Chinese products are excelling in niche markets

Cui Xiaohong used to be an engineer working for a lighting company in Foshan, Guangdong province. But in 2006, when she turned 33, she decided to swap her gray uniform for a more colorful world, and two years later founded the cosmetics brand Marie Dalgar.

Although global peers have penetrated deep into the Chinese market, in recent years this young cosmetics brand has seen annual revenue growth of 57 percent on average.

Every 15 seconds, it sells one stick of mascara, and its products were taken by French cosmetics retailer Sephora in 2017, through which Marie Dalgar reached global markets.

Explaining this quick growth, Cui said, "Advertisements are not effective in reaching consumers, but innovative products are, as they have helped our brand make direct and deep contact with our customers."

Jason Yu, managing director of global market research company Kantar Worldpanel, said Chinese goods have become the "new cool". The country's fast-moving consumer brands have been gaining market share from foreign competitors across most product categories in the domestic market for the past six years, he said.

Fast-moving consumer goods refer to relatively low-cost products that sell quickly. They include cosmetics, packed food, beverages, toiletries and grocery items.

Yu said, "Chinese brands, especially many dynamic young ones that we call 'insurgent brands', have seen great performances in niche markets due to high-quality products, healthy concepts and the individualized services they deliver."

A recent report by Kantar Worldpanel and global consultancy Bain & Co said that in 2017 Chinese fast-moving consumer goods brands realized 7.7 percent year-on-year growth in sales, but represented 98 percent of market share growth.

The report also studied 46 insurgent brands that performed best in 33 subcategories and whose annual revenue growth exceeded more than 10 percent from 2015 to 2017. Some 67 percent of these brands grew at least twice as fast as their category average, although half of them only had annual revenues of between 100 million yuan and 500 million yuan ($14.6 million and $74 million).

For example, oral care brand Saky took only about four years to rise from 14th to second place in the domestic toothbrush market.

On Nov 11, for the Singles Day shopping festival, the sales of Chinese snack brand Three Squirrels reached 682 million yuan, 41 percent more than the previous year. The brand, founded in 2012, has ranked first seven times in its subcategory for the festival.

Chinese consumers also no longer believe that foreign goods are superior, and consider that domestic brands are now often best at meeting their needs. Global financial service provider Credit Suisse's report, Emerging Consumer Survey 2018, said 91 percent of Chinese consumers ages 18 to 29 prefer local appliances to foreign ones.

Andy Zhao, president of Nielsen China, the global measurement and data analytics company, said the consumption patterns of Chinese consumers have gradually changed.

According to a Nielsen report, 48 percent of Chinese consumers will buy products that are cost-efficient; 39 percent will buy those that match their needs, whatever the brand is; and 36 percent will pay for those that "satisfy their personal hobbies and feelings".

Chen Ke, a senior partner with global consultancy Roland Berger, said one of the main reasons for the rise of fast-moving Chinese consumer goods brands is that they have met the needs in niche markets with precision, and have made many product and design innovations.

"China's fast-moving consumer goods market is multilayered, in which consumers in a range of regions, of different ages and with varying levels of disposable income have different preferences," he said. "If a brand wants to use the same standardized products and services to reach the entire Chinese market, this is impossible."

For example, in big cities, people with sufficient disposable income may opt for global brands with high quality and prices to demonstrate their social status.

But due to the slowing economy in recent years, many middle class consumers now might not have that much disposable income and are more careful with their money. For those who were born in the 1990s and afterward, personal products and leisure pursuits are popular, Chen said.

Zhang Yuan, a 33-year-old Beijing resident, said that after having her first baby two years ago, she was attracted by the "healthy concept" of PurCotton, a Chinese brand producing high-quality and comfortable household products. A small pack of PurCotton's tissues costs 23 yuan, while similar-sized paper tissues cost only a few yuan.

"With a new baby, I will buy household products that are safe and comfortable, even though the prices can be far higher," Zhang said.

Lan Fei, marketing center director at the Guangzhou Weimeizi Industrial Co, said it took just a few years for its brand SakyKids, which was established in 2012 and focuses on child oral care, to take the biggest market share in this category.

He said some 66 percent of Chinese children younger than 5 have dental problems, and young parents are paying increasing attention to their youngsters' oral care.

"Our products aim to make mothers feel safe and to offer fun to children, so that they will enjoy brushing their teeth," he said. "The toothpastes we design for children are edible, and come in various flavors that are popular with them."

SakyKids also makes toothbrushes that carry Disney images, he said.

Cui, the founder of Marie Dalgar, which targets people in their 20s, said the brand has been winning consumers "through continuous innovative products based on consumers' needs and novel activities that enhance interactions with customers". Moreover, Marie Dalgar is still cheaper than global brands.

"Understanding that consumers are always interested in novel things and are pursuing beauty and enjoyable experiences is key to us," Cui said. "As a result, we have been dedicated to pushing forward products and services to meet their expectations."

In 2015, Marie Dalgar launched lipstick vending machines nationwide. These offer consumers fun experiences, such as playing games, to buy lipsticks. Every day 400 to 500 consumers make purchases from these machines.

In 2017, the brand also teamed up with global fast-food franchise KFC for joint campaigns and advertising activities, which generated 1.4 million visits to Marie Dalgar's e-store on business-to-consumer online retail site Tmall, and 12 million yuan in sales.

Cui said, "The most competitive aspect for the brand lies in how to always keep up with young consumers, whose aesthetic standards, cultural and growth backgrounds are quite different from those of the older generation."

Chen, from Roland Berger, said Chinese brands' ability to quickly respond to changes in the market and their flexibility in decision-making also gives them a clear edge over many multinationals.

Zoe Chih, senior marketing director of beverage brand Weichuan Daily C, said that after facing stagnant sales in 2014, it had outpaced many competitors and achieved annual sales growth of 20 percent through a combination of innovative packaging and creative social media promotions.

"Weichuan Daily C has used the younger generation's language to encourage consumers to drink fresh pure juice and pursue happy, healthy lifestyles. This has attracted many new consumers," she said.

The brand had put "witty, encouraging and considerate phrases" on the labels of its juice, such as "Not a vegetable lover? Please drink some juice", and also promoted them on social media to encourage interaction with consumers, Chih said.

In the snack food category, Chinese brands have competed in launching new products to appeal to consumers. For the most recent Nov 11 Singles Day shopping festival, 11 types of new products from Three Squirrels saw sales revenue that exceeded 50 million yuan.

Zhang Liaoyuan, founder of the brand, said that this year it will ensure that all products that consumers buy from it have been made in the past 20 days.

Yu, from Kantar Worldpanel, said most insurgent brands, instead of spending a lot on establishing offline distribution relationships, mainly focus on high-traffic online platforms. They largely use a variety of nontraditional distribution and marketing channels to introduce their products, including social media platform WeChat and music video platform Douyin, known as TikTok outside of China. They have also made many innovations in marketing.

Saky's product placement in the TV show Gentlemen brought it huge sales success last year. As the leading man, played by actor Jin Dong, was a dentist, Saky became deeply connected with the show. Jin's clinic in the show was named the Saky Clinic, which provided the brand's products for characters to use. The popular show was broadcast both on TV and on video websites.

Lan, from Guangzhou Weimeizi Industrial, said: "The TV show offered audiences scenes in which Saky products were used. In the first week after it was aired, the brand's sales reached an amount that usually takes three to four months to make. Many people came to us and asked for the exact type of products that were used in the show, and many of these sold out quickly."

The fast-moving consumer goods sector remains highly promising, offering opportunities for both domestic and multinational brands.