A recent post highlighted the similar problems faced in China by Yum Brands, Unilever and Nestle. Add Proctor & Gamble to this list of giant foreign companies with long experience in the country that have nonetheless failed to grasp the evolving consumer economy there.
Speaking at an investor conference last week, P&G’s new CEO admitted (here, here and here) that the company missed the increasing sophistication of the Chinese consumer, especially the growing appetite for premium products. He attributed falling sales figures not to the economic slowdown in what is P&G’s second-largest market but to negative customer perceptions of the company’s offerings.
During a recent trip to China, the CEO related, a mother in her thirties told him that she didn’t even bother looking at P&G products because they were “old and outdated and not high-end enough.” He summed up the situation this way:
“We looked at China too much like a developing market as opposed to the most discerning market in the world.”
The CEO promises to turn things around quickly but some analysts believe this is a tall order since P&G has also failed to develop a strong online presence in a country where a massive migration to ecommerce portals is underway. As we noted earlier, this too is a lament shared by Yum and Unilever.
The Boston Consulting Group notes that the Chinese consumer market is being transformed by a number of factors, including: 1.) a new generation of freer-spending, sophisticated customers; and 2.) the increasingly powerful role of e-commerce. It estimates that e-commerce – and especially mobile commerce – will drive over 40 percent of total consumption growth through 2020. BCG advises:
Companies will need a new playbook to capture the coming wave of growth. The strategies of the past will no longer be relevant.
New data from UBS, the Swiss financial services company, underscores this point. It reports that online retail sales in China grew 33 percent in 2015, accounting for more than a tenth of total retail sales. Retail spending on mobile devices, so-called “m-commerce,” also increased by over 100 percent last year, continuing a trend seen since late 2013.
Analysis by David J. Karl, Geoskope’s Chief Knowledge Officer, and Victoria Hsieh, Geoskope’s Junior Associate for China.