China's Slippery Consumers

Local brands adapt faster to changing tastes.

Whatever happened to the great Chinese consumer?

It's a question executives at Marks & Spencer Group Plc are asking themselves as the British retailer moves to shutter its 10 stores in China.

The answer is that they're still around, but are shifting more toward domestic brands, and online.

A recent study of fast moving consumer-goods sales by Bain & Co. found that even as China's economic slowdown weighs on consumption, foreign firms are faring worse than home-grown ones.

International-brand sales in 26 categories from shampoo to beer shrank 1.4 percent last year. Sales of local brands, typically quicker to adapt to shifting tastes, rose 7.8 percent.

Home Advantage

While sales of consumer goods in China are slowing across the board, foreign brands are being hit hardest

Source: Bain & Co., Kantar Worldpanel

McDonald's Corp., scouting for a buyer for its China operations, and newly independent Yum China Holdings Inc. are hoping they can ride out these changing loyalties with partners that secure them a better presence in rapidly growing smaller cities. Some measure of localization, they hope, will help stave off their declining share of the country's fast-food market.

Sussing the Chinese palate isn't always enough, however.

McDonald's already sells taro pies, while Yum's KFC outlets retail Peking duck wraps. Any further diversification risks diluting those companies' core offerings too much. And going local isn't a sure thing, as Hershey Co. found after it purchased Shanghai Golden Monkey Food JSC Ltd.

Marks & Spencer's other mistake -- outside of none-too-trendy clothes and some bad store locations -- was a lack of basic understanding of the Chinese consumer. Many of their fashions didn't even fit local body shapes, for example.

The London-headquartered group joins a growing list of Western retailers, including supermarket chain Tesco Plc and Best Buy Co., that have tried to cater to China's mass market, and failed. Marks & Spencer's international ambitions will now be limited to franchises and profitable stores in Ireland, the Czech Republic and Hong Kong.

Banged Up Abroad

Marks & Spencer's international revenue has been falling

Source: Bloomberg

The retailer's departure also marks a bigger lesson for mid-tier foreign players seeking a piece of the China consumer pie.

An internet presence is crucial --  20 percent of China's retail is already online -- and without a local partner, companies will have a tough time getting inside the heads of the nation's aspirational middle class. Unless your proposition is unique, like Starbucks Corp. or the cosmetics of South Korea's Amorepacific Corp., it's an uphill battle.

For some of the world's biggest brands, the quest to win over China's consumer is getting a lot harder.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Nisha Gopalan in Hong Kong at

    To contact the editor responsible for this story:
    Katrina Nicholas at

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