploy in these channels so they get a big return on those investments as well.
On top of that, as I mentioned, the brands have to rethink and redeploy their distribution system. And there are now technology solutions out there that will allow them to do that. But the price to pay is, of course, to bypass the current distribution system that they have been building for the last 20 years.
And last but not least, given the slowdown in the FMCG sector, given the price pressure and the margin pressure that everybody is feeling today in China, brands also have to reduce their cost very systematically. So all in all, it's a big transformation agenda for these FMCG brands, and the only way they can do this successfully is to change their mindset, is to become a lot more entrepreneurial, develop a Founder's Mentality, and that's the only way they will be successful against the Chinese brands.
Read the Bain Brief: How Brands Can Get Ahead of China's Tectonic Shifts in Grocery Retail