|China’s fast FMCG market growth is a constant pattern for many years; between Q1 2012 and 2011 it still grew at 16% in value. What is changing is where this growth is coming from as lower tier C and D cities outpace the Key and A cities. This trend is especially strong on Cosmetics (Skincare and Make Up), where we saw the growth in county level cities and counties still above 20%, far stronger than key cities and provincial capital cities.
Basic needs and local brands successful, but lower tiers open to new trends
Typically lower tier cities are buying less and cheaper products than their Key and A city counterparts, for example the average number of units bought in Key city is 12.5, but this drops to 9.8 in D Cities (Counties). They are also more likely to buy products with more basic benefits such as Moisturising compared to Capital cities. A recent success story is Inoherb. The sales of this brand has grown twice as fast in B/C/D cities than in Capital cities through a combination of traditional, herbal brand image and focus on basic need products and masks.
Marketers should never underestimate the potential for more premium brands or international players. Lower cities can be very fast in catching up popular trends such as BB Cream where penetration has hit 4.5% of HHs (the same level as Capital cities).
Fake products are still a serious issue and a recent trip found numerous examples of international brands being copied. Shoppers need reassurance they are buying quality before spending more money on products. Perhaps the strong personal relationship and trust could be a driver behind the strong share of direct sale brands.
Specialist and Direct sales key distribution networks
There is a clear difference between Capital cities and lower tiers in where they purchase cosmetics products. For example in D city 25% of sales are through Specialist store, but this figure drops to less than 5% in 4 Key Cities.
Direct sale brands such as Avon. Mary Kay and Artistry are leading here- they all have double the penetration in D city than they do in Key+ City.
Internet shopping is strong in B and C City, but D City lags behind as shoppers are unsure of quality of products bought online. This is fastest growing channel and provides a clear opportunity for brands with weaker physical store distribution to build their base in lower tiers.