The new aspirations of China’s middle class (part 4 out of 4)
Faced with the rising position of China on the world stage and the success of high profile local companies such as Tencent, Alibaba or Xiaomi, the Chinese middle class expresses growing pride and trust in the leadership capabilities of its country in terms of economics and lifestyle, which translates into an increased interest for local brands. These are perceived as much more price competitive and often better distributed across the country than their Western counterparts, faster at taking positions (launching new products, opening points of sales in new places), efficient at adopting communication codes that appeal to the locals and also more and more often innovating. This is what makes the success of Herborist or Inoherb in the field of cosmetics, Haier or Midea in household equipment, BYD in automotive.
As a matter of fact, the middle class emerging in peripheral cities has been less exposed to foreign brands, usually concentrated in Tier 1 and Tier 2 cities, than the previous waves of rising middle class. It turns more naturally to local brands in its daily life, even in categories traditionally dominated by foreign players such as beauty products or sports goods.
This growing competition from local brands has become a major issue for international brands in China. Its impact is probably stronger than the slowing growth of GDP on which Western media tend to focus but which does not yet impact the propensity of consumers to get richer. Local brands eat up foreign brands market shares and develop an intimate relationship with consumers, a factor of lasting success. In front of this, the reaction of large international groups sometimes consists in acquiring these new competitors, like when L’Oréal purchased the Chinese leader of beauty masks Magic Holdings, or to develop alliances like Danone with Mengniu in the field of dairy products. But the key trend is there: local brands are progressively developing the attributes of genuine brands, Chinese consumers aspire to consume them and this is changing the rule of the game in the China market.
Article written by Christophe Jourdain, Ifop International Director.