CTR's 'China Brand Marketing Summit 2011' Presentation

1. Five things you must
do better than your
competition in FMCG
market
Jason YU, Kantar Worldpanel China

2. What happened in 2010?
Five things you must do better
Closing thoughts

3. Jan
Ch ina as by
uar
y fo
ec onomy 10. od
rtakes ear 3% fro price r
ove lier o
in J m a ye se
Japan anu ar
ary
China cities competing to
Wa
l-
to in mart m attract migrant workers
360 vest in oves amid labor shortage
buy
.com
Families in Macau are
facing infant milk
powder shortage

4. What happened in 2010?

5. New picture from 40K scanning urban panel
Top 4 cities (BJ, SH, GZ, CD)
A Cities (Provincial Capitals)
B Cities (Prefecture Cities)
C Cities (County-level Cities)
D Cities (Counties)
North 1 (Heilongjiang, Jilin, Liaoning)
North 2 (BJ,TJ, Heibei, Shandong, Shanxi)
East 1( SH, Jiangsu, Zhejiang)
East 2 (Anhui, Henan)
South 1 (Guangdong, Fujian)
South 2 (Hunan, Jiangxi, Hubei)
West 1 (Sichuan, Chongqing, Shan’xi)
West 2 (Yunan, Guizhou,Guangxi)

6. CPI picked up again throughout 2010…
8.7
5.1
Jul
Jul
Jul
Jul
Apr
Apr
Apr
Apr
Oct
Oct
Oct
Oct
'07Jan
'08Jan
'09Jan
'10Jan
Jan
Source: China Statistic Bureau

7. Consumers are seriously concerned
In the coming 6 months, do you expect inflation to
…Get worse
73% expected inflation continues
…Stay the same
17% expected inflation maintains
…Get better 10% expected inflation to be subdued
Source: Kantar Worldpanel Online Survey, based on 5,400 completions

8. Consumers are cautious about future income
In the coming 6 months, do you expect your household income to
…Worse off
6% expected income to drop
…Stay the same
60% expected income remain the same
…Better off 34% expected income to increase
Source: Kantar Worldpanel Online Survey, based on 5,400 completions

9. Overall market growth half price driven
China Urban FMCG China Urban FMCG
Spend Growth % Average price %
16%
10% 8%
5%
2009 Vs. 2010 Vs. 2009 Vs. 2010 Vs.
2008 2009 2008 2009
Source: Kantar Worldpanel China, National Urban key cities + ABC cities

10. Emerging categories or developed categories with
Premiumization trend are the growth spots
26
18 17
16
14
10
7
Total FMCG Beverage Culinary Dry Grocery Dairy Household Toiletry
products
Tea, Chewing gum, Household colorants,
Cheese,
functional & Spreads, crispy snacks, cleaning, mouthwash,
butter, UHT
soybean drink, curry, sesame biscuits,cereal, bleach, body wash,
milk, milk
RTD Tea oil, olive oil instant laundry liquid, eye care,
powder
wine,sprits, noodle, soup paper product deodrant
Source: Kantar Worldpanel China, National Urban key cities + ABC cities
value growth rate 2010 vs 2009

11. High Income families driving market growth, while
there was lack of growth from bottom end of market
High income group
(HH income > RMB 5000) +27%
(+19%)
Medium income group
(HH income RMB 3000‐4999)
+13%
(+11%)
Low income group +6%
(HH income < 3000 RMB)
(+3%)
Fonte: Kantar Worldpanel
Source: Kantar Worldpanel China, National Urban key cities + ABC cities
value growth rate 2010 vs 2009 (2009 vs. 2008)

12. The five things you must do better

13. 1. Be adaptive with your
strategy in each market
cluster in China

14. Purchasing powers varied substantially, but not
strictly along the line of administrative definition
Past 10 mth Top 4
A Cities B Cities C Cities D Cities
Spend per HH (RMB) Cities
East 1 7,082 6,155 4,449 4,683 3,770
East 2 ‐ 4,089 3,640 3,594 3,342
South1 5,327 4,575 3,939 3,505 3,211
South 2 ‐ 5,484 4,250 4,561 3,923
West 1 5,247 4,793 3,735 3,640 3,494
West 2 ‐ 4,110 3,809 3,785 3,329
North 1 ‐ 4,416 3,696 3,396 2,821
North 2 7,296 5,559 4,164 4,042 3,319
Legend <85 85‐95 95‐105 105‐115 >115
Source: Kantar Worldpanel China National Urban, 40 weeks of Dec 31st, 2010

15. Shopping behavior varies by those market clusters,
calling for tailored shopper marketing approach
70
65 East 1
Beijing
Shanghai
Basket spend (RMB)
60
Chengdu
South 1 South 2 Top 4 cities
55 A cities
West 2 C cities North 2
50 D cities B cities
East 2 Guangzhou
West 1
45
North 1
40
35
50 60 70 80 90 100 110 120 130
No. of Trips in past 10 months
Source: Kantar Worldpanel China National Urban, 40 weeks of Dec 31st, 2010

16. 2. Lower tier cities as your
next growth engine

17. Huge opportunity for food categories like Coffee, Biscuit,
Cereal to develop in low tier cities
Spend Share %
5.3
15.6 17.2 14.9 13.3 12.3 12 6.1
20.2
11.2 8.9
13.1 12.3 12.4 16.8 D Cities
12.6
14.1
27.4 C Cities
31.2 33.0 20.3
32.4 35.8 36.0 B Cities
36.0
27.2 A Cities
23.9 24.3
24.0 23.1 51.6 4 KEY
22.0
20.4
19.2 19.3 24.5
9.3 14.9 12.5 13.6
POP% FOOD MILK FLAVOR BISCUIT CEREALS COFFEE RTD COFFEE
POWDER POWDER
Source: Kantar Worldpanel China National Urban, 40 weeks of Dec 31st, 2010

18. Local players are more consistently penetrated, with
Wahaha noticeably defying the traditional pattern
100 KSF
COFCO
80 Coca Cola
Penetration %
Yili
60 PepsiCo
Mars
40 Kraft
20 Nestle
Bright
0 Wahaha
Top 4 A Cities B Cities C Cities D Cities
Cities
Source: Kantar Worldpanel China National Urban, 40 weeks of Dec 31st, 2010

19. D level cities – the fast growing hinterland
30.8 million households (a population of over 92 million)
If counted as a country, D level cities would be ranked 12th in
the world (larger than Germany)
A whopping 3.8 billion shopping occasions in a year
Consumers adapt quickly to emerging categories showing great
potential to upgrade their FMCG spending
And what would happen when they are offered modern store
format such as hypermarket?

20. 3. Modern trade entering
new phase of development–
are you helping retailers to
differentiate?

21. Top 5 banners only reached 10.4% (from 8.3%) share,
and 57.5% of urban shoppers
2.8%
2.4% 2.4% Combined
Retailer Share
share 3.7%
1.5%
1.3%
RT‐MART CARREFOUR WAL‐MART VANGUARD TRUST‐MART
Source: Kantar Worldpanel China National Urban, 40 weeks of Dec 31st, 2010

22. Different stage of modern trade development in
different market clusters – consolidation in key cities
calling for differentiation
70
Top 4 cities Guangzhou
60 City Tiers Chengdu
Beijing
Sub‐regions
50
South 1 Shanghai
40
Level of South 2 East 1
North 1 West 1
Consolidation 30 Top 4 Cities
A Cities
Top 5 Retailer
West 2 North B Cities
share of MR % 20 East2
C Cities
10 D Cities
0
30 35 40 45 50 55 60
Modern Trade Development
Hyper/super share of trade %
Source: Kantar Worldpanel China National Urban, 40 weeks of Dec 31st, 2010

23. Shoppers in the 7 most
developed cities are on
average only 28% loyal to
a top 5 retailer compared to
Average Penetration of Top 5 Retailer
Average Loyalty of Top 5 Retailer 42% in the UK
60.5
57.4
51.2 51.2 52.8
50.5
43.1
36.5 35.1
27.7 29
24.1
22 21.4
Beijing Guangzhou Shanghai Chengdu Nanjing Hangzhou Shenzhen
Source: Kantar Worldpanel China National Urban, 52 weeks to Sept 2010

24. 4. Embrace the $$$
opportunity of Internet
shopping

25. On November 11th, 2010
936 Mil. RMB in one day
10,000RMB per second
21 million people (shopped)

26. Internet shopping for FMCG in 2010
15% families shopped
346 RMB Spent Per HH
2.6 (average frequency)
133 RMB per transaction

27. Internet shopping share of trade in FMCG
National Key +A B Cities C Cities SH BJ GZ CD
Urban Cities
Total FMCG 0.9 0.9 0.8 0.9 1.7 1.1 0.7 0.6
Baby Diaper 6.7 10.4 4.5 1.9 25.3 13.7 2.3 7.4
Make Up 5.1 4.4 5.2 6.4 5 6.5 2.8 3.4
Facial
5.1 3.9 5.4 7 4.7 5.4 4.2 3.4
Moisturizer
Milk
Powder 4 5.8 2.6 3 15.1 7.8 4.5 3.1
(Incl. IMF)
Health
1.4 1.7 1.1 1.4 2.9 2.1 1.9 0.6
Supplement
Source: Kantar Worldpanel China – National Urban Panel, 2010, Value‐based

28. 5. Consumers have the
desire to trade up to
quality offer. Are you
prepared to ride the wave?

29. New generation feeds on imported milk powder
81%
International
Brands
Local Brands
19%
Source: Kantar Worldpanel China – Beijing Baby Panel, latest 52 weeks

30. Consumers are moving to affordable luxury, particularly
in beauty market
Cosmetic Price Tier Movement ( Spend %)
12.8
20 250+ RMB / UNIT
6.8
11.2 7.2 200‐249 RMB / UNIT
9.6
16.5
15 150‐199 RMB / UNIT
20.5 100‐149 RMB / UNIT
18.1
50‐99 RMB / UNIT
32.1 30.0
0‐49 RMB / UNIT
2009 2010
Source: Kantar Worldpanel China – National Urban Panel, 2010

31. Premiumisation trend more noticeable in some
categories beyond inflation
15 RMB/Kg +
15.2% ‐> 23.4%
Liquid Milk
160 RMB/Kg + 40 RMB/Kg +
27.5% ‐> 32.5% 36.0%
26.4% ‐>
Chocolate Biscuit
Source: Kantar Worldpanel China – National Urban Panel, 2010

32. In conclusion
Develop winning strategy for each market cluster
Embrace growth opportunities in lower tier cities
Help retailers differentiate as they enter next phase
Be ready with your e‐commerce strategy
Meet trading up needs with quality offer

33. Closing thoughts

34. 1. Penetration, penetration, penetration…
2. Change the rule of game
3. China is greying – be prepared
4. Bottom of pyramid – never ignore them
5. Be bold and experiment

35. 虞坚 Jason Yu
021-6170101
Jason.yu@ctrchina.cn
CTR项目执行遵循ISO20252标准
For more information,visit us at www.ctrchina.cn
CTR项目执行遵循ISO20252标准
For more information,visit us at www.ctrchina.cn

36. 洞察中国市场的专业品牌